Creating a business plan for your salon presents the perfect opportunity to create a working cash flow statement (sometimes called a cash flow statement). This will enable you to make key cash flow decisions going forward.
Creating the Cash Flow Statement
It is highly recommended to start with an Excel template or sample financial model of some kind for your salon’s cash flow statement. It doesn’t have to be a model designed specifically for a beauty salon, but it should be for a similar business (ie, one that generates income through services and product sales, pays rent for a location, etc.) to minimal customization required. Starting with a template can save a lot of time creating the statement.
Three sections of a cash flow statement
This will describe cash inflows and outflows in three areas: operating activities, investing activities, and financing activities.
Operating activities include cash received from customers in the form of sales and cash paid for operating expenses. This will generally represent the highest inflows and outflows on the cash flow statement and should result in a positive number each month for a profitable business.
Investing activities do not mean the purchase of stocks or bonds by the company (although this type of rare activity would be included here). They are generally activities where the room invests in itself. Whenever a capital purchase of an asset is made (equipment, room lease improvements, furniture, etc.) the payments made will represent a cash outflow. If these assets are ever sold, the money contributed will represent a cash inflow here. In general, a going concern will have negative cash flow in the investment area.
Financing activities are related to the financing of the company by investors and lenders. When funders put money into the company in the form of equity or debt capital, this represents a cash inflow here. When dividends are paid, shares are repurchased from equity investors, or loan principal is returned to lenders, financing shows cash outflows. Please note that the payment of interest on loans represents an operating activity in the United States.
cash reserves
By seeing how low the ending cash balance falls each quarter, month, or week, you can determine the size of the cash reserves the business will need. Make sure cash reserves cover all negative balances and at least thousands of dollars more as a cushion to prepare for cost overruns or revenue shortfalls.
