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Calculating "Per Pet" Business Income and Expenses

At our Becoming the Business Person That Grooms Workshop, Private Consultations and now Grooming Business in a Box® we empower our participants with many easy financial formulas that you would think would be common knowledge, but they aren't. For example, I ask "How many grooming services did you provide in 1999?" Very few know, so far less than 10% of all workshop participants. Then I may try, "What was your average service fee in 1999 based on your bookkeeping?" Again, few answer but we get some good guesstimates. It's getting quieter in the conference room by the moment. One more. On average, how much did it cost you to groom a pet in 1999. Dead air.

Is this surprising? No. If we don't have widespread specialized business management training how can we expect the majority of grooming business owners to talk grooming finance. Indeed, as part of vocational licensing of groomers (someday maybe) I would heartily recommend required training in grooming finance. Why? You are legally in business to make a profit according the Internal Revenue Service. It's not a crime to make a profit in grooming even though you are helping pets by grooming them. Yes, some of my students have felt guilty about becoming very profitable in grooming because the primary goal is to help pets. All I can do is say why can't you do both, and remind them that our tax authorities have mandated that the intent of all businesses is to make a profit in order to pay taxes too. That aside, common sense dictates that money management is important if a business is to survive. Many groomers have never owned a business and always been employed taking paychecks; it's far different to be self-employed and know that you paychecks are not a guarantee but something you have to entirely manifest on your own. Therefore, learning grooming finance is perhaps one of the most important skills you will ever learn equal to the importance of your artistic styling.

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Here we want to introduce you to a few of the concepts. This is no algebra or calculus, but basic small business finance practices for the grooming trade. In fact, after a few hours of practice at our workshop suddenly we have beginners talking grooming finance like upcoming pro's.

Indeed, getting a job as a groomer may be much easier when you can talk this lingo, and it's vital if your desire is to have a pet retail or veterinary business build out a grooming department for you, or to secure a loan or investor to build your own business.

Gross Income from Grooming Services and Average Service Fees Per Pet: This is an easy one to learn, and if you will use this methodology when you talk about your business, you are likely to be much more respected as a business person that grooms.

How much did you earn last year from grooming services? Or for newcomers, how much do you PROJECT to earn from grooming services in your first year? Both of these can be answered from the same data.

Last year, Jan at the ABC Salon grossed $60,000 in 1999 (rang up on the register) for her grooming services (no retail, just grooming fees). Jan, like most grooming business owners, knows this number very well because all owners need gross figures for tax returns. However, if I asked Jan, "Great, and knowing that, how much was your average service fee per pet?" Things take a turn for the worst here, but wait, it's easy if you do the following:

Keep a record of the number of pets you groom every day of the year. If you have an appointment book, total the number of pets groomed each day and write it at the bottom of each day in the appointment book, and circle it for future reference. If you use The Madson Management System in From Problems to Profits you will be doing this on the Manager's Daily Summary Report form. At the end of the year, go through the appointment book and calculate a grand total of number of pet grooming services. Okay, let's assume Jan did that for 1999 and the total number of pet grooming services was 2,000. Now let's start the magic.

We know Jan grossed $60,000 in 1999 from pet grooming services only. If we divide $60,000 by 2,000 pet grooming services, voila', we have determined that the average service fee per pet at Jan's is $30. Now a world of potential opens.

Next, I could ask Jan, how much do you want to make next year? She might say, "Well I really need more income and I would like to gross $90,000 instead of $60,000." Great! $30,000 is a lot of growth in one year, but it is possible if you plot a major expansion plan, but how realistic is it? Let's see. Since we know how much Jan's average grooming service fee is we can paint a much better picture of her goal to see just how realistic it is. Therefore, here is what we do:

Goal: $30,000 increase in business projected ($90,000 goal minus $60,000). Divide $30,000 by Jan's average service fee of $30 and you get 1,000. What is the 1,000 then? Yes, it is the number of additional grooming services Jan must do in the year ahead to earn $30,000 more on the register (without raising prices). So now I can say to Jan, "$30,000 sounds good, but are you staffed and prepared to do 1,000 more grooming services in the next year?" Now Jan the groomer better understands the labor required. Sometimes just throwing numbers around is misleading. Possibly Jan may come back and say, "Yes, I have to hire 2 more bathers, or 1 groomer, etc."

Sometimes Jan may say, "No, we can only do 500 more additional grooming services in the next year. I answer, "Great Jan! You are becoming a business person that grooms. Instead of just talking money, we are more realistic charting a stable operation. Since you tell me you can do 500 more in the next year, and you're average service is $30, we multiply $30 times 500, and the result is $15,000. We add the additional $15,000 to the usual $60,000 a year (same as earned last year) and therefore Jan is projecting with more reason that her business will earn $75,000 gross income from grooming services in the next year to come.

Again, every business owner is keeping track of the totals earned in dollars every day, but see how much more we can do if they would always keep track of the number of grooming services performed each day?

Finally, let's try to figure out what the average cost per pet grooming is. It's not much more difficult, but you will need some bookkeeping figures.

Let's stick with Jan. Her business took in $60,000 from grooming services in 1999. Her bookkeeper advises her that the business' "operating expenses" were $40,000 in 1999. Therefore, Jan was left with $20,000 for her personal income from the business ($60,000 minus $40,000). Right?

To figure cost per pet grooming using the example above, take the $40,000 for total operating expenses and divide it by what? Yes! Divide it by the total number of grooming services Jan provided to earn the $60,000 gross income, or as we discovered above, 2,000 grooming services in 1999. Therefore, $40,000 divided by 2,000 equals $20. Now we know that it cost Jan on average $20 in labor, overhead (rent, gas, electric) to groom each pet in 1999. In other words, for every pet that Jan earned $30 from (on average) it cost Jan's business $20.

You can imagine that this number can be used to project future performance as well. Remember that Jan finally decided to project 500 additional new grooming services in the year ahead, totaling $15,000 more dollars rung up on the register than the previous year ($60,000) for a new gross of $75,000 total in the next year. Fine and good indeed, but there are new costs to groom more pets, more shampoo, etc.

To determine a good approximation of the new costs, take the last year's cost per pet, $20 (see above) and multiply it times the number of NEW additional grooming services Jan is shooting for, or 500. Therefore, $20 times 500 new grooming services is $10,000.

Here's the professional picture. Jan can talk quite like a pro now and say. Last year in 1999, we grossed $60,000 by grooming 2,000 pets at an average service fee of $30. My net personal income from the business was $20,000 before taxes. Next year I project the business to increase its gross income by $15,000 to $75,000 by grooming 500 more pets than in 1999, or a total of 2,500 grooming services at an average service fee of $30. As a result my personal net income from the business will raise from $20,000 in 1999 to $25,000 in the next year.

Jan has gone from an award-winning pet stylist, or average pet stylist, to making her way to also being a stellar business person that grooms.

Well folks, spend a few hours with us and if all you can do is add, subtract and multiply, all of this will become second nature to you by following The Madson Management System in From Problems to Profits, or by also attending our Workshop where you will learn this and more during the course. Everyone gets this personal training at the Workshop, and a lot more, and groomers that never thought they were "numbers people" get really turned on. It's a very rewarding experience to see so many lights go off.

    


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