Running a salon is a dream come true for many entrepreneurs. You get to follow your passion, be your own boss, and make a decent income.
However, you have to spend money to make money. And that’s where being a business owner starts to get real. It’s on you to crunch the numbers and draft expense budgets.
Do you find it challenging to manage your salon’s expenses? You are not alone. A report by Alignable shows that a shocking 49% of beauty salons failed to make full rent for April 2024.
We get it. Managing business expenses can be tedious and overwhelming. It’s incredibly challenging for small business owners with little (if any) background or experience in business finance.
This article is a comprehensive guide to managing monthly expenses for a hair salon. Read on and learn:
- The importance of tracking your hair salon’s monthly expenses
- How to break down salon expenses
- The typical hair salon expenses you must consider
- Six proven strategies for managing and cutting your business expenses
- How to prepare financially for the unexpected
Let’s dive in.
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The Significance of Tracking Monthly Expenses
Why must you track your salon’s expenses in the first place? Shouldn’t you be busy running the business instead of doing mundane clerical work?
Granted, accounting may not seem like fun, but it’s essential to your salon’s success. Business success comes down to the numbers. Expense figures form a big part of your business’s financial health, profitability, growth, and sustainability.
More specifically, here’s why you need to track your hair salon’s expenses:
Understand Your Salon’s Cash Flow
Cash flow refers to the money flowing in and out of your business. You want that cash flow to be positive—more cash in, less cash out. That’s how a company turns a profit.
However, maintaining a positive cash flow is quite challenging. In fact, poor cash flow management is the main reason why many small businesses fail.
The problem is that many small entrepreneurs focus only on the “income” part of cash flow. Tracking revenue alone gives you a false sense of financial security. You blind yourself by ignoring or avoiding dealing with expenses.
Getting a handle on cash flow begins with understanding the “cash out” side of the equation. Find out where and how your salon spends its money. Expense tracking helps to paint a clear picture of your cash flow and overall financial health.
Spend More Responsibly
By comparing the expenditure to the income, you can tell whether your business is spending too much.
In other words, understanding your salon’s monthly expenses makes you more financially aware. You can use that knowledge to improve your spending habits.
For instance, you can quickly identify and cut unnecessary expenses. You’ll also be able to make well-informed budgeting decisions with cost savings in mind.
You might be surprised to learn just how much cash your salon burns on non-value expenses.
Save Money During Tax Season
The IRS frankly doesn’t care if you track your expenses or not. Tax is generally calculated based on income. What you owe in taxes depends on how much you earn.
Still, expense reports come in handy during the tax season.
Under Section 162 of the Internal Revenue Code (IRC), business expenses are tax deductible. Costs or expenses related to the business should be subtracted from the gross income. Doing so reduces your taxable income, so you pay less tax.
Business expenses must be both “ordinary” and “necessary” to qualify as tax deductible. This means the expenses must be common or helpful in the beauty trade.
Here are some examples of deductible hair salon expenses:
- Rental payments
- Business loan interest and fees
- Wages and other labor expenses
- Telephone, internet, and utility bills
- Business insurance premiums
- Salon supplies
- Equipment purchases and maintenance costs
- Education and training expenses (costs for beauty-related courses, seminars, books, etc.)
- Advertising and promotion costs
- Customer/employee entertainment costs
- Charitable contributions
- Business meals and meetings
- Business-related gifts
It’s your job to list and present all your “ordinary” and “necessary” business expenses for tax deductions. Carefully tracking your expenses could mean huge savings in tax write-offs and refunds.
Keep Employees Happy
Having employees is yet another good reason to keep a close eye on business expenditures.
Your employees will sometimes spend money on the business. They may travel to meet a client, go to lunch, pay for supplies, etc.
You must keep track of such spending. That way, you can promptly reimburse your team for any out-of-pocket expenses. Don’t let your employees get frustrated over delayed reimbursements.
Another way to keep employees happy is by making sure bills are paid on time. With a firm handle on expenses, you can reliably keep the lights on and pay due wages.
Raise Profit Margins
Tracking business spending involves more than simply recording expenses. Understanding your expenditures should reveal opportunities to cut costs and maximize profits.
We’ve already discussed how expense tracking makes you a more cautious spender and cuts taxes. It also helps you measure and optimize your salon’s profitability.
Comparing your expenses and revenue gives actionable insights into your business performance. You can then apply those insights to various aspects of the business to improve the bottom line. It becomes easier to make critical business decisions such as:
- Adjusting service prices to widen profit margins
- Downsizing the team to cut unnecessary labor costs
- Moving to a more renter-friendly location
- Switching to more affordable suppliers and service providers
- Taking out business loans
- Planning business expansions or renovations
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Fixed vs. Variable Salon Expenses
Business expenses fall into two categories: fixed expenses and variable expenses. Each type of expense is handled differently during budgeting.
What Are Fixed Expenses?
Fixed business expenses remain constant month after month. They are also paid in regular intervals—weekly, bi-weekly, or monthly.
Rent is a good example of a fixed business expense. You probably pay the same amount in rent every month on a specific date.
“Predictable” is a more fitting word to describe fixed expenses. This is because not all fixed expenses are set in stone. Some do occasionally change.
For example, your landlord may decide to increase your rent or adjust the payment dates. But again, that wouldn’t happen every month. So, you can reasonably predict your monthly rent even when it changes.
Budgeting for fixed expenses is pretty straightforward. You simply total up the monthly costs and arrive at a final figure. It’s also easier to plan payments since each expense has a known due date.
What Are Variable Expenses?
These are expenses that vary from month to month. Some variable expenses are recurring, while others are one-off. But even recurring variable costs may vary in amount and frequency at any given month.
Let’s take supply costs, for example. That’s a common variable expense in the salon business.
What you pay for salon supplies in one month may not be the same as the previous months. Think of all the factors that can influence the cost of supplies, including:
- Fluctuations in the prices of beauty products
- The kind of services clients request
- Overall job volume
- Miscellaneous factors, such as supply issues
In short, variable expenses are unpredictable, making it difficult to include them in a budget. The best you can do is log the expenses as you go. But with time, you should have a ballpark figure of your average variable expenditure.
When creating a budget for your hair salon, it’s essential to differentiate between fixed and variable expenses. This differentiation will help you understand fluctuations in monthly budgets, allocate funds more efficiently, and avoid financial surprises.
Common Monthly Expenses for a Hair Salon
So, what’s the total cost of running a hair salon business?
Well, business expenditure varies widely between salons. It’s nearly impossible for two salons to have the exact same overheads. The total cost will depend on the salon’s size, location, staff, and business model.
However, most small and medium-sized hair salons share these 10 monthly expenses:
Rent
Rent is likely to be your biggest fixed business expense. On Average, renting a salon suite can cost anywhere between $125 and $800 per week. Rental rates depend on a variety of factors, hence the wide range of costs.
How much you pay in rent will depend on the following factors:
- Location
- The space’s square footage
- Quality and characteristics of the property
- Foot traffic
- Lease term
- Demand for commercial rental space in the area
- The potential for development or renovation
- Your credit score
A large rental space in a trendy area will obviously cost more than a smaller space in a modest neighborhood.
A hair salon’s success relies heavily on its location. Do not compromise your salon’s potential by cheaping out on rent. A prime and strategic location may be well worth the higher rental costs.
Beauty Supplies
You may have to replenish your salon supplies monthly. Supplies, in this case, are any consumable products—your shampoos, conditioners, waxes, hair dyes, etc.
Snacks, drinking water, beverages, and stationery, too, count as salon supplies.
Salon supplies are a recurring variable expense. The total cost will depend on your job volume and the services you offer. For instance, if you dye a lot, you’ll spend more on hair dye.
You also have some freedom when it comes to salon supplies. Specifically, you can choose the range, type, and brand of products to stock.
Payroll
If you have a few hair stylists working in your salon, payroll will be a considerable monthly expense. The average salary of a hair stylist in the US is around $23.00 per hour. Depending on your job flow and number of employees, monthly labor costs could amount to thousands of dollars.
Alternatively, you can pay your staff in commission. A 30-40% commission is generous pay for a job well done.
Paying in commission adds some complexity to payroll. You have to do the math after every job, log the commission, and total everything up at the end of the month. It also turns payroll into a variable expense.
On the plus side, commission payment is unquestionably fair to both the worker and the business. Plus, commissions motivate employees to not only work harder but also bring in new customers.
Whether you have employees or not, remember to pay yourself. Your salary is also part of the payroll.
FROM ONE OF OUR PARTNERS: Salon Salaries: 4 Payment Structures for Your Staff
Utilities
Common utilities like water, heating and air conditioning, electricity, and Wi-Fi are billed monthly.
Most business utilities are recurring variable expenses, while some are fixed. Your power bill, for example, will depend on your energy usage throughout the month. Meanwhile, you may pay a fixed monthly fee for some utilities, such as internet and garbage collection.
Since utilities are so diverse, each expense must be handled separately.
Cleaning
A salon is a place of beauty. It must be kept spotless and tidy to impress customers and make work easier. You may have to pay someone to keep your salon squeaky clean by:
- Sweeping hair off the floor
- Polishing mirrors
- Scrubbing the sinks and toilet
- Wiping countertops and floors
- Vacuuming rugs
- Washing towels, aprons, seat covers, capes, etc.
Your cleaning costs will vary with the salon’s workload and foot traffic. The more clients you have, the more cleaning you’ll have to do.
Business Permits and Licenses
All hair salons are required to have various permits and licenses to operate. These requirements and the associated costs vary between states.
Salon permits and license expenses generally include:
- Cosmetologist or professional license: Each state has its own set of cosmetologist requirements, such as fees, training, and exam certificates.
- Salon business operation license: Salon business licenses typically cost between $50 and a few hundred dollars annually.
- Seller’s permit: This permit allows you to sell salon products such as shampoo, hair color, and extensions.
Most business permits and licenses are renewed annually. For annual expenses, simply divide the total cost by 12 to get the monthly rate.
Service Subscriptions
Service subscriptions amount to significant monthly expenses. Here are some typical salon subscriptions and service fees you might want to include in your budget:
- Credit card processing fees
- Payment and transaction costs
- TV and streaming subscriptions
- Salon management software fees
- Magazine subscriptions
- Music licensing fees
Advertising and Marketing
How much do you spend on promoting and advertising your salon business?
Small service-based businesses spend, on average, 11.8% of their revenue on marketing. But the actual spending depends on the scale of your campaigns. Plus, some marketing strategies cost more than others.
It’s crucial to nail down your monthly marketing budget. That way, you can calculate your marketing ROI month after month. It will also help you identify and prioritize the marketing efforts that genuinely work.
Your marketing budget should account for:
- Hosting fees for your salon’s website
- Local service ads
- Social media ads
- Business cards, flyers, billboards, and posters
- Offers, discounts, and other customer incentives
- Hosting or attending local trade events and shows
Business Insurance
It’s a good idea to protect your salon with business insurance. Also, if you have full-time employees, they’ll require workers’ compensation and health insurance.
You can insure almost every aspect of your business, including financial security. But there’s no need to go overboard with insurance coverage. Just ensure that your policy covers the following:
- General liability
- Professional liability
- Salon assets (equipment, inventory, property, and tools)
Insurance premiums are recurring fixed expenses. Unless something changes, you can expect to pay the same amount every month. If you pay your insurance premiums annually, be sure to split the cost into monthly bills.
Miscellaneous Expenses
Mark any unexpected expenses within a month as “miscellaneous.” The same goes for one-time costs that don’t fit into any category.
Miscellaneous expenses may include:
- Repair costs for salon equipment
- Petty cash (tips, handouts, small purchases, etc.)
- One-time discount to win over a customer
- Extra labor costs
- Fines
Strategies for Managing and Reducing Salon Business Expenses
Expense management is crucial to your salon’s financial health and overall success. Controlling costs and allocating resources effectively can be the difference between a thriving and a failing business.
However, expense management is not always easy. Dealing with receipts, invoices, and bank statements can be daunting, especially with so much at stake.
To get you started, here are five essential tips for managing and reducing your salon business expenses:
1). Open a Bank Account for Your Salon
First, open a business bank account for your salon (if you don’t already have one).
Go for a business checking account that supports merchant services. Such an account can receive and process electronic payments from clients.
Many small entrepreneurs make the mistake of mixing personal and business finances. Commingling, as it’s called, makes a mess of accounting and financial management. One, it becomes difficult to track business expenses. Two, it might cause problems with your liability protection and the IRS.
Having a separate business account makes expense reporting much easier. All your business transactions are organized neatly in one place, giving you a clear view of cash flow.
2). Record Every Transaction
Make a point of recording every expense, no matter how small or random. Even seemingly negligible miscellaneous expenses can add up to significant costs over time.
Where possible, file any accompanying documents as well. Keep all your receipts, invoices, ticket stubs, and job cards—these will be handy during tax season.
3). Prioritize Your Expenses
Not all expenses are created equal; some are more important than others. Rank and prioritize business expenses based on their importance to your salon.
For example, rent and utilities are high-priority expenses. Meanwhile, things like in-house refreshments and entertainment are discretionary expenses. So, pay your rent first before stocking up on soft drinks or renewing a Spotify subscription.
Prioritizing expenses is an effective way to weed out non-essential costs. You might be spending money on luxuries your salon could still do well without.
4). Review Your Salon Expenses Regularly
Analyze your business expenses at least once every month. Or once a week, depending on your spending volume.
Take note of your spending habits and how your salon expenses accumulate over time. Knowing this should help you stick to the budget and find ways to cut costs.
Set a limit on how much your salon should spend. Ideally, this should be a reasonable fraction of the salon’s total revenue. In the Profit First approach, finance expert Mike Michalowicz explains that business expenses should not exceed 30% of the total income.
But the actual ratio of expense to revenue doesn’t really matter. It just has to make financial sense from a profitability standpoint.
Your job is to keep the cash flow on track to meet your budget and profit goals. That’s why you must regularly audit and optimize your spending.
5). Automate Expense Management
If done manually, crunching expense figures can quickly get out of hand. Imagine recording dozens of different expense transactions daily on paper. That’s way too much work, not to mention that manual calculations are highly prone to errors and omissions.
Get yourself a robust business accounting software to take the load off. A digital solution will do more than just record expenses. It will also show your cash flow’s performance through detailed reports.
The more advanced accounting systems have integrated payment and billing features. Such a system basically takes over your salon’s entire bookkeeping, from expense monitoring to profit and loss reporting.
Get Started Managing Your Monthly Expenses Right Now with Our Free Expense Sheet
With an understanding of your cash flow, you can master your income. Here are a few final takeaways to help you meet your goals:
- Download our salon monthly expense tracking sheet to guide you in listing and classifying business expenses.
- Open a bank account for the salon to separate your personal and business finances.
- Prioritize your expenses, starting with the most to the least essential.
- Evaluate your business expenses to find cost-cutting opportunities.
- Allocate some of your income to your salon’s emergency fund.
- Get a digital salon management system to help you track, organize, and draw insights from business transactions.
