Episode 265
Financial Foundations for Beauty Business Owners: Cash Flow, CFOs & Cushioning Risk | Kevin Caldwell | Founder & Advisor, Islands East Advisors | Founder & Consultant, Islands East Financial Solutions
Financial advisor Kevin Caldwell shares the money moves every beauty business owner needs to know—from separating personal and business finances to building an emergency fund, leveraging fractional CFOs, and mastering cash flow so your salon can thrive today and in the future.
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KEY TAKEAWAYS:
🔅Separate personal and business finances—mixing them can put your personal assets at risk and complicate taxes.
🔅Build a 3–6 month emergency fund to protect your salon or chair rental business when unexpected challenges arise.
🔅Leverage a fractional CFO to gain expert financial guidance without the cost of a full-time hire.
🔅Stay ahead on taxes—plan throughout the year instead of scrambling in April.
🔅Master cash flow forecasting so you can anticipate slow seasons, manage payroll, and make smarter growth decisions.
🔅Plan for the future—whether expanding, opening a new location, or preparing for an eventual exit.
👉Islands East Advisors website
👉Islands East Financial Solutions website
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Transcript
Kevin Caldwell is the owner and advisor of Island's East Advisors and he is the owner and consultant of Islands East Financial Solutions.
Speaker A:Kevin has a BS in accounting from Penn State with over and has over 20 years of experience in accounting, financial planning and strategy for public companies.
Speaker A:I want all of my hairpreneurs, barbers and hairdressers to listen up because in today's episode you're going to find out what you need to know if you are building or running a business and trying to figure out your money.
Speaker A:My name is Robert Hughes and I am your host and today I'm with Kevin Caldwell.
Speaker A:How are you doing today?
Speaker B:Great.
Speaker B:Glad to be here.
Speaker A:Awesome everybody.
Speaker A:I met Kevin through Don Chestnut who helped us when we were looking for some folks in the financial industry.
Speaker A:We try to have financial advisors, planners, people to help us with figuring out strategy to be part of the beauty business brunch which just passed.
Speaker A:And, and we're.
Speaker A:I'm so excited to build this relationship and meet you.
Speaker A:I think some of the stuff that you're doing, it sounds really interesting.
Speaker A:We had a pre conversation before we started about something that you sent me in your email about how you work with different businesses across different industries and you've seen pitfalls and across different industries that are similar.
Speaker A:So like people are making the same, having the same issues also that you, you've noticed that so many small business owners, they, they are lacking so many resources and, and the, and you also said I'm not going to tell say everything you said because I'm going to let you say it but, but I just felt like that was like this is such a good conversation to have.
Speaker A:So real quick, why don't you give us like, like the high, super high level kind of understanding of what it is that you actually do.
Speaker A:We mentioned two companies in the opening.
Speaker A:Could you just tell us like what is each company and, and then we'll go from there.
Speaker B:Yeah.
Speaker B:Islands East Advisors was the first company I started and it's a financial advisor firm.
Speaker B:So investment management, personal financial planning.
Speaker B:And I started working with some business owners in their personal finances and realized they needed help with their, with their business side so that we could do their personal financial planning.
Speaker B:So I realized that they had very similar issues across many different companies.
Speaker B:So I started the second business, which is Islands East Financial Solutions to focus solely on fractional CFO business consulting.
Speaker B:And it just helps to understand the business if you're going to help somebody, especially a small business owner where their personal finances are so intertwined with their business finances.
Speaker A:Okay.
Speaker A:So you basically are helping people with their money and then you realize with small business owners, because that money is intertwined.
Speaker A:How you said that intertwined.
Speaker A:You went also into the business side as well.
Speaker B:Correct.
Speaker A:And then there's like this whole movement.
Speaker A:I or not, I don't know if it's a movement, but like a trend.
Speaker A:I'm seeing frac, the fractional CEO, the fractional cfo, the fractional cmo, basically fractional C suite.
Speaker A:Could you tell us what does that mean for anybody who's never heard that before?
Speaker B:It's really getting access to.
Speaker B:So fractional CFO would be basically getting a part time cfo.
Speaker B:So you're getting those services for small businesses that don't really need a full time CFO or full time financial analyst.
Speaker B:You're able to get them for part time work.
Speaker B:So it's a fraction of the cost, but you're still getting all that expertise and they can do it across different companies and different industries.
Speaker A:So.
Speaker A:And for anybody who is listening that doesn't know what a CFO stands for and what they do, could you tell us what is a CFO and what is, what is the typical thing that a CFO does that would also translate into like a small business owner?
Speaker B:So CFO is a chief financial officer.
Speaker B:So they're the financial officer overseeing all the accounting and finance for large corporations.
Speaker B:So they, they really get involved.
Speaker B:It's not just the numbers.
Speaker B:They get involved with strategy of the company a lot as well.
Speaker B:And it's important, you know, for depending on the size of the company.
Speaker B:You know, I don't always like the term fractional CFO for what I do because I really get into financial analysis.
Speaker B:I don't do the accounting, the actual accounting work, the tax work.
Speaker B:So you still need a CPA.
Speaker B:Whereas a lot of fractional CFOs will focus on the tax side and all the financial analysis as well.
Speaker B:I get into business operations more than I get in the tax side.
Speaker B:So I still collaborate with CPAs.
Speaker B:I get in the business side using financial analysis and making sure I understand the business and the customer service and the operations to help, you know, drive that business.
Speaker B:Really it's for businesses that want to grow and the p. The reason a small business owner needs that help is because most people don't have that background, don't understand how to analyze the numbers and how to scale a business.
Speaker B:And every business is different when you're looking at scaling.
Speaker B:So if it's a business that wants to grow, you need to have an understanding of how to analyze the business from the financial side and how that translates into your operations and your customer service.
Speaker A:All right, so let's get right, let's just jump right in and I'm gonna ask questions.
Speaker A:So like if there's a.
Speaker A:There are, there are mainly two, arguably three types of audience members that I'm thinking of right now.
Speaker A:I think, I think everybody in the industry is who, who's a, who's a fan of hairdresser, Strong show will be interested in this because they know that we like to talk about business and money.
Speaker A:But in general, I'm thinking like there are business owners, small business owners.
Speaker A:So you have like the solo entrepreneur, we call them independent stylists.
Speaker A:They rent a chair, they rent a suite, or they go to people's houses, or they have people come to their house or something like that.
Speaker A:But they, they don't have a staff, they don't have a team.
Speaker A:And sometimes they have rent, but not all the time.
Speaker A:Let's go with the ones that have rent.
Speaker A:So like someone who's renting a chair or renting a suite.
Speaker A:And so there's that person and then there's the salon owner who has a team.
Speaker A:You know, the different sizes might vary.
Speaker A:And then you have like a multi location salon or barbershop owner.
Speaker A:So you got the barbershops owner slash salon owner.
Speaker A:You got the, the, the independent stylist who's renting a space and just is a one person show.
Speaker A:And then you have the, the multi location shops.
Speaker A:So tell me when you're thinking about the solo person, first of all, do you work with any solopreneurs, like one person shops?
Speaker A:Have you had, have you worked with anybody that, like that?
Speaker B:Not specifically in hairdressing, but some creative industries, so some digital media people.
Speaker A:Okay.
Speaker A:Okay, awesome.
Speaker A:So, so when you're thinking about like the solo person and what, what is it that, that person that you've noticed?
Speaker A:What are the things that they need to pay special attention to?
Speaker A:Or maybe some common pitfalls that, that the audience can make sure that they're avoiding.
Speaker A:If they're, if they're an independent stylist or barber.
Speaker B:Some of the first things are dealing with tax and risk essentially.
Speaker B:So, so a lot of people when they start out a small business like that, they try to load up as many personal expenses on their business as they can to minimize their taxes.
Speaker B:Everybody, nobody wants to pay taxes, but putting personal expenses through your business is not the way to do it.
Speaker B:And the risk of audit is one thing, obviously.
Speaker B:And then different industries have different risk Profiles.
Speaker B:So some of this know.
Speaker B:Depends on the industry.
Speaker B:But if you were ever.
Speaker B:One thing that people don't understand is if you were ever sued, even if you started a.
Speaker B:And most of these probably are, I would assume are not LLCs.
Speaker B:They're doing it on their own.
Speaker B:But some of them might form an llc.
Speaker A:Actually some of them are forming S corps.
Speaker A:That seems to be like, I don't know, at some point, like it seemed like everyone was switching over to an escort.
Speaker A:It's like went viral all over social media.
Speaker A:I would say probably LLCs and escorts, but there are definitely sold.
Speaker A:Sole.
Speaker A:Sole proprietors.
Speaker A:Doing it as a sole proprietor for sure.
Speaker B:Okay.
Speaker B:This, this doesn't necessarily relate to the soul the sole proprietors because they're not thinking they're getting the limited liability.
Speaker B:And again, I'm not a lawyer, so I can't give legal advice.
Speaker B:But in general, a good lawyer.
Speaker B:If you had a judgment or a.
Speaker B:Or a lawsuit against you and you weren't separating business and personal expenses properly, you're not doing corporate formalities under an LLC or S Corp.
Speaker B:Meaning you're not showing that you have an annual meeting and keeping minutes, treating it like a company.
Speaker B:They will pierce that corporate veil in a lawsuit and your personal assets could become part of the lawsuit.
Speaker A:Hold up, hold up.
Speaker A:Wait a minute.
Speaker A:Okay, so let me just make sure I have this clear because this is huge and if anybody's not.
Speaker A:Didn't miss that.
Speaker A:You got to listen to this.
Speaker A:If I understand you, you're saying that in my S Corp I should be.
Speaker A:I have there.
Speaker A:I have things that I have to document.
Speaker A:Like, I have to have.
Speaker A:What are you saying?
Speaker A:Like board meetings or something like that.
Speaker B:You should have at least an annual meeting and document those minutes.
Speaker B:And it could be just going over your budget for the year.
Speaker B:And even though it's with yourself, document your.
Speaker B:Your budget and what your goals are for the year and how you're going to get there.
Speaker B:It doesn't have to be extravagant, but it has to show that you are actually running a company because that's what you formed.
Speaker A:Does it have to like be like a document where it says like me meeting minutes, this meeting?
Speaker A:Or can it just be like my notes where I sat down and did my finances, my fin.
Speaker A:Like my spreadsheet that I did, my financial plan.
Speaker A:Plan on.
Speaker B:It doesn't have to be that formal, but you definitely want to document it and keep track of it.
Speaker A:All right, so if you don't do that, if you're not working on your business and you don't have documentation for it, then if you get sued and the lawyer who represents the other party who's suing you looks through your stuff and says, oh, your business is only worth 10 grand, but I'm trying to sue you for 100 grand.
Speaker A:I see you own some real estate property.
Speaker A:Let's look at your business.
Speaker A:Your business isn't actually a business.
Speaker A:You've never done any business.
Speaker A:You just filed the paperwork and thought that you were protected.
Speaker A:But the reality is, no, you now, you know, have that.
Speaker A:That corporate or, you know, LLC or escort, whatever, protection anymore.
Speaker A:Now they can come after your home.
Speaker B:Exactly.
Speaker A:Whatever.
Speaker A:Oh, my gosh, that is so huge.
Speaker A:So.
Speaker B:And they don't tell you that when you're forming the llc.
Speaker B:Right.
Speaker B:Everybody thinks, oh, I'm just going to get this llc and then I'm protected.
Speaker B:But yeah, there's all those things that you have to do in running a company, and most of the ones that I started working with were running so many personal expenses through their business because they didn't want to pay taxes.
Speaker B:And again, I don't want to pay any more taxes than I have to.
Speaker B:But if you.
Speaker B:As soon as.
Speaker B:As soon as a lawyer would see those books, all bets are off.
Speaker B:There's no limited liability left.
Speaker B:And again, check with your lawyer.
Speaker B:I'm not giving you legal advice, but.
Speaker A:Right.
Speaker B:Definitely.
Speaker B:Your lawyer will tell you the same thing.
Speaker A:Yeah, well, I mean, it sounds like a good lawyer will know to look for that if they're suing you.
Speaker B:Absolutely.
Speaker A:That's what I'm more worried about than anything, because it's not like it's.
Speaker A:It's not like, oh, who's gonna know to do that?
Speaker A:Or who's gonna look at my books?
Speaker A:It's like, dude, if you get lawsuit and you get subpoenaed and your books get subpoenaed.
Speaker A:Wow.
Speaker A:So I know you're not in the business of insurance, but, like, the first thing that comes to my mind, an umbrella policy.
Speaker A:Does that have anything to do with any of this that we're talking about?
Speaker B:Well, that certainly could help.
Speaker B:Depending on what your assets are and how many businesses you might have, an umbrella help policy could certainly help.
Speaker B:Absolutely.
Speaker A:Okay.
Speaker B:Yep.
Speaker A:So it's.
Speaker A:Okay.
Speaker A:All right, well, so if you have an umbrella policy, you might have a little bit of protection, but ultimately we need to start doing some.
Speaker A:One meeting a year.
Speaker A:That's.
Speaker A:Is that.
Speaker A:That's the bare minimum.
Speaker B:Yeah.
Speaker B:At least that shows you're.
Speaker B:You have some corporate formalities.
Speaker A:Wow.
Speaker A:Okay.
Speaker A:That is.
Speaker A:I did not expect you to Say this, this is like, I just learned something today.
Speaker A:This is amazing.
Speaker A:All right, okay, so.
Speaker A:So that's the big thing is like mixing commingling like your personal and your business finances.
Speaker A:Not.
Speaker A:Okay.
Speaker A:Because that can make you look like you're like funny business and not having any sort of documented meetings.
Speaker A:All right, and.
Speaker A:Okay, cool.
Speaker A:So what about, what about the person who owns a business who has like a team of employees?
Speaker A:What are the common, like, pitfalls or, or things you see that can mess with them or.
Speaker B:Yeah, some of it is in, in your industry, this probably gets to be a fine line.
Speaker B: The: Speaker B:Yeah, right.
Speaker B:There's always that fine line.
Speaker B:So you got to make sure that, that, you know, the IRS is really looking at that a lot.
Speaker B:And you got to make sure that you're staying within the bounds on, on those issues.
Speaker B:The other part is just cash flow management and forecasting.
Speaker B:Right.
Speaker A:Tell us a little bit about that.
Speaker B:Well, when you start scaling, I mean, everybody should do some type of forecasting and cash flow planning.
Speaker B:But, you know, a lot of businesses have uneven cash flows because they either have uneven expenses or uneven income, you know, revenue coming in.
Speaker B:And if you're not planning properly for that and have the proper emergency funds and understand how that cash flow can change over time, you could get caught not having the money to pay your bills.
Speaker B:So, you know, managing cash flow and taxes are two of the biggest things for the smaller businesses that, that's not that difficult to get a handle on.
Speaker B:But typically most of them need a little bit of help because, you know, most of the people that I started working with early on, which helped me form the business, was they would take a box of receipts and statements to their CPA after filing an extension, they give it to them in September for the prior year, and they'd figure out what taxes they owe.
Speaker B:And some of them could be, you know, six figure taxes.
Speaker B:And they're already three quarters of the way through the next year.
Speaker B:So they're essentially two years behind because they haven't saved for it.
Speaker A:Whoa.
Speaker B:And okay, that takes years to get out of that rut.
Speaker A:Right.
Speaker A:So.
Speaker A:Okay, you said something, you just said something right before.
Speaker A:Yeah, so like the, like.
Speaker A:Oh, yeah, I heard you mention an emergency fund.
Speaker A:It kind of like kind of just like went over that.
Speaker A:I want to just pull a little attention.
Speaker A:There is.
Speaker A:So are you saying.
Speaker A:And I'm being a little facetious here.
Speaker A:So are you saying that not only I need an emergency fund for me, Robert, but I also need an emergency fund for hairdresser strong as well.
Speaker A:My business or if I have a salon or a suite or whatever, I mean, we just talked about sweets.
Speaker A:But if I have a salon or a barbershop, I need to have emergency fund for that as well.
Speaker B:Absolutely.
Speaker A:Okay, so what, what is emergency fund look like?
Speaker A:How, how much money should go in an emergency fund?
Speaker B:It depending on the industry and the cash flow and what your expenses are.
Speaker B:I mean, usually it's similar for personal and for business.
Speaker B:You're looking at somewhere between three and six months of expenses.
Speaker B:And you can, you can even break it down on business as non discretionary expenses.
Speaker B:Right.
Speaker B:Because there's some of those expenses that might be viewed as fixed expenses that you can cut if things really started getting tight.
Speaker B:So you got to analyze your expenses a little bit and figure out what are the necessary expenses I would really need.
Speaker B:And sometimes it depends on the risk profile of the business owner too.
Speaker B:Some people might be more risk adverse and say, wait, I want six or nine months.
Speaker B:That makes more sense to me.
Speaker B:But it's somewhere in that range.
Speaker B:You're gonna we.
Speaker B:When we help analyze.
Speaker B:It's somewhere in that range.
Speaker A:Well, you know, I think Covid woke up a lot of people to the need for an emergency fund because there are a lot of folks who aren't good at doing their taxes and staying up time.
Speaker A:Like I heard at the, at the conference we were just at, there were people that.
Speaker A: s up to date or, or they were: Speaker A:And if they didn't have a fund, they were like thinking about walking away from their business because it's like, you know, because some landlords were like, I don't care.
Speaker A:You need to pay me or leave.
Speaker A:You know, like, I know a number of people who had to pay everything, and I know some people who didn't have to pay at all, which is awesome.
Speaker A:But yeah, I think Covid, but like, you know, what's the likelihood of another pandemic?
Speaker A:But like, we could have a big economic crash, you know, and those are a little more common than pandemics, and that could like, slow down business enough.
Speaker A:So.
Speaker A:Okay, cool.
Speaker A:So where should this money.
Speaker A:Where should I do this money?
Speaker A:Can I like, put it in stock market or, or can I buy it, put it in a real.
Speaker A:Can I put on a new Roof.
Speaker A:And it's like, oh, my house has three to six months worth of money in, you know.
Speaker B:No, you should have.
Speaker B:You should have that in a savings account.
Speaker B:I mean, you could.
Speaker B:You can do, like, money market accounts within, you know, Schwab Fidelity, your custodian.
Speaker B:If you have other assets there, usually you can set up a separate account that just has money market in so that you want quick access to it, to these funds.
Speaker B:Right.
Speaker B:That's why they're emergency funds.
Speaker B:But you really want to use them solely for emergencies.
Speaker B:So if you don't have an emergencies for five years, then that fund's kind of growing, basically because you're not touching it, especially nowadays.
Speaker B:Yeah, exactly.
Speaker A:That's been a big difference.
Speaker A:So, so, so my.
Speaker A:The word liquidity comes in, like having liquid.
Speaker A:Liquid assets.
Speaker A:And for all those folks who don't know what liquid means, it just means what Kevin just said.
Speaker A:You need to be able to grab it whenever you need it.
Speaker A:It can't be something that's tied up.
Speaker A:Like if you do put it in the stock market and the stock market takes a dump, which is the win.
Speaker A:You need the money.
Speaker A:Like, you just lost all that.
Speaker A:You potentially could lose half of your emergency fund.
Speaker A:All right, cool.
Speaker A:This is, this is good.
Speaker A:So let's.
Speaker A:What about the multi shop or salon owner?
Speaker A:You know, two multiple teams, multiple locations, anything that's unique to them.
Speaker B:Well, that's when you really start getting into a lot more of the financial planning and analysis.
Speaker B:When you really want to scale into multiple locations, you're typically going to have different rent profiles, different expenses at different locations, you know, possibly different marketing.
Speaker B:There's a lot more that goes into that.
Speaker B:It just, you know, with each of those three that you talked about, from the solopreneur up to the multi unit, you know, business owner, the scale of the financial planning and analysis just gets larger and larger because the scale of the operations getting larger.
Speaker B:And there's a lot more to analyze.
Speaker B:You might have one location that's not doing as well as the other, and you got to figure out why.
Speaker B:And, you know, one thing that with.
Speaker B:With analyzing numbers as well is that if you don't understand the customer service and the operations behind that, you could.
Speaker B:You could derive different things from the same numbers.
Speaker B:Like, you could have 10 financial analysts analyze the same numbers and probably come up with five or six different answers.
Speaker A:Oh, that's interesting.
Speaker A:Why is that?
Speaker B:Because it's not.
Speaker B:It's not just an exact science.
Speaker B:Numbers don't tell you everything.
Speaker B:You have to learn how to interpret them.
Speaker B:And if you don't understand the business and what the goals are, are of the owner, what the customer service is like with the operations, what's going on with the operations, then you might be missing things on how to interpret those numbers.
Speaker A:Gotcha.
Speaker A:So let's talk a little bit about financial planning and strategy.
Speaker A:I don't know, I feel like I wanted you to just tell me like the audience is definitely going to be interested in learning, kind of upskilling themselves or leveling up their education when it comes to financial strategy and planning.
Speaker A:Because pretty much everybody wants to do one of two things or three things.
Speaker A:They def want to retire.
Speaker A:I mean pretty much everyone wants to retire.
Speaker A:But some people, that's their goal.
Speaker A:Like that's the reason why they might be listening to this right now.
Speaker A:Other people might want to, they might want to sell their business, they might want to scale their business.
Speaker A:So that's three there, I guess there's one fourth, a fourth one.
Speaker A:And that is they might want to set up their business to be some form of passive income where they're not, they don't have to go to the, to the place all the time.
Speaker A:They can land like check in once or twice a week or you know, something like that.
Speaker A:So when we think about strategy, financial strategy, can you like what comes to mind that could be like a, a helpful story or advice or something to level up people's education, understanding of what exactly goes into it, what it takes, etc.
Speaker B:Well, a lot of it has to do with scaling, right.
Speaker B:So, and I'll use some examples from two other businesses that I work with.
Speaker B:One was one of the, the digital media people that I've talked about, designs, websites, apps and games and things of that nature.
Speaker B: ecause he truly uses a lot of: Speaker B:So for him to scale up, it's more about getting the business.
Speaker B:It's all around marketing and making sure that people understand what the client and crowd engagement that he's trying to build through apps and games and things of that nature.
Speaker B:So it's all around marketing and driving opportunities, which is much different than a construction client who, when he scales you got to figure out how to hire qualified people, which is extremely difficult in, in this market.
Speaker B:And it's, it's difficult to find people that want to be trained in that industry.
Speaker B:And you know, because somebody like that needs to turn into more of a CEO and he needs to turn his top guy into an operations manager.
Speaker B:Right.
Speaker B:So you got to build all that strategy and figure out how he's going to grow.
Speaker B:He, he needs less of the marketing first.
Speaker B:He needs more of the scalability of his operations first.
Speaker B:And that takes some planning and analysis to make sure he has the cash flow to fund all that training and moving those people up the chain.
Speaker B:So it really depends on the specific business and the goals of, of that business owner.
Speaker B:You could have two different salon owners that have maybe three or four locations each, but they might have different goals.
Speaker B:So the overall strategy would be different between the two of them.
Speaker A:Real quick, just as a side thing, before we go any further, we're coming up on our time here.
Speaker A:Do you have an extra 10 minutes by any chance, or do you have a hard time?
Speaker A:Yeah.
Speaker B:Okay.
Speaker A:All right.
Speaker A:Okay.
Speaker A:So let's create a hypothetical.
Speaker A:So, like, if, if we're talking about a solopreneur who is thinking about, like, they don't want to work all the time, you know, and, but they, like, they don't have a team to train up.
Speaker A:They don't have, they don't have the economies to scale to hire, like, a manager, you know, like, like, I, I.
Speaker A:What are their options?
Speaker B:Well, their options are a little more limited because they have a certain capacity.
Speaker B:Right.
Speaker B:And when we analyze a business, we look at what the capacity is.
Speaker B:If they're doing it all on their own, there's only so many hours in a day they can do it.
Speaker B:Right, right.
Speaker B:So you could potentially look at what your most profitable type of business and market specifically to that.
Speaker B:Right.
Speaker B:You know, guys, haircuts aren't going to be the same as women's coloring.
Speaker B:Right.
Speaker B:So.
Speaker B:Right, right.
Speaker B:You could, you, so you start to segment the business and figure out where the profitability is.
Speaker B:And you could do some things like that where you're focusing more on the high value.
Speaker A:Okay.
Speaker B:But that's, you know, when you're doing it yourself, you get limited into how many hours you want to work and figuring out where your highest gross margin is.
Speaker A:So I think when I, I'm thinking of somebody I know who, who's an employee his whole career and, well, up until this point that I'm thinking of, and I don't think he made more than like $60,000 a year for the first 10 or more years.
Speaker A:10 or so years.
Speaker A:And then the second 10 or so years was somewhere around $100,000 a year.
Speaker A:And, and he put his money in index funds and managed.
Speaker A:He has like a financial, a person that he talks to about like when to move the money into many market accounts versus back into the markets.
Speaker A:And he doesn't figure it out on his own.
Speaker A:But he's already got a million dollars.
Speaker A:He's not even 40.
Speaker A:And like I know that, I know that some people can't, you know, I, I guess what I'm trying to do right now is like to all my independents out there, don't think that you need to necessarily scale up your business or open up multiple locations because like if you're planning your money right and you're managing your money right, then you, that's like, that's a viable like option.
Speaker A:And I, I would, I would also say like there are other things like you know, with the Internet and social media there might be ways to like add other things.
Speaker A:Like I know a lot of like stylists might do like some like work with some brands because they're making content and the brands will pay them to like put their shampoo or whatever or they'll make up or nowadays, you know, you can make your own product line for like so easy and so, so you know, so they could potentially do something like that.
Speaker A:What, what about the, what about like a salon owner who is, there's a team of say like six people.
Speaker A:You know, it's like a six hair stylist as opposed to like 20 hair stylists and the salon or the barbershop, whatever, when they are thinking about I want to, I want to either sell my shop or I wanted to produce some form of passive income.
Speaker A:What type of, what type of work do you do to focus to kind of hone in on helping them with their financial strategy?
Speaker B:Well, and that's, there's a couple things done packed there.
Speaker B:The, the salon owner that wants to sell their business and, and, and use that as their retirement.
Speaker B:And, and I'm not saying that can't be done because plenty of people do it and there's good value there.
Speaker B:But a couple of things that, that a lot of business owners do.
Speaker B:First of all, they overvalue in their mind what their business is worth.
Speaker B:Some businesses are valued based on the owner themselves if they are really hands on.
Speaker B:I mean there's some businesses where people look at it and say, well as soon as that person's gone, what's really left, right.
Speaker B:So your point about investing and for retirement is definitely a big one.
Speaker B:I always caution people don't think that you're going to sell your small business and necessarily retire on.
Speaker B:Doesn't mean you can't do it, but planning that over your lifetime is putting all your eggs in one basket.
Speaker B:And you should really try to diversify and do what you were talking about where funneling as much of that as you can into other investments, especially 401ks or tax deferred or tax free vehicles.
Speaker B:That's a huge help.
Speaker B:But if you think you're going to sell and fund your entire retirement, you know the majority of people that doesn't happen for with small businesses.
Speaker B:Not saying it doesn't, but it's, it's not as many as you think.
Speaker A:Really good to know actually, because I don't think I've ever heard anyone say that.
Speaker A:So that's actually really, really powerful.
Speaker B:I believe the stat is about 80% of small businesses valued under a million dollars.
Speaker B:Don't sell.
Speaker B:Don't sell, don't sell.
Speaker A:What?
Speaker A:Why?
Speaker B:It's something very high.
Speaker B:Because first of all, a lot of when it is that small, it is based on the skills of the owner.
Speaker B:And if the owner is the one that built those relationships.
Speaker B:Right.
Speaker B:I mean you think about a, a salon owner, she's this.
Speaker B:They have taken that time to build those relationships.
Speaker B:And if that person's not running it anymore, some of those people might be looking for another place to go.
Speaker A:Totally.
Speaker A:So.
Speaker B:And, and when you're buying a business, you're thinking about that.
Speaker B:You know what's driving those people here?
Speaker A:Like are the stylists or the barbers, are they gonna like jump ship as soon as you buy it?
Speaker A:And then.
Speaker A:Yeah, I actually have seen that happen before.
Speaker A:Actually right down the street from me, someone came into a shop and they lost all their big ringers and they got us basically rebuild from zero.
Speaker A:I mean not zero.
Speaker A:They got a couple people but like, I mean talk about a hit like 50.
Speaker A:Losing 50 or so or 30 to.
Speaker B:50 overnight basically with chain change for anybody is difficult.
Speaker B:So when you have ownership change, people, the employees or the, the people renting the chairs, what, you know, whatever it is, those people go through the same stages as you go through in grief.
Speaker B:It legitimately is.
Speaker B:And if you're an owner thinking about doing that or you're thinking about purchasing a son, you got to really think through that to see how those employees are going to react.
Speaker B:And they don't know the new owner.
Speaker B:So there's a ton of uncertainty.
Speaker A:Right.
Speaker B:And if they can go somewhere else that they do know, people, they might be more inclined to do it.
Speaker A:Right.
Speaker A:Okay.
Speaker A:So would it be easier, is it, is it going to be easier to sell?
Speaker A:If a person has two Salons or two shops.
Speaker A:Does that get easier?
Speaker A:Because there's some sort of diffusion of the power of the owner, at least in theory.
Speaker A:I mean, that's not necessarily true, but.
Speaker B:Like, that definitely helps.
Speaker B:Absolutely.
Speaker B:Because you can tell, you know, the owner can't be managing both shops all the time.
Speaker A:Right.
Speaker B:So they got to have other people that are overseeing those, and those people would likely stay on and.
Speaker B:And somebody that would be purchasing that would want to make sure those people are staying on.
Speaker B:They would probably be the first people that they talk to as they're getting serious about the acquisition.
Speaker A:This is, this is.
Speaker A:I'm sure this is like blowing some people's minds right now.
Speaker A:It's like kind of a frank conversation here.
Speaker A:Okay, so what if.
Speaker A:I'm gonna make an argument here.
Speaker A:What if we.
Speaker A:I have a, A shop or, or salon and I have like a handful of team members, you know, I don't know.
Speaker A:I don't know if it matters.
Speaker A:How many team members.
Speaker A:Probably the more team members, the better, because percentage of people who leave, you know, probably.
Speaker A:But then I'm sure there's fixed costs that are relevant to the size of the team.
Speaker A:So I know how much it actually helps.
Speaker A:But.
Speaker A:But anyway, let's say you have a team, one shop with a team, and.
Speaker A:But you have a manager and you only come show up and come check in and couple times a week and drop in.
Speaker A:Does that help or is that not able to convey to a potential investor or buyer who wants to buy that business?
Speaker B:That can be.
Speaker B:There's plenty of investors that would see that as an advantage because they don't feel they have to be there.
Speaker B:That would be interesting to see an operation like that.
Speaker B:Like I could see, maybe that's one where all the chairs are rented.
Speaker A:Right.
Speaker A:Because that would be an easier business to sell.
Speaker B:Exactly.
Speaker A:Their commission.
Speaker B:Exactly.
Speaker B:That.
Speaker B:That would be easier because they're all managing their own.
Speaker A:Right.
Speaker B:Business and you're collecting the rent.
Speaker B:That's certainly an easier.
Speaker B:But if you're talking about, you know, having your own employees, then the question is going to be who's running the show?
Speaker B:If you're only stopping in once in a while, how does that place really operating?
Speaker B:But if you can, if, if an investor's coming in or somebody wants to buy it's coming in and thinks that they can run the place part time because it's been done before, that could be an advantage, but they'd certainly have a lot of questions about how it's being done.
Speaker A:Right.
Speaker A:Okay, next.
Speaker A:Okay, so let's kind of Move down this one.
Speaker A:So if.
Speaker A:Let's talk about using your business for passive income.
Speaker A:I feel like is such a bad word.
Speaker A:Not super actively like having to manage the business, but like I said, being able to like only kind of check in once a week or something.
Speaker A:Getting strategizing to get to that point.
Speaker A:You know, I'm thinking of like if, if the salon is bringing in say a million dollars in gross revenue and it's showing, and since I'm not selling it, I trust these numbers because this is my business.
Speaker A:If I.
Speaker A:It's showing that it's spitting out, call it a hundred thousand dollars a year in profit, you know, about a 8 to 12% is the average profit margin in the salons.
Speaker A:And so let's say we're hitting a 10% profit margin.
Speaker A:And I'm like, I want that $100,000.
Speaker A:I don't, I'm cool with 100,000, you know, whatever.
Speaker A:I want to go and be car.
Speaker A:Be a carpenter or like, you know, blow glass, you know, you know, whatever.
Speaker A:Like I want to do something else and.
Speaker A:But I love the idea of having this pass more passive income.
Speaker A:But, but I need someone there to run it, which means I need to give them, you know, maybe more.
Speaker A:Maybe, maybe I already have somebody.
Speaker A:But like, because I'm there, they don't have to do everything.
Speaker A:And now I got to give them a raise.
Speaker A:So let's say I give them a $50,000 raise.
Speaker A:So now I, I got a, I got a net 50,000 a profit before taxes, you know, and so is a $50,000 like annual income worth having this investment in my.
Speaker A:I mean, I guess it's not even an investment in my portfolio because I have some amount of like touching it, you know, but maybe I'm like a.
Speaker A:Call it like acting like more like a board member.
Speaker A:No, because that'd be like quarterly or monthly.
Speaker A:This is like weekly.
Speaker A:I'm thinking I might have to check in or monthly.
Speaker A:I'm basically, I'm trying to set up a scenario where I'm trying to figure out is it worth it because like, there's a level of risk there.
Speaker A:So like I'm, I'm expecting a million dollar business to spit out $50,000.
Speaker A:And it's like, is that, I mean.
Speaker A:Yeah.
Speaker A:Can you walk.
Speaker A:Talk us through that?
Speaker B:Well, in my mind that's where.
Speaker B:Getting back to kind of what I said earlier is understanding the operations in, in this business, it's a people business, right?
Speaker B:And to have somebody that you trust to oversee that operation is the key.
Speaker B:If if having, you know, that three, $4,000 after taxes a month flow is.
Speaker B:Is helpful to you and that's what you want to do, it's certainly possible.
Speaker B:The real key is getting the right person running it.
Speaker B:Maybe it's one of the, one of the hairdressers that are in there already, like you said that you, you kind of promote, and they can still have their chair and do their work, but oversee things.
Speaker B:And if, if you can have somebody that, that you trust, you really gotta.
Speaker B:The one thing you have to watch is the money.
Speaker B:You gotta make sure there's not mistakes or anything, you know, bad going on.
Speaker A:The risks are people being dishonest, I guess.
Speaker B:Yep.
Speaker A:Maybe slacking off because their boss is kind of like a, A semi boss, not a real.
Speaker B:And that's where the analysis comes in.
Speaker B:Right.
Speaker B:I mean, you should be able to, I don't know all the systems that everybody uses, but you should be able to do analysis on your most profitable people.
Speaker B:Right.
Speaker B:If you have 10, 12 chairs, you should be able to get data on which ones are bringing in the most revenue, which ones are bringing in the most profit.
Speaker A:Do you think it's a good financial strategy?
Speaker A:So this is a fractional CFO question here.
Speaker A:Do you think it's a good idea, like, if someone, if I came to you and was like, hey, look, I'm in a salon, we got six stylists.
Speaker A:And, and I mean, six is, I feel like kind of a unique number because it's, and.
Speaker A:But it's agile and it.
Speaker A:And it's high usually.
Speaker A:They usually tend to be highly profitable.
Speaker A:You know, as you get a little bit bigger than 6, you start needing more.
Speaker A:There's so much more overhead that comes in.
Speaker A:But anyway, so like, let's just say we have a salon and I'm like, you know what, what if I give like a piece of the business to some of my top ringers or.
Speaker A:And like top ringers is one part, but like, also the people who are like the best at like the, the.
Speaker A:The culture and the like, making sure.
Speaker A:Because that's really what the customers and the stylists are there for.
Speaker A:It's not for my charm, you know, it's like, what is the experience?
Speaker A:And so like, we pan pick a couple people or maybe everybody.
Speaker A:I don't know.
Speaker A:But what do you think about giving up some of the business to incentivize.
Speaker A:To incentivize people?
Speaker B:I'm actually a big fan of that, and I recommend it for people in businesses where you do need to have somebody of Trust running a certain portion of your business because in most businesses right now, it's tough to keep people without the proper benefit package and, and without some incentive to be there.
Speaker B:The really good ones are, you know, people, people are trying to hire them because there's not enough people out there for a lot of industries right now.
Speaker B:So I'm a big fan in offering equity over time so that they have a stake in the game and that really does build some ownership in their mind as well, so that they're going to take care of the business when you're.
Speaker B:When you're not there.
Speaker A:Awesome.
Speaker A:I love this.
Speaker A:I feel like I could talk to you for another hour and ask you tons of questions because, like, this is totally like my, my happy space, these type of conversations.
Speaker A:So why don't we do this?
Speaker A:Why we're, we're, we're definitely over our time when.
Speaker A:I appreciate you giving us a little more time.
Speaker A:Tell us.
Speaker A:You gave us the, the high, the intro in the, in the beginning.
Speaker A:But tell us like, you know, and remind us what, what do you, what you do, what services you offer and where people can find you.
Speaker B:So Islands East Financial Solutions, they can find me there for the fractional CFO business consulting on islandseastfinancial.com and, you know, that business.
Speaker B:Again, we focus on business consulting across many different industries.
Speaker B:It's really focused on businesses that want to grow for the most part.
Speaker B:You know, people that are stagnant and just happy with what they're doing don't really need a ton of analysis.
Speaker B:It's really on businesses that have aspirations for growth.
Speaker B:I also don't typically work with people that want to compete solely on price.
Speaker B:I don't believe that's a winning strategy.
Speaker B:You got to have some other core competency that you're selling in my mind.
Speaker B:But.
Speaker B:And the other business is Islands East Advisors, and that's a financial advisor.
Speaker B:So that's for personal side where we're helping you plan for retirement or other major things in your life and your, your personal goals.
Speaker B:And the way that really intertwines with.
Speaker A:The.
Speaker B:With the fractional side is that I can actually offer business solutions for the business owner and help them with their personal financial planning, investment management.
Speaker B:I can set up 401k plans for their entire team or other retirement avenues as well.
Speaker B:And on that business, that's just islandseast.com awesome.
Speaker A:Awesome.
Speaker A:Cool.
Speaker A:All right.
Speaker A:And everyone can get.
Speaker A:Check out the link in the description below and you can check out Kevin and reach out to him.
Speaker A:Is there like a place on your website where people can, like, shoot you a message or contact you, I'm assuming.
Speaker B:Yep.
Speaker B:On both websites, there's places you can just shoot me a.
Speaker B:Shoot me an email.
Speaker A:Awesome.
Speaker A:Awesome.
Speaker A:Well, thank you so much for your time.
Speaker A:Did you want to.
Speaker A:You got it.
Speaker A:Do you have any, like, last words of advice for the hairpreneur, hairdresser, barber who is interested in growing their business?
Speaker B:Well, my biggest piece of advice is don't think you have to do it alone.
Speaker B:And even though you need a cpo, cpa, they're valuable.
Speaker B:I don't, I don't.
Speaker B:You know, I have CPAs as well, but they do look in the past.
Speaker B:And if you want to grow, you need to start planning your.
Speaker B:Your.
Speaker B:Your tax planning strategies longer than this year and your cash flow longer than this year.
Speaker B:And you.
Speaker B:You can't do it all yourself.
Speaker B:You need to be just like you need a lawyer.
Speaker B:You know, having somebody that can help you do the analysis and the strategy behind the growth and let you do what you do best, which is taking care of your customers.
Speaker A:Awesome.
Speaker A:Awesome.
Speaker A:Well, it's been a pleasure.
Speaker A:Thank you again so much and for the, for your time, and I definitely look forward to talking with you again in the future.
Speaker A:Sure.
Speaker B:Absolutely.
Speaker B:This has been fun.
Speaker B:Thanks for having me.
Speaker A:Absolutely.
Speaker A:All right, until next time.
Speaker A:See you.
