We’re not supposed to talk about money, but let’s talk about it anyway.
Newsflash: everybody got into this industry hoping to make some good money. Nobody wanted to struggle or just to make minimum wage for the rest of their life.
The sooner we get better about saying we are in this industry because we wanted to make good money, the happier we will be. Because when you can have just amazing, positive energy around money, it only brings more abundance into your world.
That being said, financial management is one of the things our industry is least educated on. We weren’t as educated on how to organize money to turn a profit and save for retirement ( I know retirement isn’t sexy, but if you do not prepare, it will knock you on your you-know-what).
Today I’m talking about traditional and alternative payment methods in the salon because there’s no shortage of options any longer. I’ll dive into the four main options of payment, what to consider when choosing which methods to accept, and how to best manage that money.
Cash
Let’s start right at the top with cash. It’s probably the original form of payment most of us accept. If you’re going to accept cash payments, there are three things you need to do to run an effective cash-based business:
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Get change every single week.
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Deposit your cash regularly, ideally daily or at least once a week.
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Keep a record of all the cash that comes into your business.
Why you should keep cash records
The latest statistic on how much money hairstylists make says we pull in a median salary of $24,850. That’s ridiculous, right?
We want respect as professionals and get upset when people think we’re broke, but when you hide all your cash and don’t put it in the bank, it gives our industry a bad name.
If you say respect doesn’t matter, be careful. If you ever want to own a home, finance a car, or open a salon, know that no bank or investor will take your word that even though you only claim X amount of dollars on your taxes, you make more in real life. Taxes are real life. There are so many benefits to be able to show how much money you make.
Also, cash records are important if you get audited. The auditor will want to see all your records. This is not the IRS’ first rodeo. If you choose to cheat the system, you might also have to pay the penalty, so be careful if you head that direction.
Cash tips and tip bundling
I hear a lot about no longer accepting cash so you don’t have to get change, deal with cash in the building, and keep all of your records above board. Among salon owners, especially, is the idea of not accepting cash tips and just bundling tips into a transaction.
As a consumer, I don’t like that at all, not because I’m a bad tipper, but because I want to do what I want to do.
When we put no cash tip policies or built-in gratuities into place, it’s asking for problems. When we do things like bundle in tips or say no cash, you’re eliminating the consumer’s right to choose. Some people will be okay with it, but some will be incredibly irritated and take their business elsewhere, possibly eliminating a complete segment of your market.
Checks
Checks are my least favorite form of payment because of the clearance delay. Even if you deposit a check today, the funds will take two or three business days to process. During this downtime, the person who wrote the check might use their debit card or the ATM, so by the time the check clears, it bounces. Now you’ve got payments to track down.
Since the administration on checks is so crazy, it’s okay for you not to accept them and just to have a cash or credit only policy. Most people are very understanding if your policy is well-spelled out.
If you are going to accept checks, deposit them daily if possible. You can use mobile deposit apps to deposit it right in, but you still have to wait for the processing period. It could still bounce in that time, but at least the transaction starts as soon as possible. If you can’t do it the day of, deposit your checks twice a week.
What to say if a client’s check bounces
If you choose to accept checks, they will bounce from time to time. Here’s how to handle it:
As soon as the bank notifies you a check bounced, call the guest
“Hey [guest name], we just got notification from our bank that the check you gave us bounced. This happens all the time.” (Always throw that in because there’s a lot of embarrassment.)
“It’s not a big deal. What we can do is accept a credit card over the phone, or you can come by the salon today and drop off cash.
“It’ll be the amount of your transaction, which was $[transaction amount], plus the $[canceled check fee] cancel check fee, which the bank issued us. The total amount due is $[total].
If you can come in and pay that before [deadline], we’re all square.”
Don’t tell them to let you know when they can pay. Give the client a three-day deadline because if it doesn’t feel important, it’s not important.
If they don’t pay or call you by the deadline, it becomes a more serious and informational phone call.
“Hey there, I don’t know if you got my message on [day you first called]. Your last payment bounced. It was in the form of a check, number [check number], written in the amount of $[original total].
We got a letter from our bank dated Sun, 23 Apr 2023 23:37:10 +0000. I left you a message on [day you first called], and I’ve yet to hear back.
Today is Sun, 23 Apr 2023 23:37:10 +0000. Should I not hear back from you by [two days from today], I will have no choice but to submit this paperwork to the [local law enforcement], and they’ll follow up from there.
If you can please give me a call back at your earliest convenience, I can be reached at [your phone number], and we’ll get everything settled up.”
Usually, that takes care of it because nobody wants the authorities bothering them. When they call to settle up after your second call, be super friendly and say you’ll see them next time.
You’re not being a hard ass when you do this; this is the legal course of recall. You can’t close your books if you can’t account for that check, so you have to file with the authorities.
If they do not submit payment by the second deadline, mail the bounced check to local law enforcement. Chances are, you’ll never see the client again, but that’s okay because they wrote you a bounced check and wouldn’t return your calls. That’s not the kind of client you want to do business with.
Credit cards
This is the number one form of payment accepted worldwide today. It’s easy because it’s accepted or declined on the spot, is traceable for accounting purposes, and is the simplest form of transaction because the funds go digitally from their account to yours.
So what’s not to like about credit cards? Fees, especially the 2 to 3% transaction fee or per purchase fee, depending on who your credit card processor is. There’s always some kind of payment that has to be made to use that credit card.
Let’s say you’re doing $50,000 a year in services, all of which is run through your credit card reader that is $1,500 a year in fees. $1,500 isn’t cheap, but it’s the cost you pay for a cleanly run business, to not deal with bounced checks or going to the bank to deposit your checks or cash. And credit card processing fees are a tax write off, reducing your tax liability.
Here’s the deal: we chose to do these kinds of things when we became business owners. This is the cost of business, and a 2 to 3% charge is very minimal. Would I rather see you keeping that $1,500? Absolutely. But this is what we signed up for when we chose to be business owners.
If you don’t accept credit cards, you’re inconveniencing your guests. Do you really want to punish your guests because you don’t want to pay 2 – 3%? Can you see how ridiculous that looks?
Venmo, PayPal and Alternative Payments
What is the loophole to credit cards? Venmo and PayPal, right? It seems great because it almost gives you the effect of paying by credit card, but it’s a cash transfer. No percentage has to be paid.
But you have to be incredibly careful and read the Venmo statement about business transactions. Venmo is designed for payments between friends, or to pay for goods or services using a Venmo card at merchants who accept it or through mobile websites or apps that are approved to offer Venmo as a payment option.
Did you see that part? Venmo has to approve you.
Venmo may not otherwise be used to receive business, commercial, or merchant transactions. Meaning you cannot use Venmo to accept payment from or send payment to another user for a good or service (which is what we offer).
If you accept a Venmo payment for a good or service and Venmo later reviews the payment, they may reverse it, meaning you and your client could both lose the money (a consequence of violating the transaction agreement you agreed to when you signed up for Venmo). If you do use Venmo and PayPal, make a business account, so everything is traceable if somebody disputes a charge.
Don’t use Venmo, PayPal, or any of the others as a holding bank because they are not FDIC insured. Meaning, if they go bankrupt, you’re out that money, and you’ll have to join a class-action lawsuit to get it back. Transfer those funds out of your account regularly and into your bank.
So is it a loophole? Yeah, but with every loophole comes huge risk. And it’s not a risk I’m willing to put my business on the line for.
It’s super important to keep everything above board. When you decided to be a hairstylist or a salon owner, you chose to be a business owner. Do it right. Don’t be the shady business owner; rock your business with respect. There are ways to make plenty of money in this industry without doing it illegally.