FINANCES IN REAL TIMEd1qkyo3pi1c9bx.cloudfront.net/D7021408-671F-42FA-837E... · 2014. 5. 13. ·...
Transcript of FINANCES IN REAL TIMEd1qkyo3pi1c9bx.cloudfront.net/D7021408-671F-42FA-837E... · 2014. 5. 13. ·...
FINANCES IN REAL TIME.How To Implement Change
that Impacts
the Profitability Of Your Spa
Presented By
Monte Zwang
&
Mark Machlis
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A LITTLE ECONOMIC HISTORY…
1797–1800; Recession, 1800–1807; No Recession, 1807–1814; Recession, 1814–1819; No Recession, 1819–1824; Recession, 1824-1937; No Recession, 1837–1843; Recession, 1843–
1857; No Recession,,1857–1860; Recession, 1860–1873; No Recession, 1873–1879; Recession, 1860–1873; No Recession, 1873–1896; Recession, 1896– 1929; No Recession,1929-1939; Recession, 1939–1957; No Recession, 1957–1958; Recession,1958–1973; No
Recession, 1973–1975; Recession, 1975–1980; No Recession, 1980–1982; Recession, 1982–1990; No Recession 1990–1991; Recession,
1991–2001; No Recession.
2001–2003; Recession,
2003 – 2007; No Recession,
2007–present; Recession!
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WHAT HAPPENED?
The economy affected our Guests.
They booked less often.
They bought less retail.
We were viewed as optional unless we were
providing a preventive wellness oriented
service.
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ISN’T THIS HOW IT FEELS?
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But, Let’s Be Honest…
The Economy gave us a villain to
blame our financial woes on.
We really didn’t have a handle on
them before this crisis hit.
Did We?
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Financial Statements –the basics
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Financial Statements –the basics
Budget, Manage, Watch 6 Numbers
1. Labor Costs
2. Cost of Sales (Gross Profit
Margin)
3. Overhead Expenses
4. Net Profit
5. Debt Service
6. Breakeven Sales
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Direct Costs – Labor Costs
50¢ of every dollar goes
toward labor
What is your labor cost?
Evaluate your compensation
plan – it needs to be close to
42% of Service + Product Sales
Front Desk labor needs to be
less than 10% of Service +
Product Sales
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Fee Per Service Compensation
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Direct Costs
Costs that directly relate to and fluctuate with sales
Largest category of expenses on your income statement
Rubs and scrubs </= 10%-15% of Service Sales
Keep them under 60-70% of Service + Product Sales
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Gross Margin, Gross Profit Margin
Service + Product Sales – Direct Costs
First indication of whether you are making
money or not
Expressed as a percentage of Service + Product
Sales
Should be 30-40% of Service + Product Sales
Must be adequate to pay overhead and debt
service
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Overhead = Indirect Costs
Do not fluctuate with sales
Occur every month
Should not be more than 35% of Service + Product Sales
Examples
Rent, repairs and maintenance
Advertising & Promotion
Utilities, telephone, office supplies
Insurance
Admin salaries, payroll taxes
Professional fees
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YOUR LEASE & LANDLORD
The bubble has burst on commercial real estate.
Market rate when you signed you lease is not market rate today.
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Net Profit – Am I Profitable?
The Equation
Sales (money in) - Direct Costs (money out)
= Gross Profit
Gross Profit - Overhead Costs (money out)
= Net Profit
Net Profit - Debt Service (money out)
= Working Capital
(This is what you get to keep)
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PRE-EMPTIVE RE-NEGOTIATION
Debt Service -
Debt is… Accounts payable, notes, loans, credit
cards, leases, lines of credit, money you have loaned
your business
Evaluate debt separately from business operations
If you can’t afford it, don’t buy it
Any contract, lease, bank note, equipment lease and
credit card payment can be re-negotiated.
Should not be more than ½ of Net Profit
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Breakeven Sales
Minimum sales volume require (cash
collected) every month to cover all direct
costs, indirect costs and debt without
experiencing a financial loss
Discussed in terms of number of treatments
(services) required
No one is in the business to breakeven, we
are in business to exceed breakeven
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Breakeven Sales (cont.)
The lower your breakeven the longer you can
weather this climate
Overhead Expenses + Debt Service
÷ Gross Margin = Breakeven
Example
Overhead $11,000
Debt $1,750
Gross Margin 35%
Breakeven = $13,750 ÷ 35% or $36,429
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Breakeven is Vital
What does that mean in terms of services?
For $36,429 in Breakeven sales
85% Service: $30,964
If average service is $85, must do 364!
15% Retail: $5,464
Average retail sale must be $15.01 per service.
Plan to get there – starting today!
Gift Certificates – provide cash flow and marketing cushion
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The Pieces Of The Puzzle
Breakeven Sales = 100%
Direct Labor = 42%
Gross Margin
Total Direct Cost = 65%
Gross Margin = 35%
Overhead Expense = 30.2%
Net Profit = 4.8%
Debt Service = 2.4%
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TOUGH LOVE: THE DOLLAR HEART
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INVOLVE YOUR TEAM
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TIMELY REVIEWS
DAILY MEETINGS
Case Studies – Evaluate & Strategy
Four Scenarios of Change
High Labor Cost ?
Private label line?
Lower Overhead Cost?
Restructure Debt?
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Implementing Change
PLAN FOR CHANGE
NOW (REACT),
TOMORROW (QUICK PLAN),
END OF WEEK (SHORT TERM)
AND FUTURE (LONG RANGE).
Awareness, response, action.
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Finances In Real Time
Systems need to provide timely numbers.
Have a system to bring the 6 Numbers to
your attention in an accurate and timely
manner
You can’t wait for financial statements
Use each “Number” to paint a new scene.
Work the scene
Provide a weekly means of attending to
these numbers and then the process for
using the numbers to ACT…NOW
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Meet With Us At ISPA!
Monte Zwang
206.963.1017
Mark Machlis
801.860.7658
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