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Controlling cash flow
In the June issue of HEAD For Business (the hot new business section within Creative HEAD magazine) illustrious Knightsbridge hairdresser Paul Edmonds' top line business advice was simple: "It is cash that will kill you." Here are our tips for ensuring your survival.
Cash flow is the lifeblood of small businesses. The hairdressing profession is lucky in that unlike many industries that have to wait for payment (an agreed time from the date of invoice, for example 30 days), payment is usually received immediately after you have delivered your service and before your customer can leave the premises.
But this doesn’t mean salon owners are not at risk – if you don’t ensure you have adequate cash flow, you risk having unpaid staff, lack of equipment and if things get really bad, the collapse of your reputation and business.
The goal of good cash flow management is to have enough cash on hand when you need it, whether from sales, collections of account receivables, and the sale of assets. Cash flows out to meet all expenses and debt obligations of the business. So long as more money seems to be coming into the business than going out, many salon owners do not give cash management a second thought.
But it’s crucial that you spend time analysing your cash flow and understanding eight steps to a healthier bank balance.
CASH FLOW CURES
1. Cash is your number one financial priority. Without it, even the best laid business plans will crumble. Keep cash at the front of your mind, and think about it every day.
2. Always know your bank balance – not how it was last week but how it is today. Actually ask yourself this question: "Do I know what my bank balance is today?" If the answer is no, you are not in control of your business. If you don’t know how your finances are, how can you make sensible, informed or accurate business decisions?
3. Consider your working capital as the basis for all financial decisions. Some salon owners manage from their monthly financial statements or bank balance and not from their working capital, which also takes into account money owed to them and money they owe. But this is the most critical financial information you need to control your business. It could make a huge difference to the decisions you make, and their outcomes.
4. Ensure you have cash flow forecasts one month, three months or even six months ahead. If you do this, you'll have a much firmer grip on the management of your business and will find it easier to answer any questions from investors or partners. It will also help you sleep at night!
5. Keep your cash under control. Being in control of your cash all the time gives you the confidence and freedom to focus on what you love doing – whether that’s cutting hair, building your team, entering competitions or growing your business.
6. BE ALERT – knock cash flow problems on the head before they cause problems. It is rare you’ll suddenly find that you’re out of cash, because the problems usually loom ahead. It's more likely you've just not taken the trouble to look for the early warning signs. Be sure that you do.
7. Get someone to help you – you probably don’t want to spend valuable time worrying about cash and cash flow management, never mind actually taking steps to control it. If this applies to you and you struggle to calculate your working capital accurately, and you can afford it, ask an expert to help!
8. Keep searching our Finance section for free, up-to-the minute financial information and guidance, or email Salon Smart Finance expert Jeremy Orriss
for free advice. That’s what we’re here for!
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