Beauty Business Strategies
The podcast where salon, spa, medspa, barbershop, and lash studio owners — just like you — learn quick tips to make more money, inspire your team, and create world-class client experiences.
Beauty Business Strategies
The Financial Metrics Every Beauty Business Owner Needs to Know with Daryl Jenkins
Have you ever felt overwhelmed by financial statements and unsure what they tell you about your business? Join us as we strip away the complexities of financial literacy with Strategies' Director of Coaching and Educator, Daryl Jenkins. In this episode, we break down three critical financial documents every beauty business owner needs to be familiar with into simple, digestible concepts. By likening these financial documents to chapters in a book, you'll learn how each one tells a vital part of your business's story. You'll learn how these documents help you make smarter business decisions so you can start writing your business' next profitable chapter.
Conversation highlights:
0:00 Financial literacy is simpler than you think
4:03 Your business is made up of chapters… What is the full story?
5:40 Profit is not cash, so what is it?
7:33 Daryl’s #1 tip for profit and loss statements
12:05 Is your company in good health? Your balance sheet can tell you
16:25 The third and most neglected chapter: the statement of cash flows
20:00 Daryl’s recommendations to kickstart your financial understanding
21:28 Adding the fourth chapter with Strategies’ key ingredient
23:51 What now? The first steps to unlock your financial literacy
Watch the video version of this episode: https://youtu.be/rxak_MHej0I
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The Beauty Business Strategies Podcast is designed to give salon, spa, medspa, barbershop, and lash studio owners, just like you, quick tips to make more money, inspire your team, and create world-class client experiences.
Welcome to the Beauty Business Strategies Podcast. I am joined today with my good friend, compatriot, educator coach. I don't know what else to say, but all kind of good things, mr Daryl Jenkins. How are you, daryl?
Speaker 2:I am better than good.
Speaker 1:How about you, michael? I'm good. I'm good, so I'm excited today, on today's podcast, to talk about financial literacy. Sounds like a stirring topic, doesn't it?
Speaker 2:It does have that tinge to it, but it's actually quite fascinating once you get into it.
Speaker 1:It is, it is. So the reason we want to talk about this with everyone is simply, this is as much as we can kind of have a little bit of fun with the topic of financial literacy and whatnot. It's just really important. I mean, simply put, it's just that important. And it's important because it impacts every business. And so I think maybe the best place to start, daryl, in our conversation is just to kind of say when you think about financial literacy, what's? That really, what do you think the definition of that is to you?
Speaker 2:I think it's just understanding the numbers, understanding your business. What is it telling you? You know, in simplest terms, financial literacy is just knowing how my business is doing, is it healthy, is it performing, you know, and most importantly, is doing, is it healthy, is it performing? And, most importantly, do I have cash? Those things? I think it just starts out with those basic questions. And what are the answers to them?
Speaker 1:Right, and I was going to say, I think that the important thing is that it doesn't get any more complicated than that. It doesn't get any more complicated. It was actually you know, for those listening and watching it wasn't but a couple of weeks ago that we did a class on exactly this topic and I think the one thing to me that comes out of the light bulbs about that class that always go off is exactly what you just said the realization around, in a sense, how simple it really is, even though we all come in to this idea of financial literacy, seems complicated Because really, what we're talking about is when we're talking about, as Daryl just said in really clear terms. You're talking about this idea of understanding my balance sheet, understanding my profit and loss statement, understanding another statement called the statement of cash flows. So we talk about financial literacy, it's about understanding these accounting documents, and I think that's where we start to put up just a ton of barriers.
Speaker 2:Yeah, and honestly, I think there are people in the world that want it to appear scary and complicated for their benefit. And it's not scary and complicated. And so once we discover that we can learn that language if you will, that the ideas are pretty simple, then it starts falling into place. But somewhere along the line I feel like someone told us that we weren't supposed to understand it Right, that you know it's scary and you had to have some degree or level of knowledge.
Speaker 2:And you know, for all intents and purposes it's very basic math. It's not that complicated, it's just some people choose to make it such.
Speaker 1:Right, you're right. It just becomes a matter of once you understand the basic terminology. The rest of it goes away, and we try to simplify that terminology. As a matter of fact, if in the first couple of minutes that we've already been talking, in Daryl's introduction, it's almost like he's very simple terms, which is exactly how we always phrase things to already simplify the complexity of things.
Speaker 1:And so you know, whenever we start talking about this, if we you this, we want to share with you some key pieces of information that can help your financial literacy, and so I think one of those key things is let's get a couple easy principles in place for you. The first is this we talk about the fact that there are three financial statements that you need to understand. Let's put it in perspective. The example I always love to use is the idea of for those of you that are readers and love reading books think about it this way these three financial statements. They are each an individual chapter in the story, the complete story of your business, and so understanding what each chapter says allows you to see the complete story.
Speaker 1:Because if you only ever read one chapter out of a book and, daryl, I know you're a big reader. But if you only ever read one or two chapters out of a book, you'd have some idea of who the character was, you'd have some idea of what the plot was and what was happening around, but you wouldn't have the full picture. And so that's why many of us only ever read one chapter or maybe two out of our three chapter book, and the one chapter we might read is generally around the profit and loss statement, because it's the one that we are most familiar with and the one that we think that we most easily understand, and so I love your idea about keeping things simple in principle. So if you were to say just kind of simplify, simplify profit and loss for me, darrell, prof.
Speaker 2:Profit loss is simply how much money came in and how much of it went out. What did you spend it on, quite frankly, and did you have anything left over?
Speaker 1:Right, and with that we like to kind of tie it into. If we're looking at and thinking about it, as it tells a part of your story, we use a very simple way to relate to that Profit and loss tells you about the performance of your business. That's the story that a profit and loss tells us. So it tells us about performance. Now, we don't have time to get into it because this is a limited amount of time podcast, but what I do want to say is it also tells you about profit and loss at the bottom line. We look at it and we say, hey, listen, this tells us about our profit, but, darrell, what's the key thing that we have to, unfortunately, what's the bubble we have to burst at every class?
Speaker 2:Oh, you're going to, let me be the bad guy, I thought I was the guest here.
Speaker 1:No, you're going to be the bad guy, Well as it turns out, profit is not cash. Exactly that's a painful pill to swallow. It's a painful pill to swallow, but while profit is not cash, it does have the ability to be cash, but this is why we need to see every chapter of our story.
Speaker 2:But I'll also interject. You know what is profit? Profit's just simply. It's a bit abstract, but it lets us know, it tells us if value was increased or decreased within the business. And that's what we're looking to do. We're looking to increase value, right, and that relates right back to the word performance Right.
Speaker 1:That's exactly it. So when we look at this, here's the one cool thing about the profit and loss statement is, everyone out there loves metrics. You all love benchmarks, right, and so we love to use benchmarks in our industry as a measurement of how we are doing, and what I would tell you is this is where some of your most critical benchmarks live. This is, you know, out of all three of the chapters of your story, again a balance sheet being one chapter, a profit and loss that we're talking about now being another. And then we'll also talk about the statement of your story, again a balance sheet being one chapter, a profit and loss that we're talking about now being another. And then we'll also talk about the statement of cash flows as the third chapter.
Speaker 1:This chapter does tell us all about those key benchmarks that we so love to measure to see if we are in line and creating a healthy company. So let's touch on maybe one or two critical benchmarks that might get measured as we look at a profit and loss. It'd be important for all of us to be dialed into. Darrell, what would be one to you that just jumps out?
Speaker 2:Well, I want to step back one step and say, in order to get those benchmarks, we need to have on that profit and loss what's known as a percentage of income column, and I point that out only because we look at so many that do not. And so if your profit or loss statement is going to have that percentage of income column on it and so that you can compare it to your benchmarks, and I believe you will find that once you do that, once you add that column, that's when it starts unlocking and demystifying the profit and loss statement, because when you're looking at it just numbers, it's like wow, I don't understand this. However, if we've got this percentage of income column, now we're beginning the process of understanding how our business is performing and touching on those benchmarks. And I believe I have forgotten the question. But the question I believe was what are some important benchmarks you want to look at?
Speaker 2:Probably, in our industry, the most important is going to be service payroll percentage. You know, is our service payroll as a percentage of our total income within the benchmarks? Most people? Well, probably it's second only to profit. We want to know that profit.
Speaker 1:Right. Exactly, the key benchmarks that you want to be dialed into just in those two areas is we're talking about service payroll. We would recommend a 30 to 35 percent as a comparison of the expense in relation to your total sales. So that's why you want that percentage of income. Is that measurement of how much was this? What percent of service payroll as an expense was in relation to your total sales or total income? And you're right, that's exactly one super critical number 30 to 35%. That's the range, a benchmark that we want to be in. The other one you mentioned being net profit is the fact that you want to have at least something net profit Cause. This is the why we all, this is why the profit loss is the most popular, because you want to see how much profit happened in our company without the percent of income.
Speaker 1:It is a little bit like I don't know if this is good or bad.
Speaker 2:Yeah, exactly.
Speaker 1:Taking a guess, just taking a guess at it. But you know, at the minimum, at the minimum, you want to have at least 10%, but really what we would strive for is 15 to 20%, or again even higher. But what? And the reason being this is and this is why this is so important to read this chapter of your story, because if you don't, you know every little expense in the company, every little pothole in that road, you're going to feel. But when you start to build a healthy profit in your company and you can look at this and say, hey, I'm 18 percent net profit, 20 percent net profit. Now, all of a sudden, those little potholes in the road, you barely feel it. You know they're there, but you barely feel it. It allows you to travel at a much smoother, much faster pace as a company. So that's powerful.
Speaker 1:So we just skimmed the surface. But we've got two other chapters to talk to you about. You know one of the other most important chapters where they all have their importance. But one of the most important things, too, is the chapter that tells you about the health of your company, and that's when we refer to the balance sheet. The balance sheet is so important because it reflects the health of the company. If we had to pick out, like, one key thing to you, daryl, or one or two key things about the balance sheet, just to kind of set the tone out there, what comes to your mind.
Speaker 2:I'm glad you said two, because there really are two. The two main things I want to know is you know what does the company own? You know what does it have specifically in cash, but also I want to know about the liabilities. Who has claim on the things that I own, in some cases debt? So those are the two big things I'm looking for and I want to know about on my balance sheet, right?
Speaker 1:And that's exactly what the balance sheet shares with us. So when you're listening and you're thinking about, I have to start looking at this, I have to start to read this chapter of my business. It's exactly what it's telling you what do I own and what do I owe, who has a claim on those assets? And then finally, in the end, then that gives us we can also look at our equity, or the value that we're building in the company, and that is critically important for anyone.
Speaker 1:Anyone that owns a business wants to build stronger equity, because at some point down the road you're going to say, hey, listen, I'm going to sell this business because that's the goal of owning a business Someday to pass it along to someone else. You get the benefit of that and they get the benefit of a healthy company to keep growing their next chapter of their lives in that way. So this is why, again, balance sheet of critical, critical importance to you. Any other thoughts balance sheet wise that you think would be just kind of important to share at the moment? Just something simple. Or let me ask the question this way what do you find the biggest hurdle is, or challenge might be, for people that might first be looking at a balance sheet?
Speaker 2:Well, I think the first hurdle would be like understanding the terminology. Like I just said, liabilities. You know some folks might not quite understand at that moment what that means Basically it's, you know, in a lot of cases your debt Debt's included in that. It's not the only thing, but what you really want to be mindful of in your company is you know how much debt do you have compared to how much stuff do you own. You know you don't want to owe more than you own. Right and liabilities, assets equity tells you those things and that's what. That's what makes one of the major reasons it makes the balance sheet so important is knowing the health of the company.
Speaker 1:Right, and speaking of health, before we move into the last chapter that we want to talk about, speaking of health, the balance sheet probably is the most critical of the three. From simply this standpoint, it's every leader's job to build a healthier balance sheet. Absolutely, because a healthy balance sheet benefits everybody. That's a part of the company. This isn't just a direct benefit to one or two people. It benefits everyone. That's a part of that company, because healthy companies take care of their team members well. They are able to do really cool things in their company. And when I say really cool things, that might mean that healthy companies are able to expand. Healthy companies are able to offer benefits. Healthy companies are able to offer a stability and growth and increases in pay and all type of things. The dreams that you have, those dreams are built on a healthy company. Healthy companies are able to move fast and achieve really cool things. But we're talking about moving fast and we're talking about achieving something great. Well, we got to kind of think about it this way and this brings in the third chapter of this story of your business, and that is we have to know.
Speaker 1:When I think move fast, I automatically think about cars. I'm big into cars. I love cars. It's kind of one of those hobby type of things that I've always been intrigued by, always love. So I think about moving fast, I think about a car. And the only way to move fast in a car is you gotta have a tank full of gas to be able to power that car. Or, if you happen to be a fan of electric and hybrid vehicles and things nowadays, you gotta have a full charge. Either way, you gotta have a full tank of something. Whether it's a full tank of electric or gas, you gotta have a tank full. And that's where the statement of cash flows, the one chapter no one ever reads. The most neglected, the most neglected.
Speaker 2:It's actually the chapter that tells you whodunit, right, yeah right.
Speaker 1:That's the right way to say it If it's a murder mystery, it's a murder mystery.
Speaker 2:Who did it? I don't know. I'm not reading that chapter. I'm not going to do that.
Speaker 1:But you got to know this chapter because it is about the fuel of the business. It does give you that whodunit. In other words, this is about your cash, because cash is the fuel of every business. Now you know why do many of us not read this chapter?
Speaker 2:Because we don't understand it. Speaking from personal experience, it looked like gobbledygook, right. But again, once, and it's very simple, that's the nice thing, it is a simple unlocking. Once you have that simple unlocking of how to read it, it's like you can't unread it, right? So, yeah, that's probably the reason it's the most neglected is because we're not quite sure how to start reading that chapter, right?
Speaker 1:And the one. I will tell you this without a doubt. I will tell you this without a doubt, and Daryl and I have done this financial literacy class numerous times, numerous times and every single time. This is the statement that, again, is most misunderstood, most never look at, because again it does feel like very confusing, but everyone comes away going.
Speaker 1:This is my favorite statement, because we all want to know what's happening with the cash in my company, exactly. You know, the profit loss doesn't tell you about cash. That tells you about profit. This tells you did we take that profit and actually turn it into cash and, if so, what are the actions and behaviors that did that? Why did it turn into cash or why didn't it turn into cash? And then this directly influences the health of your company, because a healthy company has more assets, more cash, more things that you own. Then it does things that you owe, and so cash is the best asset that you can have. And so this is the really I said the health is the most important.
Speaker 1:But all these statements have their critical point. Oh, absolutely All these statements have it. So what would be like if we're talking about because again it is a little bit confusing, we're not gonna get into the workings of it on this podcast. Too much to talk about when it comes to the actual workings of it. But if you were to run this, what are simple things that every one of us could do right now? If we ran that report, what would be a couple of simple things that you would say, hey, listen, start looking at.
Speaker 2:Well, it's simple and it's a little bit of a broad answer, but I want to know how the cash is moving out, what cash, where's the cash coming from or where is it leaving to? And what I mean by that is, you know, because the statement does tell you about the flow of cash in your company. If a lot of that cash is coming in from bank loans or you know credit card drafts, things like that you need to know that. You need to know that because it's going to affect your balance sheet. Also, too, if an abundance of cash is coming in, you want to know how it came in, not only because maybe it came through a financial loan, maybe it's gift cards, right, you know?
Speaker 2:So if we sold a bunch of gift cards and this massive cash came in, we need to know where it came from so we know what to do with it. Right, you know? Because when it shows up in our bank accounts, we'll say, oh, this is gift card money. We can't spend that just yet. We've got to wait for it to be redeemed instead of going. Woohoo, I got $10,000 in the account. Drinks are on me. So I think those are some important things to consider.
Speaker 1:Absolutely these three statements. We talked about your balance sheet telling us the health of our company, the profit and loss, telling us about the performance of our company. Statement of cash flows, telling us about the fuel, the cash of our company, what's happening with that. All of these things I want everyone to realize is these are all outcomes. These are all what's happened in your business, not what can happen in your company. And so there is one key thing just to kind of give start planning the seeds is one key thing that all of you can do is start working with a cashflow plan, and that is you're making good projections about the growth of your business. This is a projecting tool. This is not part of the financial documents or statements that you're going to get out of QuickBooks. This is not something you're going to call your account on and be like, hey, listen, where's my cashflow plan? This is something you create. This is a tool that, at Strategies, we use with every single coaching client that we work with. We make we, they, not we, they make a plan for their business. You make a plan for your business based upon what the expenses of your company are, what sales we can do, and we have a whole formula for that, a simple formula, but a formula to help you project great sales.
Speaker 1:And really, in all honesty, this is where you get to write. We could almost say there's the fourth chapter of your book. This is where, actually, the better way to say this there's three chapters in a book, but this is where you get to put on the front of that book, this is where you get the title of your book and you get to put the author. You get to be the author of this book. So the cash flow plan acts as that idea of the chapters that happen in your book are written by you. You're the author of that story, you name that story and that starts with a cash flow plan to build the health that you want in your company. So you forecasting where you want to go, the dreams that you want to attain, the goals that you have for your business, all get written in that plan so that they can show up in health, performance and fuel.
Speaker 1:So, daryl, as we kind of wrap our time up, let's kind of summarize a couple of things, but let's kind of do it this way If we had to kind of share, maybe let's pick out two, three, maybe four key action items that everyone could do now. What would be one of the first things that you would say hey, listen, you know, right now, just listen to the podcast. What's one key action item or one key step that someone could do?
Speaker 2:It's funny you mention that. I was just thinking find someone you trust. Maybe it's your coach, Maybe it's us here, someone here at Strategies, to read your statements to you for you. That's the beginning of understanding. As you were talking, I was just thinking I love to read. I love to read and the way I learned to love to read is because my mother first read to me. My mother read to me and as I started learning and understanding and how to read, I could read for myself. So, rather than the daunting task of, well, how do I read this? I have no idea. Find someone you trust. Go to someone trusted trust. Go to someone trusted. Like I said, if you're working with a coach, say, hey, can you read these for me with me? Or, like I said, a trusted person, your accountant and get them to read them to you, help you understand, and you'll be surprised how quickly you'll be learning to read them on your own.
Speaker 2:I think that's a great place to start.
Speaker 1:I think that's a great place to start and you know I'm going to tie in with that. Another action step to do is and this all ties in, and I don't know if this goes before or after or whatever but another key step is make sure that that story, that start to look at your story, gather, get this information While you might be right now it's like I don't know that I understand it correctly, and that's where Daryl's great suggestion comes in Get your story, you know, ask your bookkeeper if that's what you use, ask your accountant, or print those out out of QuickBooks these are all statements, can be accessed very simply and very easily and start to get a look at your story with all three of these chapters, because that's the first one of those first key steps as well. You know, get that, start to. You know, read your story, help someone, help read to you that story if there's confusion. And so this is these first steps to unlock and, for me, the last step, the last action item I would start to put in place, and if you've got one more dare we have you share it as well.
Speaker 1:The one last thing I could start to say is and be proactive about starting to build a plan for your future when it comes to the financial health of your company, whether or not. Maybe the simplest way to think about it right now is if you're not doing anything that revolves around building a even a budget. A casual plan is different from a budget, but even just starting with, let me just write down my expenses and start to build a solid budget for my business that I can now live within, so that I know I can start to build health in a healthy way. That alone is a great starting point. A cash flow plan allows you to take that whole idea and expand it tenfold over into what the potential of our company looks like. But if you're just talking, simplest place to start, just start looking at where your expenses lie and making a budget to stay within the expenses that the company can afford. Any last thoughts?
Speaker 2:Yeah, be fearless. Be fearless Because you know, michael and I, yeah, we know some stuff about these statements, but we didn't always and I remember when he didn't know anything about them and he remembers when I didn't know anything about them, but we were fearless, we had made up our mind, we were going to learn, we worked with each other, we helped each other, we sought our coaches, our professionals, and while we still don't know everything, we still learn, we're still fearless. We're willing to go out there and make the effort, and that's all I want to do is just encourage you to make the effort You'll be all right, you're not going to goof it up.
Speaker 1:That's right. Awesome stuff, all right. Well, hey, daryl, thank you. It's been great hanging out with you and it's been great hanging out with all of you. We look forward to talking to you again on our next Beauty Business Strategies podcast. Until then, have a great day.
Speaker 3:Thanks again for listening to the Beauty Business Strategies podcast. If you like this episode, be sure to hit follow To learn more about how strategies can help create more fun, profit and growth potential for you, your company and your team. We invite you to schedule a free 60-minute strategy session by clicking the direct link in the description of this episode.