As salon owners, we must understand the importance of keeping accurate and timely reports. Such reports provide precise information that will help us make the important and necessary decisions needed to run our businesses efficiently.
It always amazes me the number of salon owners I meet that have no idea about the financial health of their business. As a result, these salons usually have a lifespan of no more than two to three years.
Small business accounting is as important to a business as gasoline is to a car. For your car to perform at an ideal rate, it must have gas. This analogy also applies to proper accounting records for both large and small salons. Without proper accounting, your business will seize to exist.
Most small businesses view accounting as a necessary evil at year-end when their tax returns and tax payments are due. As true as this may be, accounting also provides us with several reports that help us make smart decisions. How can you plan for future sales/services and future expenses for your business without the proper reports guiding your decisions?
Because most salons operate on a cash basis rather than on an accrual basis, the cash flow statement is one of the more valuable and relevant reports needed to make some short-term decisions. This is not to say the balance sheet and income statement are not equally as important, because they are, however, each statement has its own unique purpose.
The cash flow statement provides information about sources and use of cash. Sources of cash stem from your company’s operations whether sales or service; cash used to purchase assets, cash received from the sale of assets; cash received from loans or other financing as well as cash used to pay down loans or pay equity investors. As you can see, the cash flow statement helps you see how your cash is being spent and where your cash is coming from.
Because the barber and beauty industry is a heavily cashed based business, they are a target for state and IRS audits. Maintaining timely and accurate records will help your salon keep track of its expenses, which can result in a successful IRS audit.
The bottom line is that accounting is a necessary part of any successful business. Without it, your business is not sustainable.