Replies to This Discussion

Permalink Reply by Relax & Rejuvenate on October 21, 2013 at 1:23pm

You are trying to make decisions like your well funded (well funded is having 1 - 1.5 years of operating cash flow in the bank)

This is a fairy tale, and not a valid measure.  If you are marginally profitable, having 12x your minimal monthly profit is good enough reason hire an employee?

"Operating Cash Flow" is very high up the Sources/Uses of Cash hierarchy.  Basically, it is Net Income for most spas unless you own your space

your changes in inventory should be constant over course of the year, so that has little impact, so that leaves Depreciation as your only real cash flow adjustment to your net income number.  If you are leasing a space, any improvements/build out is depreciated over 30 years, not the life of your lease, so that is a small impact on your cash flow.  Equipment is all that is left to depreciate, and that is not much and it tends to be depreciated over at least 7 years, so the impact is also small.

Forget operating cash flow or cash on hand, etc.

This is an incremental decision, so just do the analysis on the increment.

You need to do a cost / benefit on the hire itself.  What is the projected income having someone other than you to answer the phone and what is the cost?

The cost is easy to figure, so then take a hard look of what you will need to generate to cover that cost.

• ▶ Reply

Permalink Reply by Marty Glenn on October 21, 2013 at 1:53pm

R & R.

Your comment on cost benefit is called the: Entrepreneur Trap (i.e. Do not empty the trash when you can pay someone minimum wage to do it!) New businesses do not work that way especially when they are under funded going in.

This is the worst advice I have EVER heard:  "Forget operating cash flow or cash on hand, etc." (Please see last two paragraphs as to why I would say such a thing)

Try explaining this to her when she cannot make payroll or instead of paying her payroll taxes and trust fund payment, she uses it to make current payroll, pay her rent or car payment.

Some of what you are talking about impacts the 'Tax Return' and does not compute to a business of her size or operating structure as she runs it daily. There is operations and daily cash needs then there is the business tax return. They are different...

Wait till her accountant tells her she has $1,500 in cash in liquid inventory and she says " What?  That is considered an asset - cash? "

Why I am saying what I am saying to Nicole....

I managed a two partner accounting firm for 3 years which did over 1000 personal returns and 300 corporate returns and the advice you just gave was not in her best interest.  I am shocked by your post.

What is even more funny, and I mean unbelievable, is this is exactly the advice that brought about a catastrophic business failure that has spawned a multi-million dollar lawsuit which I am the key witness because I was at the accounting firm when the advice was given and I was the only one questioning the staff accountant and the Jr. Partner as to why such advice was being given. The bigger laugh is the client is in the hair care care industry (Internationally known and has an 'A' client list from Hollywood) and it was the exact same question and advice:  Can I afford a manager for my new salon in Palm Springs?  And how much can I pay?  The Jr partner told her 40K and the salon was in trouble with payroll due to lack of cash flow within 90 days!!!

Marty

SkinCareScience.com

• ▶ Reply

Permalink Reply by Relax & Rejuvenate on October 21, 2013 at 3:35pm

Wow, Marty...I guess it is clear why you switched from accounting to skin care.

The "Entreprenuer Trap" example  you cite is ludicrous at best.  Where is the financial benefit in emptying the trash?  There is nothing but cost there, no financial benefit, so paying someone to empty the trash when you can do it yourself has an IRR of negative proportions.

Any spa has inventory to purchase, which they do every few weeks or months. Changes in inventory either increases or decreases your cash on hand as you pay for stuff or take in the sale before  you replace, long before it hits the tax returns.  Since you tend to order replacements, on average, your cash flow does not change a whole lot over the course of the year due to changes in inventory -- holiday volume being on the notable exception -- but then it helps your CF with all the GC sales to offset the extra inventory outlay.

A new business -- by definition -- is not going to have positive cash flow to the tune of a 1-1.5 years of it in the bank.  So by your measure, the business would never hire ANY employees. Not even technicians -- just do it all yourself until you have money in the bank. Good luck with that brilliant strategy for growth.

I find it hard to believe you were the voice of reason against some CPA, especially given the example you cited.  A $40K salary, 90 days into operations, is only $10k

if some internationally known hair care star goes belly up because of $10k spent in 90 days, I would bet my MBA and 7 years of Global 500 consulting experience the problems had very little to do with a $40K annual salary for a manager.

By your reasoning, this international hair care icon should have managed the Palm Springs location him/herself with in their spare time....

• ▶ Reply

Permalink Reply by Marty Glenn on October 21, 2013 at 4:26pm

R & R,

I hope others are enjoying this... :)

Here is the key phrase right here: I would bet my MBA and 7 years of Global 500 consulting experience

Your MBA and your Global Fortune 500 consulting experience - Global...? Are you referring to international business law or currency exchange rates when you say this? Foreign language and or Cultural differences?

That's great experience what ever it is. I would never say otherwise...

But your on a forum with skin care professionals who might live paycheck to paycheck and are having trouble finding a place to rent, afford an opening order or even just to graduate and get a $15.00 hour job to get the experience they need or desire. Most have not even performed a glycolic acid peel or even a TCA or Jessner or might even be confused on what the difference is. Some might need help creating a menu of services and outlining the products and protocols used to complete them and how about how to price them to their market so they are competitive.

This thread is about a person who just put her life into four walls and her entire savings and business checking on the line and your giving advice from your experience from (7 Years) Fortune 500 International consulting along with an MBA.

Sorry, I don't get that at all.

The 'Entrepreneur Trap' is where a new business owner opens a business under funded and then finds himself or herself doing jobs for the business that pay minimum wage thus rendering 'New Business Owner' a minimum wage employee of said business. Its a trap. She is in it and no way out other then to continue and keep cash where it needs to be: In the bank!

This is a forum not a place for MBA Business / Finance thesis arguments. And to that point, yes of course the hiring of the manager at 40K was a laundry list of bad advice. I started questioning things 12 months prior to that event and walked out 45 days after said event!

R & R - Log out then... Re-Register with First and Last Name / Website plus put a picture up! Sound good?

Marty

SkinCareScience.com

• ▶ Reply

Permalink Reply by Marty Glenn on October 21, 2013 at 1:02pm

Nicole,

Boy sometimes, tough crowd. :)

These are broad strokes but basic 101 business. Cash flow is king; run the business as lean as you can.

The ideas and words regarding 1099 vs Employee is obviously a great topic and even outside this industry is a big deal. My earlier post talked about one thing: Cash Flow

If Cash Flow is not an issue then hire the front end person and be done with it and call it an employee (which she would be anyway) but consider that , hourly or commissioned, does contain a 12 - 15% additional on top of every dollar paid.

It adds up and if you use what is called 'Trust Fund' money to operate your business and you do not pay it to the IRS on time and in full, you could be in trouble and a lot of it very quickly.  Talk to your accountant about it.

Lead by example and hire the right people from the start. Based on what I have read and seen so far on this board, I think you'll do just fine with this.

I will say it again: Run your new business very lean and divide your business life and personal life in twos and get the family and friends help for the personal life and for the next 6 - 9 months concentrate on your business and nothing else.

Recently you were either renting or employed at a salon, right?  I do not know your finances but if after you are completely done with 100% build out and operating supplies and you don't have 10 - 15K (I think that is low) your going to need every client and YOU will be for the first 12 months your best money maker. But if you have less then $2,500 in the bank then re think the employee issue.

1099 saves you much needed capital.  All businesses take time to grow and mature.  Yours will not be unique and pass this period of time. Your business needs you just as much as your family but right now your business is more important.  Talk to your family, friends and husband and stop feeling pulled!!!! Take care of your new business!

You asked..."SO, can you all give me some thoughts on the kind of person I need to be looking for?"

Go with #1 - Simple. Sweet. Cute. Friendly. High school Senior or college and do not expect a lot at first, help with the phone and appointment. Have you asked friends and or family to help?  Free facials for 3 hours of time?

Write down the daily job descriptions and list what can be done by you in the evening or on off days and keep control. Don't do things in the day when they can be done at night.  Have clear day work and night work and day off work.  Get a good answering machine and get your website to help.  You need computing power more now then human power and I get the 'personal touch' but you are under funded and this will cause the business and you problems just like it is now.

Marty

SkinCareScience.com

• ▶ Reply

Permalink Reply by Ashton Wiley on November 2, 2013 at 10:14am

Honestly my spa has no receptionist and has survived this very well. The owners, my mom and I, man the desk primarily if needed but all of our employees help out so we are all able to take many hours worth of clients but still maintain some time toward the desk.

They are all commission, but we don't feel bad asking them to do that. In this industry, knowing how to book appointments, talk on the phone and take payments is INVALUABLE! It is expected in most hair salons so why not in the spa industry too?

I think it has brought our employees closer to the business because they are able to see how much really goes into making it all run smoothly. And all of our clients LOVE that there is no random person they've never seen before training on the desk and making things run less effectively.

• ▶ Reply

• ‹ Previous
• 1
• 2
• 3
• Next ›
• Page