Business Blog 25 September: Accounting Basics for Managing your Salon – What’s Most Important?

If there is ever a scary part of running a business, it’s the subject of accounting. Bookkeepers and accounts understand your business in a completely different way to you with the book value of your salon’s success summarised in a set of figures that only make sense to them and SARS and very little sense to the owner of the business.

In my experience people seem to have difficulty distinguishing between turnover, cash flow and profit.

Turnover & How to Calculate

Turnover, in the accounting sense, is the total sales both for services and retail made between any period of time such as a week, a month or a year.

All sales made in South Africa are subject to a 15% tax we know as VAT. (value added tax). This tax is included in your gross turnover and does not belong to you so, to calculate your actual net turnover, divide your gross turnover by 115 and multiply by 100.

Unfortunately, your net turnover also doesn’t all belong to you because you need to deduct all the daily and monthly costs of running your business. Only the money left after you have covered these costs can be considered profit.

It is very useful to know beforehand how much it costs you to run your business – this is actually your break-even points. Only once you have reached that break-even point do you start working for profit.

Cash-Flow

Cash-flow is the exercise of managing your ability to have money available in your bank account to be able to pay your accounts as they become due during the month.

Which is more important? You decide.

If your sales are low, you can always promote, promote, promote.

If your costs are too high, you can always cut back.

However, if you are not able to pay your bills on time, your whole credibility is at risk.

A no-brainer really!

– Terry Miles, MD MySalon Software