Business Processes & Standards

As a software company that is tasked with solving the problems faced by running a salon much of what we do involves identifying, mapping and streamlining the various business processes that occur in a salon. In order to write software to accommodate these processes there needs to be some level of standardization in place that we can write the programs around.

In this month’s article I thought I would comment on some of the salon business processes that we often encounter and that present challenges to salon owners. The goal will be to provide some insights that hopefully result in less frustration being experienced by salon staff and better results for owners.

EFT’s

EFT stands for Electronic Funds Transfer and basically means making or receiving a payment via Internet Banking.

A common request that gets raised by salon owners is for a payment type called EFT to be added at Point of Sale. At first glance this seems perfectly reasonable as it has become so common in our everyday lives, however, when you take a closer look you’ll find that it’s not quite as straight forward.

The complication lies in the fact that EFT’s can be done before, on or after the date that the client actually comes in to the salon to have their service or collect their products. To add to this your bank statement needs to be checked in order to verify that the funds are actually reflecting. This is a process that does not occur at the same time that the sale is put through (ie when the client is in the salon).

If clients have paid in advance and has been verified as reflecting on your bank statement then their account should be credited with the value they paid and used up when they actually come in. If they pay after the time you will need to follow up and check that they have actually paid.

The result is therefore that someone paying by EFT is actually putting the sales transaction on their account (just like a Woolworths or Edgars account) and the money collection and verification is a separate process at a different time.

Therefore a client paying by EFT is a debtor (if they pay after the time) and creditor (if they pay before the time) and the point of sale transaction cannot be as simple as marking their payment as EFT and that’s the end of it. The same debt collection process as any other client owing you money is to be used.

Therefore, if a client says that they will pay by EFT then the form of payment at point of sale should be Account (Debtors) and a separate follow up process is required to get a list of all clients who owe you money (Debtors) and check your bank statements to verify receipt of payment and allocate this against the clients account.

Price Lists

A very common scenario in the hair industry is variable pricing for services, ie you do not have a set price for a particular service but rather enter the price on the fly according to who is doing the service and who the client is on the day.

Now, this flexibility may appear to come in handy at times and it is very tempting to modify your prices on the fly but can cause challenges in the long run.

One problem is controlling discounts. For example if prices vary all the time then it will be difficult to monitor if staff are abusing this and giving discounted prices to clients when they shouldn’t be. However, if there is set pricing in place it will be easy to identify discounts that have been given and follow up to get the reasons.

Another problem is the client’s perception and experience. If they were given one price at one visit and another price at another visit they may complain and will always expect the lowest price.

It would be better to rather have set pricing and give a discount on the set pricing so that the client firstly knows what the normal price is and then is also aware of how much discount they have been given, which should make them feel a little more special.

Not having standardized and clear pricing can also affect staff commissions as they will earn based on what the clients are charged and this is an area where you want as little headache as possible.

Finally, if you have more than one branch then you want your brand to be as standardized as possible and part of this will be pricing. This will mean that clients get the same price regardless of which branch they go to and staff will get the same turnover for commission, regardless of which branch they are working at.

I know it is a challenge because the temptation is strong to vary your price according to your gut instincts but having a set price means that you really need to give thought to how you can always justify this price and be ready to motivate it at all times, and this can only be a good thing.

Gift Vouchers

Assuming that we all know the big ideas of how gift vouchers work I thought I would comment on the importance of tracking the value of outstanding gift voucher balances.

When a gift voucher is sold it is a little bit like the example above when a client does an EFT in advance, ie they give you their money upfront and are entitled to get something in return at a later stage. You therefore owe them this money and this fact needs to reflect on your financial statements.

When someone redeems a gift voucher only then does the transaction of exchange take place, ie you give them a product or service and the gift voucher is therefore a promise by your business that you will provide the bearer of the gift voucher this product or service at a later date.

The value of outstanding gift vouchers, therefore, can be seen in very much the same way as an amount owing to one of your of stock suppliers for stock that they have sold to you that still has to be paid for.

Both of these situations are reflected in the form of liabilities on your Balance Sheet.

Another illustration of why this value is important is if you were to sell your salon. The value of unredeemed vouchers would actually be taken into account when valuing the salon because once the new owner takes over they will have to honour the promise to give the clients their product or service at a later date. The value of unredeemed vouchers can therefore reduce the asking price for your salon because you have already pocketed the money for the vouchers that are unredeemed and the new owners will never see that money, therefore they will most likely take it out of the asking price.

Stock Counts

The reason for doing stock takes include, on one hand, checking if you have any missing stock so that you can minimize losses and on the other hand obtaining the correct value of your on hand stock so that you can work out the value of the stock asset you have remaining and the cost of sales that took place in a particular period. These latter requirements are used by your accountant in your management accounts and financial statements.

Stock takes should be done at the very least once a year as close to the last day of your financial year end as possible as this will be required for your accountant to do your financial statements. However, waiting an entire year to do a stock take is not at all advisable as you might miss theft that is occurring and your weekly or monthly ordering will be difficult to manage.

Therefore full stock takes should really be done at least once a month as close to month end as possible and spot checks should be done at least once a week.

Stock counts should be done when you are not trading so that you don’t sell an item after you have counted it but before you entered it into your system. If you can’t do it after hours then don’t enter any sales through your computer system while doing the count and just make a manual note of any items sold during the stock count so that you can adjust your actual count.