Could your financial team be making these three spa bookkeeping mistakes?
As much as you need these bookkeeping and accounting professionals to help you with your spa finances, I'm going to tell you why you shouldn't follow their lead blindly. It could cost you serious money in back payments to the CRA or IRS!
A private coaching client allowed me to share an extremely frustrating story about her spa business. She had a bookkeeper AND accounting team who she entrusted her business finances with. Unfortunately, she was audited by the CRA, and they discovered mistakes all over her books, and she was given a bill to pay the government $32,000.
I asked her if she had been paying closer attention to her profit/loss and balance sheets, would she have been able to catch these mistakes sooner? She admitted that she may have seen red flags, but there was no way she had the knowledge to find the multiple flaws.
As spa owners, its may not be reasonable for us to catch all of these mistakes but knowing enough about spa-specific financial literacy is essential so that you can recognize red flags and begin the detective work to see where things have gone wrong. This topic is what we're working on in Cash-Strapped to Cash Flow.
Gift Certificates & Series Sales
A gift certificate is not a revenue until it’s been redeemed. This goes the same for series sales. Therefore, neither shouldn’t be included in your profit/loss statement when they’ve been sold. If they are being included, you will be paying more sales tax to the government every quarter plus, your year-end revenues will look higher and tada!…you’ll be paying more in income tax.
Financial service companies that don't have experience with gift certificates and series sales, may not catch this. I’ve seen it happen many times.
As a new spa owner, I learned about how to run a business from my previous employer. And she learned from watching her previous employers. When we're starting out (and learning new habits, good or bad) we may have no idea if what we're doing is actually correct. We’re an industry that has a history of poor knowledge about great business practices.
The spa industry is notorious for the blind leading the blind.
Traditionally with gratuities, if a client has left one on a credit card, the receptionist would simply take the tip out of the cash drawer and put it into the service provider’s envelope. Not surprisingly, a large percentage of spas do not account for these gratuities on payroll, which is a mistake.
Any money that goes through the company has to be claimed legally by the spa. This means that any tips that are going through the credit card machine and accounted for on your POS need to be added to the service providers payroll. Yes, you will be paying more in source deductions (incrementally) and yes, your team may not be happy they are now being taxed on that income, but it is the legal and right thing to do.
If you look at your profit/loss and balance statements and want to run away and bury your head in the sand, you’re not alone. But the fact is, to be an empowered spa owner who can make decisions wisely, you must find a way to educate yourself to understand your spa finances.
Do you had a nightmare story about your spa business bookkeeping or accounting? What did you learn from it?
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