Pulse May 2019 - Page 34

if P&Ls, taxes, pricing models and ratio analyses make your eyes cross, you’re not alone: many in the industry are continually challenged by the financial aspects of managing a spa. fortunately, iSPa has a wealth of resources available on financial management, written by proven spa industry financial experts, that you can use to sharpen your skills, expand your knowledge and, ultimately, improve your spa’s bottom line. To help make heads and tails of it all, Pulse tapped the knowledge of industry experts to answer our members’ most frequently asked financial questions. “hoW mUch ShoUld I InveSt In PAYroll?” in today’s hypercompetitive labor market, one of the questions iSPa members ask most frequently is how to pay their employees enough to ensure retention without affecting profitability. Generally speaking, few spas can remain profitable if payroll exceeds 60 percent of revenue, and few can retain employees if payroll is less than 45 percent of revenue. The ‘sweet spot’ is 50 to 60 percent of revenue. if your spa is struggling to retain employees at that point, it’s a good idea to first look at increasing revenue before increasing salaries, otherwise your payroll may cross that 60 percent threshold. you can also look at other ways to compensate employees. This includes offering traditional benefits—health insurance, paid time off—as well as non-traditional benefits such as flexible working hours. While these benefits have very real costs on your (CONTINUED ON PAGE 36) chArt YoUr PAth net revenue is fairly straightforward: the gross revenue, less any allowances like discounts or credits, for the accounting period. This includes all revenue, too, from services and retail to memberships, food and beverage. total direct expenses include the cost of any goods sold, the cost of products used in services, and the payroll expenses for employees to provide services. Therefore, a direct expense is anything that is directly related to a source of income. This is an important performance indicator for spa directors, because it’s essentially the profit or loss when considering only those factors over which spa directors have the most control: revenue, cost of goods, cost of services and the indirect expenses (like linen, marketing and administration) that support the operation of a spa. fixed charges are charges that a spa director will likely have little or no influence over, but which are relevant to spa owners. Examples include rent, insurance and property tax. 32 PULSE ■ MAY 2019