From the blog How to Create a Better Barber Shop Profit and Loss Statement

Part of running a successful barber shop is having a clear understanding of its cash flow. Every owner should produce detailed and up-to-date profit and loss statements through the year. This profit and loss document is also commonly referred to as a P&L or an income statement.

The document should accurately depict how the revenue of your business, minus all expenses, translates into net income. Having the ability to continuously monitor the operations and financial progress of your business has two major benefits to barber shop owners.

The first benefit of creating a better barber shop profit and loss statement is having a good feel for the flow of money into and out of your business. Armed with this knowledge, you can make important decisions with confidence, knowing that profits will be able to pay any additional expenditures.

For instance, if you are considering expanding your operations and adding more employees, you need to know that you’ll be able to cover the additional payroll. The second reason to keep accurate and up-to-date income statements is that they are often required by the IRS to assess taxes on your shop’s profits. In addition to the main reasons for creating a better barber shop profit and loss statement, the document will also be useful when and if you apply for a business loan.

The core elements of a profit and loss statement are simple. The first step is to calculate the total amount your business earned. Then, calculate your total operating expenses. Finally, you subtract the expenses from earnings, and the difference will determine your net profit (or net loss). Once you’ve mastered the basics of creating a profit and loss statement, you can fine-tune the document to better serve the needs of your business. Here are a few ways to create a better barber shop profit and loss statement:

Stay Organized and Meticulous in Record-Keeping

It’s impossible to create a functional profit and loss statement without keeping detailed records of every expense and earning of your barber shop. Good financial records are the base of the P&L document. The first step in creating a better income statement is ensuring your bookkeeping is in order. You can either purchase software like QuickBooks and do your own bookkeeping or hire a professional to do it for you.

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Choose Date Range and Keep It Consistent

Once your bookkeeping is in order, select period on which to base your profit and loss statement. This date range can be annual, semi-annually, quarterly, monthly – any period that most makes sense for your shop is fine. Most importantly, stick to the same date range for each of your income statements. When you use a regular date range, you can better analyze the financial trends of your shop year over year and diagnose any problems.

Calculate the Revenue of Your Barber Shop

The next step in creating a profit and loss statement is to calculate the total revenue of your shop. Not all barber shops have the same revenue streams. Some barber shops use the “chair rental model.” In this case the revenue would come from a hair stylist’s monthly rent. Others rely on retail sales to bring in additional revenue. Regardless of the source of revenue, calculate the total for the selected date range.

Calculate the Expenses of Your Barber Shop

After you have added up your shop’s total revenue, it’s time to calculate the total expenses. If you have a paid staff, that means payroll will be included in this calculation. Other expenses include rent, cost of retail products, replacement equipment, utilities, payment processing fees, taxes, marketing and advertising, and any other outgoing funds.

Calculate the Net Profit After Income Tax

Once you’ve tallied your total revenue and total expenses, you can calculate the net profit. You may want to break this down into more specific figures such as gross profit or operating profit. Gross profit is the different of sales minus cost of goods sold, while operating profit is the gross profit minus all other expenses. You’ll likely also want to calculate the net income of your barber shop, which is the total amount of money that remains after income taxes. This number is the true amount of money your business profited during the given date range.

Use the Information to Improve Your Profit Margins

It’s difficult to improve the profit margin of your business when you are in the dark about how much you’re spending and where you can trim the fat. Creating a reliable profit and loss statement is a major step towards improving the bottom line of your business. When you evaluate your P&L document, you can see exactly where your expenses are highest. Then you can take actions like changing payment processors, which can save you on fees.

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