Surviving—and Profiting From—the Economy: Part 1

By Mark E. Battersby

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Every beauty store business experiences slow periods. Whether those periods are the result of economic downturns such as a recession (for which many experts predict the U.S. is heading), the economy in general, seasonal slumps or other factors beyond the control of the average beauty store business owner or manager, successful survival involves understanding why things are slow—and knowing how to correct them.
      The three best ways to survive any slump, real or anticipated, are to:

• Know your business well so you can fine-tune it to increase profits (see “Knowing Your Numbers,” below).
• Take advantage of federal income tax laws to minimize the bite of taxes and help pick up a bigger portion of your cost of doing business (to be discussed in Part 2).
• Employ cost-cutting strategies to help you weather the storm (to be discussed in Part 3).

This month, we’ll talk about how knowing your business well gives you a leg up during tough times. Not only can you survive a troubled economy, you may actually profit during one; such conditions often translate to additional bottom-line profits from increased sales and lowered costs. Here’s how to do it:

Diversification

Diversifying into a niche market within your own industry can help in uncertain times. Jones Company, for instance, sells both caskets and bulletproof vests—perhaps the ultimate in diversification. Naturally, there’s a steady market for caskets, while sales of bulletproof vests rise and fall with federal law-enforcement funds and the crime rate. Thus, you have one aspect of your business that remains consistent.

Distinction

Creating a market in which you have little or no competition can be especially rewarding. Suppose every yogurt supplier switched to 6-oz. sizes, but there was still a market for the 8-oz. size. If you’re the only supplier selling that size, there’s a good chance customers will focus on that aspect of the product, rather than the price. Of course, continuing to manufacture or sell an odd size, color, etc., that has been discontinued by others isn’t an automatic guarantee of success, but the investment may be minimal and the risk low—both key factors to surviving the economy.

Strategic Promotion

Design a campaign to promote products or services that carry the best profit margins. Or, advertise those services or products that are less in demand during slow periods. Make sure you utilize those media that will best reach the audience you feel will be most receptive.

Special Sales

A sale is the fastest and easiest way any beauty store business can boost revenue, draw customers and increase income during slow periods. However, don’t mark down the price of a product or service without knowing its cost (both direct and overhead, or indirect). Here, ignorance is likely to make tough times even less profitable.

Knowing Your Numbers
To remain pointed toward profits, you must be well informed about your business. No doubt you have the knowledge resulting from day-to-day observations and experience; however, the principal source of your information should be your records on sales, costs and profits.

     To illustrate, the profit and loss (P&L) statement (or income statement) is one of the most important indicators of any business's worth and health. Properly prepared, the P&L statement reveals the profit and loss figures for each product, product line, service or profit center, as well as the profit and loss of the entire business. Comparison is the key to using this information. Don’t look at only a single month's sales or only at your operation's overall profit picture. A P&L statement shows each item for the current period, for the same period last year and for the current year-to-date. This allows comparison between the current figures and those from an earlier period. The figures on all of your financial statements are meaningful only when the information is put into perspective. Costs that are out of line need attention, as do lower sales figures in specific areas.

     Your own sales records, your experience in the beauty industry and your general knowledge of the economy—national and local—should help you forecast a sales figure for the coming year. From this, you can develop a budget that shows costs as a percentage of that figure. That budget, properly prepared, will determine the health of your beauty store business, especially during those inevitable slow periods.

     Next month, we’ll look at how to use tax deductions and write-offs to lower your business’s tax bill, and legitimate strategies to maximize contributions from your not-so-silent partner: the federal government.

Mark E. Battersby is a freelance writer based in Ardmore, PA.

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