Everyone wants to look their best for summer. Weddings, garden parties, holidays, and proms all being the perfect occasions to get glammed up for. And for small beauty businesses, the height of summer is one of the busiest times of the year, with a large slice of their annual profits raked in during this short time. But how can hair and beauty salons best manage their cashflow over busy periods, while ensuring they have funds when a chill descends on the industry come autumn?
Small Is Beautiful – And Cash Is King for Salons
The hair and beauty industry is dominated by small firms – more than 93 per cent of the UK’s beauty salons employ fewer than ten members of staff. But these small salons are big business, and much of their estimated £7 billion annual turnover comes from the festive holidays, with a lot of cash going through the tills. Yet, a lot of SMEs need to borrow to cover the expenses of their peak trading period, such as hiring extra staff and extending insurance to cover them, or buying in more stock. And, now that the party season is in full swing, they want to retain liquidity to cover costs when business slows after the celebrations of summer.
Check The Forecast
When a salon is at its busiest, with chairs and treatment rooms occupied and appointment books full, it’s still important to maintain a cashflow forecast to predict what’s around the corner. Accountants advise business owners keep a 13-week rolling cashflow projection, clearly outlining all income and expenditure. This should reveal any potential financial shortfalls. Sketch out scenarios where bookings are far lower than expected, as well as calculations predicated on full order books. If salon owners undertake this exercise every week, factoring in actual revenue figures when they’re known, a picture will emerge of the business’s real financial position. Then, bosses can make any necessary adjustments, or plan ahead when and if money is looking scarce. Look at previous years’ trading figures for September and October, to get an idea of what the quieter period may look like, then you can make provision in advance for the leaner times.
When Cash Runs Short
Beauty businesses are fortunate in having limited exposure to the threat of late payment, since customers tend to pay on the day they have a treatment or haircut. But while unpaid invoices aren’t a big issue for salons, these businesses need to account for their own payments due to suppliers – product and equipment manufacturers and wholesalers, for example. This should form a part of any cashflow forecast, and it is wise – as well as courteous – to let suppliers know early if you’re going to have problems paying bills.
If the summer’s riches have dwindled come September, you may seek a bridging loan until trade picks up. A common problem for beauty firms is that traditional lenders typically want to secure borrowing against property or assets. Most salon bosses lease premises on a short-term agreement, while other beauticians and hairdressers are mobile with no shopfront at all, both of which situations puts the business owner at a distinct disadvantage. Even if you do own your salon and can arrange a secured loan via your bank, these often don’t take into account the ongoing cashflow performance of the business, so the premises can be at risk if repayments aren’t met.
Unsecured business loans, such as those Boost Capital offers, typically do take cashflow into consideration, plus they are flexible and can be arranged quickly, which can be a great help to a business in need. Other forms of alternative finance, such as peer-to-peer loans or asset-based lending could also be a possibility. And many business owners still opt for the old-fashioned approach, turning to friends and family for a cash extension, though it is sensible to agree terms of repayment even with informal arrangements.
In essence, being organised, scrupulous in your analysis of your takings, and planning ahead should put your salon in a strong position to succeed in the months ahead. So, embrace the summer spirit, keep the tills ringing, and you should enjoy a prosperous rest of the year.