Budgets on the Menu

February 7, 2018 LNE Editor

By Francisco Garcia

When you decide to build a house, I am sure you wouldn’t start off by building the roof first right? I am sure you would get an architect to draw you a plan, and then start building the house from the foundations up, correct? So running a spa without having the blueprint of a budget acting as the plan for your business is like trying to build a house without plans and starting from the roof first.

Why is it so important to have a budget? A simple description of what a budget is “ a financial plan for a defined period of time. It may also include planned sales volumes and revenues, resource quantities, costs and expenses, assets liabilities and cash flows”. Normally we will draft a budget for a period of 12 months.

Once you have decided that you want to create this document, the second step will be to decide on the structure you want to give this template going forward so it is easy to refer to and to understand. I would always start by making a simple excel sheet with the months of the year being the columns and the budget information the horizontal lines.

The ideal structure to give to your budget will be based on 3 sections: Revenue, Expenses, and Profit/Loss. You can always add more information such as number of client, average spend, however this could easily complicate things if you are not used to reading budget templates. So let’s focus on the main 3 sections:

Revenue:

Under these revenue lines you will exemplify the expected revenue you are envisioning to achieve on Spa Services, and Spa Retail and any other revenue avenues you might have that might not fall under these previous 2 categories. All these should sum up to total revenue.

Expenses:

We will divide this section into 3 subsections: Payroll/ Cost of Sales/ Other Operating Expenses

Payroll will always be the highest expense in any business. The parameter in the industry is for the total payroll burden to not exceed 40% of the total revenue generated. Hence why it is so extremely crucial to monitor overtime and leave due as well as planning leave cycles to your staff members during valley periods and ensure their productivity is high while at work through intense reporting structures and daily motivation.

Cost of Sales will be calculated also separately, as these cost percentages will give you a clear indication of how much money you will be spending in producing the revenue figures that you would like to achieve. It is imperative that you have a complete understanding of the cost of sales that your brands offer you together with having well calculated treatment recipes and treatment costings. I cannot stress the importance here of negotiating and planning ahead with your suppliers with regards to best buying practices and planning for price increases, arrival of new collections, buying during promotions while stock could have a discounted rate hence allowing you to lower your cost of goods.

Other operating expenses, will encompass the remainder of the expenses that the business will have from marketing, advertising, training, rental, water and electricity, printing and stationary, telephone, linen, laundry, cleaning supplies, etc. Everything you can imagine as a cost that does not fall under other two previous categories will go under this expense lines. How to control some of these expenses?

Rental – should never be more than 20% of your total turnover. Account for a yearly increase on the rental fee as well.

Cleaning Materials- Do proper training and measure the exact dosage to use to clean each area. This could save you lots of money at the end of the year.

Linen – Inevitably we do use a lot of linen in our business and we need to account for linen loss each month. Create an easy equation that allows you to link it to the number of guests that visits your spa. eg.: R 3 per guests x 300 guest in 1 month = R 900 Linen loss allowance. This loss could be via wear and tear or damage through chemicals.

Laundry – During busiest periods the allowance for laundry expenses should be a bit higher than on your valley periods.

Heat/Light and Power – Use Energy saving light bulbs, timers on geysers, pool filtration systems to be on timers as well as the sauna and steam rooms or simply Ad Hoc whenever it’s busy.

Water Consumption – Taps and shower heads to have eco smart filters.

Guest Supplies – This expense adds to the guest experience so it will be directly linked to the number of guests that visit your spa. The more turnover the more allowance for this expense on your budget.

Training – Training & development might not give you an immediate ROI (return on investment) and not boost your top line revenue immediately, however this expense line, often disregarded, could be one of the most vital for your business. Have a training cost allocated to each moth to send your staff members to self-development workshops, product training, sales training, and spa and beauty industry conferences. You will see the return eventually in your business.

Marketing and Advertising – Evaluate your current marketing actions to see if they are bringing you what your business needs. This expense line it is crucial for your business as if people don’t know about you, then is like you don’t exist.

Printing & Stationary – You need collateral to run your business and you need to allocate certain amount of funds per month to this.

The same will apply to other small expense lines, but nonetheless crucial to your business such as bank charges, Telephone and internet usage, breakage and spillage, travel expenses, legal expenses, consulting fees, etc.

Once all the expenses have been calculated, they will be subtracted from the top line revenue that you envisioned to reach each month to give you a profit or loss figure.

The Key in the process of creating a budget is to Plan ahead for the future, taking into consideration the actual trends of your business, your history and acquire as much information as possible before creating this financial plan.

Once your budget period kicks in, you should then measure your actual performance monthly against your envisioned budget and then apply corrective measures to your performance and your business approach. If your budget is well planned, accounted for, and well thought through, there will be very little surprises at the end of the year and your actuals versus your budget figures should not vary 10 to 15% up or down from what you planned for.
This process, though tedious and very tiresome, can bring great clarity to evaluate the financial and operational health of your business, together with giving it the foundations and pillars in which the financial and operational results can be monthly measured against, but specially to rectify behaviours.
Decide on your financial strategy for the year ahead, and with properly thought through planning, your business will take onto a new dimension. By setting a proper budget, specially on the revenue lines, you are also setting a goal, which will then enable you to restore your focus, clarify your intentions, will keep you alert of opportunities, give you inspiration to act on your priorities and allow you to make things happen.

 

About: Francisco Garcia has over 10 years of experience in the Industry. During his first 6 years he managed iconic properties such as Mount Grace Country House & Spa and Arabella Hotel & Spa, where he won numerous accolades and recognition for his properties and himself as a Spa Manager. During 2014, he combined independent spa operations consultancy work with the Marriott Hotel Group and Amani Spas Group, until joining permanently Amani Spas Group at the end of 2014, to become their Chief Operating Officer until July 2016, overseeing 15 spa units. Recently, Francisco has become again an independent Spa Operations Consultant, assisting spas country wide to become operationally effective and financially profitable.

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