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

Monte@WellnessCapital.com

Mark Machlis

801.860.7658

Mark@WellnessCapital.com

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