How a P&L statement handles your beauty salon finances

What is a P&L report?

Business in the beauty industry requires not only the provision of quality services but also competent financial management. A necessary tool for achieving this goal is the profit and loss statement (P&L), which breaks down into profit (P) and loss (L).

The report plays a vital role in a beauty salon's financial management: it provides owners and managers with structured information about income, expenses, and overall salon profitability.

The importance of using a P&L cannot be overstated. In the highly competitive beauty industry, understanding your business's financial health is crucial for making informed decisions, optimizing costs, and launching revenue-boosting campaigns. A P&L allows salon owners to pinpoint the most expensive costs and the most popular services or products. Knowledge is power, driving company growth.

The article below explains the P&L components, how to analyze finances using salon software, and how to use this data for proper decisions.

P&L Components

This adaptable report, designed to suit companies of all sizes, equips you to analyze business results, evaluate employees, and prepare future strategies. It can be customized to include relevant information based on your company's unique operations and objectives.

Main P&L metrics:

• Revenue. All funds are generated from services and sales of goods in the beauty salon, such as haircuts, coloring, manicures, cosmetics sales, etc, and gift certificates.

• Expenses. All costs associated with running the business, including salaries to employees and the cost of materials. Expenses can be grouped by item for convenience. Also, taxes provided by law are considered in the expenses section.

• Profit or loss. The difference between income and expenses for the reporting period.

Additional metrics:

• Comparison with similar periods. It is convenient to upload the income statement for a similar period to the previous year and compare the income and expense results.

• Planned value. Often, the P&L contains a column with the planned value by expense and revenue line item. This is useful for evaluating the business and understanding how accurately you can think strategically and assess all risks and opportunities.

How to prepare a P&L for a beauty salon

To create a P&L statement, you need to gather and organize all financial data for the specified reporting period.

Manual methods, such as notes or Google Sheets, can be used but often require significant time and effort. In contrast, financial planning software allows you to efficiently manage the salon's finances, saving time and ensuring accuracy.

In summary, manual financial accounting is suitable only at the initial stage and for those who work alone as a sole proprietor. Since the beauty salon is often a team, it is worth automating all processes.

Connecting the salon software

Automating the P&L process with salon software is a reliable choice. These systems are cost-effective and highly functional, managing appointments and staff schedules. The financial module of salon software reliably collects and analyzes all salon activity metrics, ensuring you can trust the generated financial report.

Salon management with P&L

Once you've integrated the business software and can generate a profit and loss statement, how does this specifically aid in managing a beauty salon?

Strategic planning

Data from the P&L report aids in planning future investments and salon development. For instance, you can identify the most profitable services. This insight allows you to train more employees to provide this service, offer gift certificates, and even add another room to serve multiple clients simultaneously.

Cost optimization

Analyzing costs can help you identify unnecessary expenses and reduce them. For example, you can switch to using materials with a lower purchase price.

Increase revenue

Analyzing the number of bookings and payments can help you develop strategies to increase revenue. For example, you can introduce new services or run promotional events to attract customers. Selling gift certificates is another option to increase salon revenue quickly.

Case studies: how to use P&L in a salon

Using a profit and loss statement helps beauty salons effectively manage their finances and make informed business decisions. Let's look at a few practical examples of how to use P&L.

Case 1 – barbershop management

A tiny barbershop needed to improve its profitability despite a regular flow of customers. The owners conducted a detailed analysis of their finances using a P&L.

The financial statement detailed the revenues from various services: hair cutting, beard cutting, hair coloring, and sales of grooming cosmetics. The analysis revealed that rental and consumables costs accounted for a significant portion of the expenses. It also showed that some services could have been more profitable due to high material costs.

As a result, the owners renegotiated the lease terms and were able to negotiate lower rents. The second step was to select new material suppliers, which reduced costs. Additionally, the salon management introduced two new VIP services and launched the sale of premium cosmetics.

Case 2 – running a beauty salon

A beauty salon wanted to expand its customer base and improve its financial performance. To this end, it decided to use the salon profit and loss statement to analyze the current situation: to study the number of bookings, the amount of payments for them, and the costs for each service.

The report showed revenue from regular clients and one-off visitors. The salon had a meager average check and a high cost of services. In addition to analyzing the revenue, the owner uploaded a report on the source of records through the beauty salon software. The analysis showed that a significant portion of the budget was spent on ineffective marketing campaigns that needed to bring in service appointments.

To remedy the situation, the salon focused on the most impactful booking sources and updated the promotion strategy. In addition, discounts on related services were added to increase the average check. Now, when booking a manicure, a client can book a pedicure at a discount, and any booking for coloring gives a discount on haircuts and styling. Additionally, staff training costs have been optimized, improving service quality without significant costs.

Case 3 – managing a chain of hairdressing studios

A chain of hair salons used P&L reports to analyze each branch's performance. The analysis showed that some branches needed to be more profitable due to high operating costs and low traffic.

Management decided to close the less profitable branches and focus resources on the most successful salons. Also, they developed a centralized marketing strategy, which reduced advertising costs and increased the effectiveness of campaigns.

These examples demonstrate how a profit and loss statement helps beauty salons make informed decisions, optimize costs, and increase revenues. Implement this tool in your business to achieve similar successes.

Conclusion

A P&L statement is a simple but essential tool for managing a beauty salon. It helps owners and managers understand the business's financial state, identify problem areas, and make informed decisions to improve the salon's work or a whole chain of establishments. The P&L lets you know how much each service brings in and estimates turnover and costs for the period.

Use the P&L statement for strategic planning, cost optimization, and revenue growth to unlock your salon's full potential. Connecting EasyWeek booking software lets you automate your salon's analytics, paving the way for even more success.