Budget For The Off-Season
The tanning salon industry can be a prosperous one, but it is important to expect that, while tanning salons make the most money during spring and summer months, slow months occur in the fall and winter. Many salon owners who don’t make it through the off-season don’t realize that a budget would have saved them from having to close their doors. Budgeting during the tanning season is extremely important. Don’t get caught without security money in the off-season. Plan for expenditures that will keep your business running by budgeting for basic operating costs, equipment, and supplies.
Just because money is rolling in during the season does not mean it can be spent frivolously. Putting money aside for basic operating costs should be a primary goal heading into the off-season. If you plan for the basics you will be able to successfully manage your tanning salon without having to close up shop.
Obviously, without the basics, your business would easily close. Rent is the first of the basic costs. It is important to have at least 2 to 3 months of rent saved up for the off-season. If you have a few really bad off-season months, at least you’ll have saved up enough money to keep your doors open without your landlord re-taking possession. You want to keep your salon doors open; otherwise, you will not be making any money to keep the salon afloat during these rough times.
Basic costs such as electric, phone and employee salaries are also extremely important. For utilities, such as electric and phone, You should save up at least one third of what you spend on these during the busy season. In other words, if you’re spending $1000 a month on utilities, you will want to put away $333 for the off-season. Your utilities will probably not be a third of your cost during the off-season, but it will help cushion the expense.
Tanning salon owners tend to forget that, not only do they need to keep basic operating costs going, they must continue to maintenance equipment and keep them running for customers during the off-season. These customers are of utmost importance because without them, you will not survive the off-season. Without keeping up with the maintenance on your equipment, like changing lamps, acrylics, etc. the customers will be turned off and either find another place to tan, or stop tanning altogether. Budgeting for lamps, acrylics and other equipment maintenance items will keep your salon in tip-top shape during the off-season. Not only that, but your salon will be ready for the busy months without having to scramble to put cash together to get everything in operating order for the season.
Survive the dreaded off-season simply by putting money aside. With these few areas of your business that need budgeting, you will be better poised for the off-season and will likely see another successful year.
Choosing the Right Lease
Many companies lease or finance equipment without considering the differences in expense deduction methods between a true lease or loan. It’s only after year-end when tax time arrives that they find out the type of lease or financing they chose did not maximize their possible deductions for that and future years.
The end of lease residual or purchase option is the primary factor that determines the tax handling of your lease. Every for-profit company in the U.S. has an amount of capital equipment they can purchase each year that can be fully expensed under I.R.S. Section 179.
If your company has not exceeded the annual limit, then a finance lease with a $1.00 residual may be the choice for you. On the other hand, if you have met your maximum capital purchase deduction for the year or regularly do so, you may want to choose a true lease with a fair market value residual or purchase option not less than 10% of the original equipment price. Since the total monthly payments of a true lease are normally expensed each year, you may be able to accelerate your equipment depreciation if the lease term is less than the term required to depreciate the asset under it’s classification. You will also save in the accounting costs associated with creating and managing depreciation schedules.
Another important factor in choosing your lease is weighing the benefits versus disadvantages between longer and shorter terms. Longer terms can provide for lower monthly payments and increased annual cash flow for revenue producing assets. The main disadvantage to longer lease terms is the higher balance you will have to pay off if you want to trade out of the equipment or buy-out the lease early for any other reason. If the equipment you are getting does not retain it’s value, depreciates in value quickly, or regularly becomes obsolete, it may be wise to choose a shorter term.
This article was contributed by Corky Downing of Lease Process.
