Mr Lotinga says that a savings account acts as a kind of ‘cushion’ for when the salon owner gets a tax bill, a corporation tax bill or a personal tax bill, “These can be big bills and you’ll find an awful lot of money leaving your account at the same time,” says Lotinga. “If you don’t have the in-built cushion of a savings account, you’ll find yourself suddenly running out of money and rushing off to see your bank manager to get an extended overdraft just to cover you for that period,” he adds. Mr Lotinga goes on to explain that because tax bills tend to come just a few times a year, a lot of people think things are okay and let their costs get out of control, “ They don’t have a profit margin and don’t allow the cash reserves to build up.”
Lotinga recommends that a VAT-registered business owner deposits 33% of their turnover into a high-interest account. “I recommend 33% because 20% of your turnover should be your operating profit. That's what you should be aiming for with your salon,” he says. “And if you're VAT-registered, although the VAT is 20% the tax man does give you some of your money back offset against expenditure,”
“If you’re already in a cash crisis,” says Lotinga, “you need help with your budgeting for each of the main areas of your spending – your wages bill (including paying yourself), your stock, your rent and rates and your sundries (everything else it takes to run your business). It's a question of looking at your spending in detail, creating budgets for the different areas, and then sticking to those budgets. If you can do this, everything else then becomes easy.”
Drawing on his own experiences of helping business owners with their budgeting, Lotinga says that “the most common things tend to be over-spending on staff and way over-spending on the sundries,” he says. “We have to realise there are only 100 pence in every pound. By the time you’ve taken off your profit and the VAT – that’s the 33 pence in the pound we’re putting to one side – we have 67 left, and you need to run your whole business with that 67 pence in the pound. So, if you’re in a cash crisis now, you firstly need to plug the over-spends - identify them and do something about them.”
Mr Lotinga also advises business owners not to panic, “It's amazing how much emotional time and energy is wasted just worrying about a cash crisis... If you panic, you'll be wasting all your emotion and time on that, rather than focusing on finding a solution,” he warns. Mr Lotinga reassures business owners that there are some surprisingly easy things that can be done just to release the pressure.
To discover more about how to overcome a cash crisis, visit http://www.SimonLotingaConsulting.com
Simon Lotinga Consulting provide consulting services for salon owners seeking advice and guidance on how to survive and thrive in business.