How to turn profit into cash

February 11, 2013 by

cash_machineOne of the great mysteries in business is why profit isn’t cash. Well, it’s not really a mystery – profit is more like an abstraction that requires further interpretation to fully understand its meaning. We can all agree that creating profit is a good thing and that negative profit (loss) is a bad thing. However, the mind games begin when there is profit but no money in the checking account. And why don’t you go out of business when your profit and loss statements keep showing negative profit? The answer is simple: profit isn’t cash. Hmmm … perhaps it is a mystery after all.

The most important fact to remember about profit is that it has no connection to how much cash is in the bank. For example, you ring up a sale that’s paid for with a gift card. Your Profit & Loss Statement shows the sale, but the cash from the gift card purchase may be long gone. If you enter an invoice for $5,000, your Profit & Loss Statement shows the sale and resulting net profit, but there isn’t any cash until the invoice is paid. When you make a loan payment, only the interest portion of the payment appears on your Profit & Loss Statement while the principle portion of the transaction occurs on the Balance Sheet. In this case, a portion of profit was used to pay principle. [Read more...]

Filed Under: Business Builders, Financial Literacy, Leadership, Monday Morning Wake-Up, No-Compromise Leadership, Profitability Tagged With: , , , , , ,

Six critical lessons for creating profit

October 8, 2012 by

Profit is a strange little beast. Leaders fight for it – and obsess over it – but profit doesn’t mean cash in the bank. It’s like profit is some sort of sick mind game where you can be profitable and broke at the same time. Even crazier is that profit can be negative for extended periods and you’re still in business. And the ultimate body blow is when you have to pay taxes profit even though there’s little or no cash. Clearly it’s better to show a profit than a loss, but wouldn’t it be nice if you could get some control over that little beast?

The good news is that you can control that little beast if you follow these six no-compromise lessons: [Read more...]

Filed Under: Business Builders, Financial Literacy, Leadership, Monday Morning Wake-Up, No-Compromise Leadership, Profitability Tagged With: , , , , , , ,

Six strategies to control cash flow

July 9, 2012 by

You can lead a company that delivers extraordinary customer service, generates impressive sales, and from all outward appearances appears wildly successful – but if your company is fighting cash flow, it’s functioning under extreme financial stress. Cash is the fuel of business. If the business is starved for cash and running on fumes, it is officially in survival mode and begging for relief. It is the toughest position for any leader to be in because it is often unclear and complicated which path to take to lead the company back to daylight and fiscal stability.

Fact: Cash is king – but you knew that. Cash gives a company power and options that cash-starved companies just don’t have. Cash is “sleep good at night money” because it creates a sense of security. Cash is truly precious. So, with all the upsides to building cash reserves, why do so many leaders focus on driving everything but cash flow?

Here are six strategies to control and build cash flow:

  1. Gotta have a cash-flow plan: You can analyze your Profit & Loss Statement and Balance Sheet all day long, but these reports – no matter how timely – are historical reports of what happened. Looking at these reports is like looking in the rear-view mirror to see where you’re going — when in reality all they can do is show what happened in the past. You need a cash-flow plan (a projection for revenues and budget for expenses) that looks forward month by month into the future. Without a cash-flow plan, you’re driving your company financially blind. If you don’t have a cash-flow plan, contact Strategies. We have a coaching program that builds your plan and teaches you how to use it.
  2. Gotta live your plan: All diets work. All fitness programs get you into shape. The secret is 100% commitment and discipline. If you don’t commit 100% to following and living your cash-flow plan, you’ve compromised your leadership and the financial wellbeing of your company. Most cash-flow problems are the result of the leader’s behavior and bad financial habits. Commit to changing your financial behavior and discover how quickly a company can emerge from the financial fiery pit of hell.
  3. Gotta share your numbers: I’ve been a long-time believer in sharing company numbers. Some leaders fear that sharing numbers will be detrimental to the company because employees may misuse or misinterpret what the numbers mean. Other leaders are against sharing numbers because there are certain “questionable” expenses they don’t want anyone to know about. (Perhaps that’s the reason the company is cash starved.) Fact: Sharing numbers is a learning process that takes time. You don’t just hand financials to everyone. You share numbers in stages supported by financial literacy training. People need to know where the numbers come from and what strategies move numbers in the right direction. Jack Stack, the originator of “open-book management” says, “With every pair of hands you get a free brain.” Get more brains focused on creating positive cash flow. No compromise.
  4. Gotta have financial scoreboards: Business is a game and you can’t play the business game without a scoreboard. Scoreboards tell the team if they’re winning or losing that month. On the 15th of the month, the scoreboard should say, “We’re at 50% – keep pushing.” Without a scoreboard, all the 15th of the month means is, “We’re halfway to we don’t know.” It’s not funny. It’s serious. Start scoreboarding and huddling every day.
  5. Gotta make tough decisions: The more critical your cash flow, the more difficult your financial decisions. In a worst-case scenario, owners may have to make adjustments to downsize their personal lifestyle. Don’t like that idea, then let any non-essential staff go. Don’t like that idea, then shut down the least profitable department in your company. Don’t like that idea, start cutting employee benefits. I think you’ve got the message.
  6. Gotta stop making excuses: Apple built a $100 billion cash reserve because its culture and leadership is disciplined to focus on what’s important and avoid distraction. Work on the gotta do’s and spend on the gotta haves. Avoid the nice to do’s and nice to haves. Entepreneurs are notorious for justifying just about anything. I know, I’m one of them. Stop making excuses or ignoring your cash-flow reality. No compromise.

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Filed Under: Financial Literacy, Monday Morning Wake-Up, No-Compromise Leadership, Profitability Tagged With: , , , , ,

Creating a foundation for salon and spa growth

May 3, 2012 by

You’d never open a salon without the proper tools — state-of-the-art scissors, top-of-the-line blow dryers and, of course, fabulous, effective products. Similarly, no one would try to run a spa without massage tables, pedi chairs and wonderful scrubs and lotions.

Unfortunately, many owners do try to run their salons and spas without the proper business tools needed to be profitable and successful.

Many salons and spas struggle with cash-flow and figuring out what’s coming in (and going out). Without a clear financial picture, it’s impossible to plan for steady growth, as expenses always pop up. Many owners (maybe even you) start using their personal credit cards to pay the bills — even to cover payroll. It’s impossible to build a strong business without a realistic cash-flow plan.

Numerous other owners and managers grapple with staff concerns, from hiring to pay design to performance evaluations. Some owners have leadership issues, uncertain how to translate their vision to their employees so that everyone is working toward the same goals. Proper communication is one of the first steps in building a successful business, yet it is one of the basics that many salon and spa owners believe they don’t have time for. A culture where employees want to do their best, stay and grow is one of the hallmarks of a thriving, profitable business.

Providing consistent customer service is also difficult for many businesses. As you know, customers expect more — just doing the minimum is no longer effective in today’s super-competitive environment. Surpassing customer expectations in every area of the business is a requirement to develop a loyal customer base that will recommend a salon or spa to their friends.

Do these challenges seem familiar? While perhaps not as glamorous as offering a great cut, a photo-worthy up-do or a creative manicure design, solid business practices are what every salon and spa need to be successful.

The path to addressing these issues starts with you — the leader. Start coordinating your game plan for change now. Now is a good time. And you can find the time to make it happen. The alternative action — putting it off again — will only leave you in a declining holding pattern. If you want change, do it now.

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Looking for the best place to start?

The Strategies Incubator is designed to jumpstart the business side of your salon/spa. In four intense, exciting days, you will learn the basics to grow a strong business, including financials, leadership, teamwork, communication, compensation, employee retention and customer loyalty.

Without a proper business foundation, a salon or spa cannot grow in a healthy way. It may appear to be doing well, but it’s no more stable than a castle built in the sand.

Start building your foundation for success at the Strategies Incubator, June 10-13. Find out more here.

Filed Under: Customer Loyalty, Financial Literacy, Information Flow, No-Compromise Leadership, Productivity, Profitability, Staff Retention, Teamwork Tagged With: , , , , , , , , , , ,

It’s getting personal: When salon & spa owners aren’t taking a paycheck

March 22, 2012 by

paycheckWhen the owner of a salon or spa isn’t taking a paycheck, it’s more than business; it’s personal. When you’re feeling stuck and your debt is out of control, it may seem as though all is lost — it’s not!

Need a little encouragement? Start here:

  • Take some time and reconnect with your passion for the beauty industry and think about what your long-term goals are for your company.
  • Realize that there is a path to achieving your dream. You can do it by holding yourself accountable to doing the work, developing a sense of urgency for tasks and renewing your commitment to your business. It may not be easy, but it is very possible.
  • Learn the tools that you need to build strength and structure in your salon or spa.

 Here’s a quick to-do list:

  1. Face your financial reality, including current debt. Use your Balance Sheet and Profit & Loss Statement. Be honest!
  2. Make a plan. This is your Cash Flow with projections for revenues and expenses. Look for areas where you can cut expenses and maximize revenues. Develop specifics for each area so that all players know what needs to be done and how to do it.
  3. Share the urgency. Help your team understand why changes need to be made and how they fit in.
  4. Celebrate small wins. It can be daunting to look at the “big number.” Set goals along the way and celebrate their achievement with your team. Keep it positive. Regroup when goals aren’t met, then set new goals. It’s a process.
  5. Get help. A professional coach can help hold you accountable to your goals and offer a “safe space” for discussing fears, realities and strategies.
  6. Believe in yourself. You can build an amazing, enduring company.

What steps are you taking to achieve a better financial future?

Filed Under: Compensation, Financial Literacy Tagged With: , , , , , , , , , , , , , , , ,