Services Industry ~ TAILORED FINANCIAL MANAGEMENT & ACCOUNTING SOLUTIONS!

Every business provides some type of service to a consumer, so why are they not all considered "Service" businesses? What is a Service Business? 

A business (or self-employed person) that provides a specific service to anyone on an appointment basis is typically considered to be a service business. Usually, there will be one person providing the service for one individual at a time during a pre-scheduled appointment at either your location or their location.

There are many, many types of service businesses looking after you, your family, your home, your pets, your vehicles, your legal affairs... the list goes on and on. Here are a few examples:

• Salons - hair, nails, beauty, eyebrows, eyelashes, tanning, etc.
• Spas - massage, facials, face and body treatments, saunas and mineral baths, etc.
• Fitness - one-on-one personal trainers, yoga instructors (1:1 or group), aerobics instructors (1:1 or group), etc.
• Health & Wellness - therapists, naturopath, osteopath, Chinese medicine, dietician, acupuncture, hypnotism, etc.
• Home - house cleaners, landscapers, lawncare, window cleaners, gutter cleaners, housesitting, etc.
• Pets - veterinarian, grooming, pet sitting, training, daycare, dog walking, etc.
• Other - notary, lawyer, passenger transport, delivery services, wedding planners, interior decorators, car cleaning, mobile mechanic, etc.

I love living on the island because there is an abundance of great service providers available to me for just about anything I desire, and because of our small-town feel and community spirit, word-of-mouth references are plentiful so I know I have options. I love supporting small businesses and entrepreneurs. It's even better that I have my own small business allowing me to work with other small businesses scattered throughout the quaint and picturesque towns, villages and communities of Vancouver Island. 

As a service provider along the east coast of the island it's highly probable that you are the owner-operator of your own business. You're all about providing a great service to your clients, with a perfectly choreographed appointment system, in your "Goldilocks" (just right) atmosphere. You love getting to know your clients, having great conversations with your regulars, and making new friends. 

Managing the books for your service business is a fairly simple process that most owner-operators can easily master themselves with a little guidance and training. If you prefer to do it yourself but don't know where to start, we can provide custom one-on-one training to get you going, but the information below could very well be all that you need at the moment. On the other hand, the demands of the back-office and your books may be your least favourite part of running your business, you really don't have the time, or you simply don't have a head for numbers like some of us math geeks. No problem! We know exactly what to do and how to do it and we can make your life easier by taking a couple of things off your plate or even emptying it altogether.

1. Your Foundation - Chart of Accounts
2. Inventory Management & COGS/COS
3. Multiple Payment Methods
4. Reconciliations
5. Pricing, Budgets, & Planning
6. Payroll
7. Sales Tax Compliance

A common misconception amongst service providers is the belief that there is no cost associated with your services and that after you pay your overhead or operating expenses, it's all profit from there on out. While it may appear that the cost of service (COS) is non-existent or lower than other types of businesses, this approach is devaluing your time. Additionally, supplies (consumables) you need for your services can be very costly, and it is important to know what your profit margins are on each service you provide. 

All of your supplies and materials that you need to provide a specific service plus your hourly "wage" times the length of the appointment time needs to be calculated and tracked as your cost of service. Additionally, if you require a unique piece of equipment or furniture to provide a particular service, you should also include your amortized expense for your purchase cost. Note: if your furniture and equipment is used to provide all, or most of your services, you don't need to include it in your cost of service. For example, a hair salon uses their chairs and sinks for all of their services so their depreciation expense can be tracked as a general operating expense, but bleaching and colouring hair costs a lot more for consumables than a haircut and blow-dry. On the other hand, if you have a spa providing many different services, and you need a pulsed dye laser for treating rosacea, then you should include the amortized expense of the laser in your cost of service for rosacea treatments.

Calculate your COS:  (Purchase Cost of Supplies) + (Labour Expense for Appointment Length) + (Amortized Expense for Service-Related equipment) = Cost of Service

We can assist you with determining your COS or we can manage it for you.

If you offer products and/or branded merchandise for sale, you should treat this side of your business as a mini retail store within your service business. You will need to carefully manage your inventory by individual product, quantities on hand, your cost to purchase, and your markup for resale. Your accounting system should be robust and your bookkeeper should be vigorous and accurate in tracking your inventory levels, valuation, COGS (Cost of Goods Sold), product variations, and your product pricing. Your accounting software should allow you to manage inventory and COGS so that when you record a sales transaction, the system automatically moves the item(s) from inventory and into your COGS expense so you always know what your gross profit margin is per product and have accurate quantities on hand so you know when you need to reorder. At By All Accounts Bookkeeping, we use accounting software that allows us to efficiently and effectively manage your product inventory using the FIFO method (First-in/First-out) and can provide you with a variety of inventory reports to help you make decisions about your product lines and prices.

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Pricing is a very sensitive and critical piece of being successful. You will need to rely on a lot of calculations and reports to really get good at your pricing so that you are competitive and profitable. While there are a few methods of calculating effective pricing, combined with distinctive pricing strategies, you will need to have a solid grasp on the following data:

• Cost of Service (including labour costs)
• Cost of Goods Sold
• Periodic Fixed Expenses
• Other labour expenses (outside of "billable" services)
• Operational expenses
• Average sales mix (what proportion of your income comes from which services and products)

If you are recording the necessary transactions in your accounting software, you will be able to report on all of the areas above, providing the information necessary to develop your pricing.

You've already gone through a good portion of the budgeting process while calculating your COS and deciding on your pricing. Take it a step further and plan your income and expenses out for the year ahead. Setting your pricing has given you big hints about areas of your budget that you need to pay special attention to if you want to be more successful. 

Let's use a hairdresser as an example on this concept of pricing hints. A hairdresser has been charging $150 for highlights, cut, and style for all hair lengths, for the past year which she was pretty happy with. Her plan was for it to take 2 hours from start to finish. After she has gone through the process of identifying her COS for all of her services, she was mind-blown that she's been losing money the whole time. She has decided that her hourly rate is $50/hour, and she's calculated the average cost of her consumables for mid-length woman's hair highlights @ $32 resulting in a COS of $132. She figured the extra $18 was more than enough to cover her other expenses for running her salon.

She then reviewed her overhead, depreciation expense on her furniture, tools and equipment, and other operational expenses per month, divided that amount by 160 hours worked per month and was shocked that she's losing money charging only $150. And, that does not even account for the fact that she has actually been spending 2.5 to 3 hours from start to finish, and if her client has long hair she has to use twice the amount of product, and if her client has really dark hair or damaged hair, she has to change her approach and use different products that are more expensive.

Now that she knows she's losing money after going through the COS and pricing exercises, she has decided to increase her price to $180 plus contacted her main supplier for her consumables and insisted on better pricing and bulk discounts so her COS can be reduced at the same time.

She doesn't want this to happen again with any of her services, and so at the beginning of each year, she prepares a budget based on seasonal averages, and uses her reports and analysis to plan out her income, COGS, and expenses in detail, month-by-month. Each month, she runs her Budget Variance reports to see where she needs to make additional changes in her operations to stay in line with her plans.

We can help you prepare a thoughtful and intentional budget to keep you on track for growth, as well as provide variance reporting and valuable insights into any potential problem areas.

Understanding your financial health in your business is essential. When your income, COS/COGS, and expenses are all tracked in a timely and error-free manner, reporting on your productivity and profitability is a breeze! We can provide regular, customized reports and help you to analyze your profit margins on specific services, product lines, or classes of services. With this information at your fingertips you are empowered to make informed and strategic decisions about your pricing strategies, product and service mix, resource allocation, and even hours of operation. 

Your analysis will inform your pricing strategies and budgets to start the planning cycle again. Ultimately, you will  maximize your profitability and identify new opportunities for growth.

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