Hourly to salary transition for owners

Discussion in 'Growing and Managing a Business' started by bigsatch, Apr 30, 2011.

  1. bigsatch

    bigsatch
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    Hi, I own a small salon employing 12 full time employees who are payed on a commission basis (as am I). So far we as a salon are making just enough money to keep the bills payed; however during the slow times I find myself having to withhold cashing my paycheck so the salon can purchase product/ rent etc. The salon numbers keep increasing and business is promising, again however, I as the owner am still the primary producer of income to the salon. In an effort to free myself up to allow for more management time I'm wanting to transition from a commission wage to paying myself a salary. I have some ideas on how to do this but am a touch nervous. My personal income is important obviously so I can pay my own bills; but during the slow months I'm afraid of my salary bleeding the salon. My question is, how can I transition from a commission wage to a fixed salary, especially being the primary source of income to the salon? I'd also like to shed some of my clients and eventually get out from behind the chair.
     
  2. Fergal

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    Welcome to our Business Forum bigsatch and thanks for posting your business questions. Well done on building your salon to the stage where it is employing 12 people, that is a great achievement. When you say that you are the "primary producer of income to the salon" do you mean that the other employees are not bringing in much income?

    From what you say, it sounds as if cash flow is very tight in your salon. Obviously this situation could be improved if you can find ways to reduce costs and / or increase revenue and this is something you could hopefully achieve if you devoted more time to managing the salon. If the current employees are not contributing enough to the salon running costs would it be possible for you to reduce the commission that you pay to them, so that a greater proportion of the revenue could go towards the overhead expenses of the salon?
     
  3. ArcSine

    ArcSine
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    First I echo Fergal's congrats on having built up a biz with 12 full-timers besides yourself.

    Commissions vs salary is just semantics, nothing more. Just two different ways of paying yourself from the operation's profits, among dozens of other possible payout arrangements. A lot of business owners don't even attach a name to their profit draws, they just pay themselves when, and to the extent, the company's cash position permits. Not really a salary, strictly speaking, nor a commission; just a draw of profits as cash flow allows.

    Should you choose a payout that more resembles a "salary", you'll still retain the same flexibility you have now to hit the brakes on your payouts when cash is tight. There's no law that says you can't skip a salary check if need be, or that you have to cash it right away, or that you can't temporarily re-loan the money to the company after cashing the salary check.

    I realize your real question mark, though, is how to keep the revenues growing while simultaneously reducing your behind-the-chair time. That's one that'll take more involved thought, but I just wanted to dispel any concern you might have that a switch to a salary-like payout would invoke some new and irreversible cash-flow dangers.
     
  4. bigsatch

    bigsatch
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    Thanks for the helpful advice!
    ArcSin: You hit it on the head...how do I keep revenues growing while simultaneously reducing my behind-the-chair time? That is the root of my question. I was thinking of raising my prices, while at the same time shedding my client list onto my other stylists. The big dilemma is changing from a commission based income to a fixed salary. As of now, if I don't cut hair, I don't make money. But like I said I'm still bringing in the most clients and income to the salon. So, my thinking is this, I need to keep my clients at the salon, (just w/ other stylists) so that I can back off the chair, and still deduct a salary from the salons income w/o hurting the bank account (I hope that not too convoluted). However, my clients are loyal, very loyal; and I'm worried that they'll be put off by me steering them toward another stylist. Does this strategy sound good, do you all have any suggestions? Is there any compensation I could give to my clients whom I'm trying to dump.

    Any and all advice helps!
    Thanks guys!!!
     
  5. ArcSine

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    For starters, I'd avoid letting the word 'dump' get worked into any conversation with a client when you're trying to convince them that the change to another stylist is a good thing ;)

    Seriously, though, you'd have a better feel for it than I, but I wonder if the 1-2 punch of offloading a client to another chair, and simultaneously raising the fee, might be enough to drive away the client? Might wanna tread carefully there.

    It's easy to see that for each customer you hand off to another chair, your income drops by one of two possible amounts: Worst case, client walks and you thus lose 100% of whatever revenue that client represented. Best case, client stays, but now you've got the other stylist's commission taking a bite out of the revenue coming in from that client, before it makes it to your pocket.

    But I see a third possible revenue hit to consider, albeit a bit more vague and harder to quantify: Any new customers you might have obtained via referrals from that lost customer, had he/she not left. What % of your current customer base came to you originally from a recommendation of another client?

    The upside to the tradeoff is, of course, X amount of free time per each customer handed off. Presumably, you'd employ that new free time in managing the operation more effectively, and/or more marketing efforts. You'll have to decide if your extra free time can be used to generate "replacement" revenue that more than makes up for the revenue hits I mentioned above.

    It may be the case that you'll be able to find some efficiency gains in how the shop is run, once you can devote more time to the management side of things. But it's usually the case that with small business, such efficiency gains are chump change, as the biz is already being run pretty efficiently as it is. (It's with the sprawling, multi-divisional, complex companies where the fat tends to creep unnoticed into the budget, but I'd bet that in your shop you've already got the expense side of things pretty well reined in.)

    Instead, it's usually Revenue where the bigger income pick-ups are found, and hence where you'd probably do well to focus the bulk of your time. Do you have good growth potential, in terms of the demographics of where you're located? Can you accommodate an increase in your customer base without having to add chairs / square footage (i.e., are some of the chairs currently running at less than full capacity)? Do you count marketing skills among your strong suits -- or at least do you have access to someone who's good at it?

    Also, you might do well to make sure you maintain a regular, visible presence in the salon, with a lot of face-time with your former clients (after the hand-off). Doing so might help with the customer-retention rate.

    Maybe the other stylists take a smaller commission on a customer you give away, versus one they obtain themselves? In other words, you get a finder's fee of sorts, for any customer you give to another stylist.
     
  6. aapkae

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    if the cash flow is so tight in your saloon,why dont you try some other location or may be you can switch to something else
     

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