Back to School: Bookkeeping 101

Class is officially in session.

As summer comes to an end and everyone gets back into a routine, it's a great time to get your business finances organized, too.

Whether you own a salon, spa, wellness center, studio, or independent beauty business, you don't need to be an accountant to understand your numbers. But you do need to know what they're telling you.

Think of this as your Business Bookkeeping 101 course. We're going back to the basics with four lessons every beauty and wellness business owner should understand.

Grab your notebook and let's get started.

Lesson 101: Bookkeeping Basics

Let's start with the foundation.

Good bookkeeping isn't just about keeping your accountant happy at tax time. Your books are a tool that helps you understand how your business is performing throughout the year.

At a minimum, you should know:

• How much money your business is bringing in

• How much you're spending

• How much you're actually keeping

• Where your money is going

• Whether your business is becoming more or less profitable

  
  

Keep Business and Personal Money Separate

If you're using your business checking account to pay for personal expenses, or vice versa, it's time to clean that up. Keeping business and personal finances separate makes your bookkeeping easier, gives you a much clearer picture of your business, and makes tax time significantly less stressful. Your business checking account is for your business. Keeping that line clear will save you headaches later.

Reconcile Your Accounts

Your bookkeeping should match what actually happened in your bank accounts and credit cards.

Reconciling your accounts regularly helps catch:

• Missing transactions

• Duplicate transactions

• Incorrect amounts

• Unrecorded fees

• Transactions that were categorized incorrectly

  
  

It may not be the most exciting part of running a business, but accurate books start here.

Review Your Books Monthly

Please don't wait until tax time to look at your financials. Your books should help you make decisions throughout the year. A monthly review can help you spot changes in revenue, expenses, payroll, profitability, and cash flow before a small problem becomes a big one.

Your Homework

Pull your most recent Profit & Loss statement and ask yourself:

"Do I know why my profit is what it is?"

If the answer is "I'm not sure," that's okay. It's time to go back to the basics.

Lesson 102: Revenue and Expenses

Now that we have the basics down, let's talk about the money coming in and going out.

Because here's something every business owner needs to remember:

Making money and keeping money are two very different things.

Revenue: Money Coming In

For a beauty or wellness business, revenue might come from:

• Hair, nail, lash, or spa services

• Retail products

• Memberships

• Packages

• Classes

• Gift cards

• Other business income

  
  

But don't stop at looking at your total sales. It's important to understand where your revenue is coming from. Are services driving most of your revenue? Is retail growing? Are memberships becoming a bigger part of your business? The more you understand your revenue sources, the better decisions you can make.

Expenses: Money Going Out

Your business has plenty of expenses, too.

Common beauty and wellness business expenses include:

• Payroll

• Rent

• Product and inventory

• Booking and scheduling software

• Credit card processing fees

• Marketing

• Insurance

• Utilities

• Professional fees

• Supplies

  
  

And this is where things can get interesting. You can have great sales and still have disappointing profit.

That's because:

Sales do not equal profit.

You have to look at what it costs to generate those sales.

Your Homework

Look at your last three months of expenses. Identify your top five expenses.

Then ask yourself:

"Are these expenses helping my business make money, or are they simply costing me money?"

Not every expense needs to be eliminated. Some expenses are important investments in your business. The goal is to understand what you're spending and why.

Lesson 103: Your Business Report Card — The P&L

If your business had a report card, your Profit & Loss statement would be one of the most important pages.

A P&L shows you:

Revenue – Expenses = Profit

It sounds simple, but this report can tell you a lot about the health of your business.

Revenue

This is the money your business earned during a specific period. You can use your P&L to look at monthly, quarterly, or annual revenue. But don't just look at the total. Look for trends. Is revenue increasing? Decreasing? Staying flat?

Expenses

Next, look at what it costs to operate your business. Are payroll costs increasing? Has your product spending changed? Are software subscriptions piling up? Have merchant fees increased? Your expenses tell a story, too.

Profit

And then we get to the number everyone wants to see: profit. Your profit is what's left after your business expenses are accounted for. A growing revenue number sounds great, but if expenses are growing even faster, your profit may not be improving. That's why you need to look at both.

Don't Just Look at One Month

One month doesn't always tell the whole story.

Try comparing:

• This month versus last month

• This quarter versus last quarter

• This year versus last year

  
  

Looking at trends helps you understand what's really happening in your business.

Give Your Business a Grade

How well do you understand your P&L?

A: I know my numbers and review them regularly.

B: I mostly know what's happening.

C: I look at my numbers occasionally.

F: I find out how my business did when my accountant calls.

If you're somewhere around a C or F, there's no shame in it. But it's time to start paying attention.

Lesson 104: Cash Flow

Now for a class every business owner needs to take: cash flow. Here's one of the biggest financial lessons you can learn as a business owner:

Profit does not equal cash in the bank.

You can have a profitable business and still feel like there is never enough money in your bank account. That's because cash flow looks at when money actually moves in and out of your business.

Cash Comes In From:

• Client payments

• Retail sales

• Memberships

• Deposits

• Loans

• Owner investments

  
  

Cash Goes Out For:

• Payroll

• Rent

• Product

• Taxes

• Debt payments

• Equipment

• Owner draws

  
  

The timing matters. For example, you might have a profitable month but have a large quarterly tax payment due the following month. If you're only looking at your P&L, that cash payment might catch you off guard. If you're looking ahead at your cash flow, you can prepare for it.

Plan for the Big Expenses

Beauty and wellness businesses have plenty of expenses that can sneak up on you:

• Quarterly taxes

• Payroll

• Inventory purchases

• Equipment

• Insurance

• Annual subscriptions

• Repairs

• Loan payments

  
  

The goal isn't to be surprised when these expenses happen. The goal is to know they're coming before your bank account tells you. That's where cash flow planning becomes incredibly valuable.

Class Dismissed

Congratulations. You've completed Bookkeeping 101 through 104.

But here's the biggest lesson of all: You don't have to be a numbers person to understand your business finances. You just need to know what your numbers are telling you.

Your bookkeeping should do more than tell you what happened last month. It should help you answer questions like:

• Am I profitable?

• Where is my money going?

• Which services are making me the most money?

• Are my expenses under control?

• Can I afford to hire?

• Can I afford to open another location?

• How much cash should I keep in the bank?

• Am I actually paying myself enough?

  
  

Your numbers are there to help you make better business decisions, not to intimidate you.

And if looking at your books still feels like trying to understand a subject you never quite "got" in school, that's okay. That's where we come in.

At Beauty in the Books Advising, we believe your finances should feel just as good as the business you've worked so hard to build. We help beauty and wellness business owners understand their numbers, improve their financial confidence, and make smarter decisions for the future.

Consider this your reminder: class is in session. It's time to check your numbers.