You wouldn't intentionally set your esthetics business up for failure, right? Yet, if you're not keeping track of your finances and crafting a solid budget, that's exactly the risk you're taking. Financial mismanagement and poor accounting are common reasons why many small businesses don't survive beyond five years.
Discussing budgets can be daunting—we understand. Many business owners find it easier to brainstorm innovative ideas and execute tasks than to delve into financial details. However, achieving steady growth and financial stability requires mastering the flow of money in and out of your business.
Not a fan of numbers? That's perfectly fine. Just follow these straightforward steps to create a budget for your esthetics business and manage your finances confidently. We'll even provide a link to a user-friendly small business budget tool to get you started.
But before we get to that, let’s unpack what a budget is and why you need one
What is a budget?
A business budget is a strategic plan detailing how you'll allocate the funds your esthetics business generates each month, quarter, and year. Think of it as looking through a windshield, anticipating your expenses, revenue, and profits ahead. Your budget guides you on utilizing business profits, determining when and where to reduce spending, increasing revenue, and investing in growth opportunities.
How to Create a Budget for Your Esthetics Business
Creating an Aesthetics Budget is crucial for sustained growth and financial stability. While it may seem daunting at first, breaking it down into manageable steps can simplify the process. Here's how to create a 12-month budget, using Excel for easy tracking and management.
Step 1: Set Up Your Spreadsheet
Start by opening Excel and setting up your spreadsheet. Label the columns at the top with the months from January through December. On the left side, list all the categories you'll need to track.
Step 2: List Your Income Categories
Begin by writing down all your income sources. This might include:
- Service Sales: Revenue from services such as facials, lash extensions, and other treatments.
- Product Sales: Income from selling skincare products, makeup, and other retail items.
- Other Income: Any additional sources of revenue, like special events or workshops.
Step 3: Calculate the Cost of Goods Sold (COGS)
(Different then your retail goods) The cost of goods sold refers to the direct costs of producing your services. Include any materials directly related to your services. This helps you understand how much it costs to deliver each service and maintain a healthy profit margin.
Step 4: Calculate Your Retail Backbar Expenditures
Accurately tracking how much you spend on retail products is essential for maintaining profitability. Each month, total up the costs of the retail products you purchased to sell to clients. Ideally, your retail spending should be balanced by your sales revenue. For instance, if you spent $300 on retail products, you should aim to earn $600 from those sales, assuming a 50% markup.
Step 5 List Your Expense Categories
It's surprising how much money can slip through the cracks if you're not diligent about tracking your expenses. Think through all your business expenses, down to the smallest details. Common expense categories include:
- Payroll: Wages for yourself and any employees.
- Rent: Costs for your spa or studio space.
- Utilities: Electricity, water, internet, and other essential services.
- Insurance: Coverage for your business and liability.
- Office Supplies and Equipment: Everything from paper and pens to treatment beds and chairs.
- Marketing: Costs for advertising, promotions, and social media management.
- Technology Services: Software subscriptions, website hosting, and other tech needs.
- Training and Education: Continuing education courses, certifications, and workshops.
Step 5: Fill In Your Numbers
With your revenue and expense categories in place, it's time to plug in your numbers. Use actual data from past performance if available.
Step 5: Calculate Your Expected Profit (or Loss)
Whether you love numbers or not, it's time to do some basic accounting to see if your business is making a profit or running at a loss. Here’s how to figure it out:
1. Find Your Gross Revenue: This is the total amount of money you expect to make this month. Add up all your income from services, product sales, and any other sources.
2. Subtract Your Expenses: Add up all your business expenses, including payroll, rent, utilities, marketing, etc.
3. **Subtract Your Cost of Goods Sold (COGS) and Retail Back Bar. Calculate the total cost of materials and products you used to deliver your services and sell retail items.
4. Calculate Profit or Loss: Use this simple formula:
REVENUE-EXPENSES-COST OF GOOD/RETAIL= profit/loss
If your first budget shows a loss, don’t worry! It’s common to see a loss in your initial budgets. This process helps you understand where your money is going and where you can make adjustments. Keep tracking your budget each month, and you’ll soon become skilled at managing your finances effectively.
Final Thoughts
Your first budget might not be perfect, but it will provide a foundation for understanding your business finances. As you track your performance month over month, you'll gain insights into where you can cut costs, where to invest for growth, and how to maximize your profits. Remember, a budget is a living document that evolves with your business.
By taking the time to create and maintain a budget, you're setting your esthetics business up for success. As leadership expert John Maxwell says, “A budget is telling your money where to go instead of wondering where it went.” Use these steps to gain control over your finances and pave the way for a prosperous future.
Maintaining Your Budget
Now that you’ve learned how to create a budget, it’s crucial to review and update it regularly. Here’s what you need to do:
1. Weekly Check-ins: Set aside time each week to review your budget. Look at your income and expenses, and ensure you’re on track to meet your goals.
2. Adjust as Needed: If you’re not hitting your targets, identify the areas where you can make changes. Can you cut back on certain expenses? Can you increase your marketing efforts to boost revenue?
3. Track Progress: Keep an eye on your progress month over month. Are your adjustments helping? Are there new trends or patterns in your business finances that you need to address?
4. Stay Flexible: Your budget is a living document. Be prepared to make changes as your business grows and evolves.
By consistently reviewing and adjusting your budget, you’ll gain better control over your finances and set your esthetics business up for long-term success. Remember, a budget is not just a tool for managing money; it's a roadmap to achieving your business goals.
With dedication and regular maintenance, you’ll soon find yourself confidently navigating the financial landscape of your business, ensuring growth and profitability.
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