10 Bookkeeping Mistakes Salon Owners Make & How to Fix Them

 

When you own your own business, you suddenly have more than one job. One of those jobs is bookkeeping. I want to thank you for taking the time to read this report: 10 Bookkeeping Mistakes Salon Owners Make & How to Fix Them.

My goal is to share with you the biggest bookkeeping mistakes I see working with salon owners so you can avoid these bookkeeping mistakes. Earn more, pay less in taxes and rest easy knowing your books are in order.

I’ve seen many stages of good and ugly bookkeeping. When I get a call to help a salon owner, the bookkeeping and accounting are usually in disarray. It’s not all bad news though. In a relatively short period of time, I am able to restore order.

I don’t want bookkeeping and financial disarray to be a part of your salon!

Please read these mistakes and see if they sound familiar to you. If you are making these mistakes that’s okay: I offer proven solutions too.

A word of caution: even the best solutions, in the hands of an unskilled bookkeeper, can actually make things worse. Imagine someone comes to you for a consultation for a makeover with a picture of what they want to look like, and you tell them the steps you will need to take to get them there. Let’s just say it some serious color correction with years of box dye and the photo is a beautiful pale blonde. You’re the expert, but the client decides “I can do that myself”.

Even worse: the client goes and tells YOUR solutions to Cousin Kelly who watched a few Youtube videos and colors her own hair which renders her a qualified “expert” and … I’m sure you can imagine the results: uneven color (and that’s just being nice), breakage, and possibly even scalp burns.

Don’t be the bookkeeping client with the splotchy hair and bald patches. Get REAL help. Whether from me or another qualified bookkeeper, just make sure your bookkeeper knows the tricks of the bookkeeping trade as they relate specifically to salons. I serve salons exclusively as their bookkeeper and trusted advisor. If, after reading this report, you feel you need help applying the recommended solutions, I encourage you to make an appointment to discuss your situation. I offer a free 30-minute consultation to salon owners to discover how you can move beyond the chaos and restore order to your salon.

To schedule your free consultation, visit https://www.salonbookkeepingsolutions.com/scheduling. I offer a limited number of free phone consultations per month, so that I may tend to my current clients. If, after you read this report you know you want to work with me, you can request and fill out an email consultation and get started sooner. Request your email consultation by visiting here, https://mailchi.mp/f365aadc4007/emailconsultation.

Mistake #1: Doing it yourself

Business owners are very independent, unfortunately, this means they don’t get help when they truly need it and try to do it all themselves. They may even start to guess their way through the bookkeeping process, which could mean categorizing expenses incorrectly, resulting in overlooking tax deductions, and missing deadlines because their books weren’t done in time because of trying to do all the things.

Solution

Team up with a qualified bookkeeper who will guide your business through the bookkeeping process, who is aware of these critical mistakes that salon owners can and do make, and is there to make you look like a boss at tax time.

Mistake #2: Always Going the Cheapest Route

Business owners are notorious for cutting costs wherever they can to increase their bottom line. What they don’t realize is that isn’t always the best action when it comes to hiring a professional.

I’m sure you’ve heard the saying “You get what you paid for”. As a salon owner, I’m sure you’ve said this to yourself when a client tells you your too expensive during a consultation.

Hiring an inexperienced bookkeeper could cost you more in the long run. It will look something like this: you pay the cheap bookkeeper to do work that doesn’t get done and they mess up your books. Next, you pay someone else to do the work the cheap bookkeeper was hired to do and to clean up the mess the cheap bookkeeper made.

Solution

Be sure any professionals you hire, whether a bookkeeper or a lawyer, know their professions and is well versed in working with salon owners. Don’t leave your books at the mercy of your well-meaning friend who took a couple classes in high school.

Mistake #3: Missing Tax Deductions

Most salons are missing out on legitimate tax breaks because they just don’t know. And, hey, it’s not their (or your) fault. You went to school to learn about hair, skin, and nails. How much time did you spend learning about taxes, bookkeeping, and financial matters?

I bet it wasn’t much if any and I know because I went to beauty school too. This lack of knowledge costs you lots of money over time. Don’t let this happen to you.

Solution

Develop a bookkeeping system that captures every tax break possible. This system needs to be tailored for you as a salon owner. The way we design our bookkeeping systems for our clients makes it difficult to miss out on tax breaks. You and your accountant will love the way this functions. And the best part is you know you’re capturing tax breaks in real-time.

Here’s a breakdown of what to avoid:

Throwing away receipts: Keep records a minimum of 7 years. If you are ever audited you may need to show proof of your receipts. I recommend both a digital and a hard copy. Note: original copies may fade over years, sometimes just months, so you may want to consider making copies if you aren’t keeping digital copies too.

Not keeping track of small purchases.

You may have heard that you don’t need to keep receipts if a receipt is under a certain amount, but this doesn’t mean that if you are audited you are off the hook for proof of that receipt.

When there is an asset purchase over a certain amount it needs to have a schedule drawn up for depreciation. For example, a salon purchases a massaging pedicure chair for $750 and it has an expected useful life of 5 years. It will depreciate over the 5 years. This needs to be recorded correctly not only to comply with accounting principles, but also the IRS.

Mistake #4: Keeping Incomplete, Non-Existent Or Outdated Books

You put your head in the bookkeeping sand and hope nothing bad happens. You turn over all your banking and “bookkeeping” records (a big box full of receipts) to your accountant at tax time and let her deal with it. After all, who has time for that mess? This is costing you LOTS of money. Below is a list of common practices for bookkeeping that is bound to fail.

Rarely looking at financial records.

Not recording expense details.

Entering Transactions and/or Reconciling once every few months or worse once a year.

Irregular and incorrect account reconciliation

Not using the bank statement to reconcile each month

Pretending that bookkeeping doesn’t exist and “doing the books once per year

Solution

The most likely reason for this is that you or someone within your practice is responsible for this activity along with about 20 other more pressing matters. It’s important to hire someone whose sole function is to care for the books. And, make sure this person is qualified to serve salons and is external to your practice.

Plan a system for tackling your books. They should be done regularly and using the same set of steps each time you do them so as not to miss any transaction or deduction.

Mistake #5: Commingling of Personal and Business Finances

The primary reason for forming an LLC is to reduce the owner’s liability risk. Treating your business’s money as your own puts you at risk of exposing your personal assets. Commingling includes the following:

Depositing monies earned by the business into a personal account instead of the business account

Using the business account as a personal account-making personal purchases or paying bills from business account whether by card, ACH or check

Using personal funds to pay business expenses

Using only one account for both personal and business

No documentation of the owner’s draw for withdrawals or checks written for personal account

Mingling accounts between businesses

Making company loans without proper documentation.

Moving assets between business and personal to gain funds

Solution

Keep separate, dedicated accounts, bank and credit cards, for business and personal.

When income is received it needs to go into your business account and when your business has an expense it is paid out of the business account. All personal transactions are paid out of your personal accounts.

Write a check or make a transfer to the personal account and properly document it (proper record-keeping is also crucial to protect your LLC protection) when taking a owners draw.

Keep a separate small wallet for cards or color code your cards with those little dot stickers.

Follow a budget so you won’t be tempted to pull money from the wrong account.

Mistake #6: Not Setting Up a Bookkeeping System Properly

You could be wasting time and money if your bookkeeping system isn’t set up properly. Every business needs a customized chart of accounts by which to record, classify and post within the books. If there isn’t a correct chart of accounts you could be improperly recording transactions and losing out on tax deductions.

Mistake #7: Loose Or No Controls On Your Bookkeeping, Financial And Banking Processes

This is the stuff of nightmares. The salon gives control of their bookkeeping, financial and banking processes. Usually, there are loose or no controls so if you end up with a dishonest employee…let’s not finish that sentence.

Don’t believe me? Google “Salon employee embezzlement” and witness the cases of unsuspecting salon owners who were taken advantage of. Use this link to see one prime example of an employee who ripped off a trusting salon owner.

Solution

No one other than you should have access to the banking records whether online or paper. Have your practice’s bank statements sent to your home address if you’re using snail mail or delivered to your PRIVATE email inbox if you receive them in electronic form. Establish sound bookkeeping, financial and banking controls at your salon.

Doesn’t that sound like a simple fix? It is! Apply this, along with the other financial controls I recommend, and you make it much more difficult for anyone to steal from you. However, even with these controls in place, there are more important things you need to consider as it relates to employee embezzlement.

That is a topic I do NOT want in writing as it gives thieves an understanding of what to be on the lookout for. If you like, please schedule your free consultation and I will discuss this with you in

private.

Mistake #8: Not properly classifying employees.

This happens more often than I care to mention. Misclassification of employees and independent contractors. Is that worker you hired an independent contractor or an employee? Get it wrong and you won’t just mess up your books. You’ll risk steep fines from the IRS.

Solution

Take care of the hiring and contracting process with the proper information being collected and stored properly. Know whether that worker is suppose to fill out a W4 it a 1099 and get it done as soon as possible.

Mistake #9: Failing to Accurately Report Sales and Payroll Taxes

If you are looking to get into the biggest mess if your life, this mistake right here will do it for you. Not deducting sales tax and moving it to its own account after collecting from your clients, inaccurate collection and reporting of sales tax. Payroll taxes not reported or worse paid.

Solution

I know there are some who hate to follow the rules but where your business is concerned if you still want to be in business there are done things you just have to do like taking though; like taking medicine when your sick. Having a quality bookkeeper keep these numbers straight for you help you to stay compliant and in business.

Mistake #10: Not Having A Written Budget That Is Recorded And Monitored

The number one differentiator between excellent and average performing salons is the use of a budget. For many of us, the word “budget” seems so boring. Let me assure you that the salons that outperform all the others, and experience financial success that is in the top 5%, all use a budget.

And they don’t just pay it lip service. These salons develop a budget. They incorporate the budget into their bookkeeping, they monitor it and they adjust their finances accordingly on a routine basis to ensure they reach their goals outlined in the budget.

Solution

Develop a budget. Work with someone who knows specifically about salons: more on this below.

Conclusion

If you saw yourself in some or all of these bookkeeping mistakes salon owners make your not alone. Fear not, because hiring a quality bookkeeper is the best next step you can take to start solving these issues.

Your to-do list of long and your days are short, so outsource your bookkeeping and save yourself the hassle of trying to do all the things.

Get up-to-date books at your fingertips and look and feel like a boss at tax time.

Schedule your free consultation today and get back to living your dream.