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Our World Has Been Rocked. Our Businesses are Totally Changed. Good Numbers (part 1)

Recently, I presented two classes at IECSC in Las Vegas. One was “Good Numbers = Good Decisions”, and the second was “When Worlds Collide: The Future Fusion of Preventive Healthcare, Medical Spa, Wellness, & Lifestyle Services”. As I prepared to send the slides to the class attendees, I realized that there were some common messages in both classes. The underlying message in both was that our world, our businesses, and ourselves are completely and totally different because of Covid-19. There are financial issues that we need to prepare for, and there are steps we need to take to move forward and prepare our business planning for the future.

Covid-19 has changed everything. Our world has been completely rocked. We are changed; and our medspa, wellness, and day spa industries and business are changed. Our market and the clientele who comes to our businesses and their needs have changed. Going forward, can we even to do what we do? How can we possibly plan??

We’ve never been here before. Now is the first time in my consulting career that I have advised my clients to plan for the short term. Once we see how that goes, we can look longer term. There is no clear or defined path from here. Nobody knows what is going to happen. First and foremost, we must provide an environment that is safe for our staff and guests. What can we do to plan, and protect our profitability? Good Numbers are a necessity.

Our Sales Numbers are different now. Services & Packages could be 40-50% of pre-Covid Levels for a while. We might not be able to provide some of our previous services. Hair, Nails, Botox, and “Maintenance” services have bounced back quickly. In salons and Day Spas, more expensive packages started strong and now are slowing down. Because of lesser capacity and higher cost, should we be considering price increases? Another consideration is whether we are going to require that our services are pre-booked, and pre-paid. Are we going to require our guests to provide proof of vaccination?

Direct Costs are increasing to 58-69% from 55-65%. PPE is not cheap. Masks, shields, gloves, and linens could add $3-5 per service. Is a Covid surcharge merited? Are we going to require that our employees be vaccinated? Many of us currently find ourselves in a labor shortage. It is costing us more to get employees back to work. Many are paying signing bonuses. The increased available unemployment benefits have hurt us and many of us cannot service all our demand because we do not have the staff. I have been told by massage and aesthetic school owners in several states that enrollment is up as many people have looked at the pandemic as an opportunity for a career change. I do not know if this is occurring nationally or only in some markets. It is possible that disability insurance, unemployment insurance, and workman’s comp will increase. Employee health insurance will probably increase. Be cautious of your purchasing, and keep your stock of retail and professional inventories down. Try to ignore the great deals for big buys that your vendors are offering. Buy only what you plan on using or selling within the upcoming 30-45 days. Cash is king and cash flow must be managed carefully.

Overhead Expenses are up from 25-30% to 30-35%. It is time to negotiate what you can to the same % of sales as your pre-Covid numbers. This includes insurance, rent, and utilities. We can anticipate an increase in the cost of janitorial necessary for deep cleaning, HVAC duct cleaning, and fiour-world-has-been-rocked-our-businesses-are-totally-changed-good-numbers-part-1lters. Newly installed air purification systems will require maintenance. Plan on increased cost of business liability and hazard insurance.

Debt Service should be negotiated. It should remain no more than ½ of Net Income (EBITDA). Negotiate what you can to the same % of gross sales as your pre-Covid numbers. Be cautious of pending deadlines for PPP issuance and loan forgiveness, EIDL payments and Employee Retention Credits (ERC).

In closing, we have obstacles in front of us and it is going to impact the profitability of our MedSpa, Wellness, and Day Spa businesses. We are aware of these and must take action to continue to grow and make our business stable and sustainable.

As always, we’re here to help and answer questions. Contact us today for a free-initial consultation.

Next issue: Our World Has Been Rocked: Vision for the Future (part 2)


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