The Esthetician Podcast

Mastering Esthetician Finances with Sharon Muchow: Bookkeeping, Taxes & Cash Flow

• Kari Jo

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Find more about Sharon at: 360-213-6940 or book online at msaccountability.org

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Announcer:

Welcome to the Esthetician Podcast, where passion meets prosperity. Your host, Kari Jo Patterson, transformed from a solo esthetician into a successful business owner, achieving ultimate time and financial freedom by the age of 38. Kari is the author of Fearless Prosperity, empowering estheticians to build their empire and achieve financial freedom, and the creator of the Empire Growth System for estheticians. Get ready for some empire building wisdom Now. Welcome your host, Kari Jo Patterson.

Kari Jo:

Welcome back to the Esthetician Podcast. Guys, are your financials as flawless as the skin that you are treating? Imagine transforming your bookkeeping like woes into actual wins. Today I'm so excited because I have Sharon and she's known as Miss Accountability on Instagram, which you should totally go follow her, and she's going to unreveal the secrets to mastering your esthetician business success. So you are going to discover how you can turn your financial woes into wins and elevate your financial gain. I am so stinking excited, Sharon. Thank you so much for joining me today on the Esthetician Podcast.

Sharon Muchow:

Thank you so much for having me so glad to be here and, as you know, I just love this space and working with these lovely ladies.

Kari Jo:

I know you do and I met Sharon just for like everyone on the background, she is like the master of networking. Because she found me on Instagram and reached out to me and I was like that's what I need to do more of. Like she's so good at like networking and I love that about you. I think that's one of your greatest assets, just so you know.

Sharon Muchow:

Yeah, you know I try to take, you know, a holistic, 360 view to servicing my clients, and so much of that comes from knowing the right gal to send them to, and everyone I've sent your way for help at the Estee Academy has just flourished under your tutelage, so it's been an amazing relationship.

Kari Jo:

Yeah, yeah, and I feel like the same way, like I'm like listen, after you know you got to pass off that bookkeeping and I know just the girls, so I'm so excited you're on to share your like wisdom financially, and so I want to jump right in. I want to know. I feel like so many estheticians when I get on the phone call with them. They struggle with separating their personal and their business finances. They combine them and they you know what I mean and it's such a mess, and so I was wondering what system do you think that they could implement to help clear financial?

Sharon Muchow:

boundaries. You know my number one recommendation the second you are even thinking about going into business for yourself is to open a separate checking account and then also take out an additional card that is used specifically only for your business expenses and then pay yourself out of that checking account. And the other thing I want to add to that is you don't have to be afraid to pay yourself. You're not going to be taxed on the amount of money that you transfer from your business checking account to your personal checking account. You're going to be taxed on the performance of the business and it is really, really important because it just makes it so much clearer to understand financially how you're performing when you don't have to. We, you know, add back in 50 transactions. Oh well, that was actually for, you know, my kids and and this and that. So, yeah, just open that separate checking account right now.

Sharon Muchow:

My recommendation as well as Fargo um, they have the lowest minimum daily bank requirement to have free checking, which is $500. All of the other big banks Chase is $2,000, bank of America is $2,500. So Wells Fargo is out for the win right now. I also super recommend banking relationships or looking into banks like Mercury or Blue Vine. They do not have physical bank locations, so they're really really inexpensive to run, and they also have really really smart AI built into the bank so that it will actually start categorizing transactions for use and provide you snapshots of how you're spending your money without having an accountant.

Kari Jo:

Wow, I do. Technology is just like leveling up nowadays, like I feel, like I mean, I feel like I would just be so much better at running a business the second time if I open another one, cause I'm like, wow, all these tools that they have nowadays.

Sharon Muchow:

Well, and you know that's the thing about technology and I know that you had in there that you wanted to talk about. That is that you know, especially in service based industry, our time is our money, right? So if it's taking us 10 hours to run our back office, we need to be looking at technology solutions because that's costing you money in time. So, finding the right solutions for you and your aptitude and your preferences invest the time in the beginning and it'll really save you down the road.

Kari Jo:

Yeah, so jumping into like technology and stuff like that, that was like good like bank information. But are there, are there good software systems that you think or recommend people to be using from day one?

Sharon Muchow:

As an accountant I'm pro QuickBooks, but you know, until you're, you know, reaching 40, $50,000 a year, you can really do that with a good bank like a Blue Vine or a Mercury, you know. So if you're in your infancy, lean into those For your point of sale. I super love Square. I think that it is really user-friendly on the esthetician end. Friendly on the esthetician end. It again is a tool that is going to provide you a lot of information at a glance in your dashboard, without having to go and compile all these reports and do all these Excel things that you know make people like me happy but kind of drive business owners insane. Then you know as you get further down the road. I've worked with that Vigaro, gloss, genius, boulevard. I think that each of them offer different strengths depending on what services you offer, but I think that Square is the most cost effective if you have a good marketing strategy in place.

Kari Jo:

Yeah, I like how you gave us like almost like a funnel system of like, listen, if you're just starting off, get like a good bank that can just, you know, do the work for you. But once you hit, you know you're making like that $40,000, then it's time to get a QuickBooks or something to really start get diving in. At what point would you say it's important for people to like switch and get into getting a bookkeeper? Like, when is it good financially to be like? Let me just hire this out completely.

Sharon Muchow:

So, dollar wise, um, at the point that you are reaching 75 to a hundred thousand dollars in revenue, I think that that's a good time to bring somebody on. Or if you're really struggling getting off the ground and you're finding, like you know you, you feel the money coming in, it's going out, you can't put your finger on it, things just don't feel right, then you can reach out to somebody like me and we can even do, you know, a one-time look with you to help get you better set up for success, Because I know, at least for me and my firm, we want you to be successful and it's more important for us to get you there than to make a quick buck now.

Kari Jo:

Yeah, yeah, I love, I love that you offer that service, so that I mean, sometimes you just need that extra eyes to be like okay, you know. And even going back to having that extra eye, to be like why aren't you paying yourself, like you said you should be paying yourself? Why do you go to business if you're not going to pay yourself?

Sharon Muchow:

Yeah, I so many of my girls. When they first start, they're scared to pay because they think that, well, I'm going to have to pay taxes on taking this money. No, no, no, that's not how it works and I know it's super complicated and it doesn't make any sense. But, yes, sweetie, pay yourself. And if your business can't afford to pay yourself and you definitely need to, at least have a one time, look with me to figure out how we can make sure that it does.

Kari Jo:

Yeah, I remember early on in my business my husband because I mean you don't know what you don't know and you just you know there's the whole like when you get cash reported, don't come back, okay. But anyways, my husband was like dude, you should just do cash, you know. And I talked to my business mentor. He was like Carrie, he's like that's stupid. Just report all of your cash. There are a hundred like there's so much better ways for you to not have to pay tax on that cash than by trying to just hide it.

Sharon Muchow:

Absolutely. And now that you bring that up, I'm going to segue into Elvest, another one of my absolute favorite tools, and the. That you bring that up, I'm going to segue into Elvest another one of my absolute favorite tools. And the second you go into business, whether you're doing $5,000 a year or $500,000 a year, you need to go to Elvest and you need to set up a SEP IRA and start putting just 25 bucks a month in there and increase it as you can. That money that you put in there is tax deductible. You can put in up to 20% of your net income. It's not like a rough IRA that has a $6,500 max and everything you put in there is going to, you know, be invested for your future and you're not paying taxes on it.

Kari Jo:

Oh my gosh, yeah, and that is like so important, because that's the problem is we get into this and nobody's saving. Nobody is saving, you know, and like I mean our, is our eyesight really going to last that long? I don't know, I feel like mine's going out.

Sharon Muchow:

Exactly, and that's the other thing. You know, your first couple of years in business you're probably going to be running, you know, not hugely profitable, but your goal is to reach a point that you are hugely profitable and you always need to be getting into the habit of saving for those tax bills. My recommendation on my clients is to open up a Citizens Access Savings account Right now. I believe their interest rate is three point nine percent. Again, it's one of these online banks. You just, you know, transfer money there and if you want it back, same thing They'll send it to you. You initiate a transfer and it comes back to you the next day. And if you think about that, you know if you're earning 4% on everything you put in there, then that's basically lowering your tax by 4% without you having to cough up that 4%.

Kari Jo:

Yeah.

Sharon Muchow:

Yeah, and you know again, it's just one of those things. You might not have a lot of free cash, but you know, if you can even get in the habit of just sticking 50 bucks in there every month, eventually it's going to start growing and you're going to start having a cushion.

Kari Jo:

I think estheticiansians like they sorry, they think a lot of times, you know, like if I'm doing a facial for a hundred dollars, I'm making a hundred dollars in an hour and and it's like no sweetheart, you're not making a on average, you're going to make about 7%, so you're going to break about $7 on that $100 because you've got to pay for so many other things and you've got to get in that that business mindset of like you are going to make less in the beginning until you can make longer. But you got to set up those habits now because they are going to really matter once you start making that profit.

Sharon Muchow:

Absolutely, and you know I'm reading the power of habits right now because I am somebody who feels like I'm kind of a firefighter. I'm always just running to the next thing and I would like my day to be a little bit more in control and just making these choices in the beginning, and then it becomes second nature and it doesn't feel like, oh, I'm getting slapped in the face with this. Oh gosh, now I had to deal with that. Oh, I didn't think about that. One of the other things that I super recommend for ladies in this space that I'm seeing an uptick in is really avoid going for these affirm and after pay payment plans, because you're blowing up your cogs and you don't realize it, because for those sorry just for those people explain what a cog is Like.

Kari Jo:

I know I just what's a cog?

Sharon Muchow:

It's your cost of goods sold right. So you think you're making $100 for that facial right and you know, maybe you're really advanced and you've got it down and you know that you pay $7 for that material. But did you also calculate in their 29% interest fee, because you're only concentrating on the $55 a month payment? So in the long run you're actually losing 30% more than you thought you were to provide that service by financing it.

Kari Jo:

Yes.

Sharon Muchow:

Yes, and so my recommendation to the ladies is to figure out who your suppliers are, especially now that we're looking at tariffs, and do the best you can to find US based ones. Load up on what you can so that you're getting good price breaks. If you need to put them on a credit card and then go to nerd wallet, check out all of the people who are currently offering 0% APR for 18 to 21 months and then transfer it so you're not paying extra in interest charges, finance charges, et cetera, and you're getting a lower price for those materials that you have to use in your day to day to provide your services.

Kari Jo:

Yeah, that is so. Yeah, I wasn't even thinking about that, but that is going to definitely affect some people's prices that are for for buying their little sticks over in China. They are going to go up a little bit. So I think that's important and I love how you definitely brought that up. Speaking of, like you know, just random, I don't know financial stuff, what would you say are the top three bookkeeping mistakes that you see estheticians making across the board, and how can you avoid them.

Sharon Muchow:

Well, you know we already kind of covered not keeping our bank account separate between business and personal. Another thing I see people do all the time not just estheticians is they don't have a very good grasp of what their chart of accounts should be doing for them. So, you know, I'll see them setting up a GL account as, let's say, a firm. Well, that's actually your vendor, not your GL, and you're expensing only your monthly payment, not capturing the total that you actually financed, including the interest expense. And you really need those insights to have a good understanding of how much you're actually spending every month and how much things are actually costing you.

Sharon Muchow:

I would say probably the third largest mistake I see frequently happening is booking just their net income, which you know is okay because you know it does give you an understanding where your cash is, but you're not able to really understand how your discounts are trending, how much. You're not able to really understand how your discounts are trending, how much you're spending on your merchant account fees and it's really important to pay attention to those and make sure that they're working for you and that you also have them built into your pricing. Another one of those things got to understand the whole picture to make sure that, straight out of the gate, your a hundred bucks for that facial is actually covering all of your business expenses.

Kari Jo:

Yeah, do you recommend um, you know, like charging the um merchant fee back to the client? Have you encountered that with, like your estheticians asking you or anything?

Sharon Muchow:

You know, I've had a couple who um have tried it and they got more guff than if they just built it into their pricing. And it also helped on the tip side too, right.

Kari Jo:

Yes, I see. So, like, instead of being like, okay, we're going to charge you that 3%, we're just going to charge you 105 instead of 110. Or 105 instead of 100.

Sharon Muchow:

Sorry, yeah exactly, yeah, yes, exactly, because for some reason it just sits differently in the consumer brain. Oh well, I have to pay this 4%, then I'm taking it off my tip or I'm, you know, going to be unhappy about it, but they're happy to pay one on five.

Kari Jo:

Yes, yes, totally. I love that. How would you say that estheticians should be managing their cash flow during the fluctuation of season, so you know, usually January? I feel like it kind of goes a little dead right after December. How do you suggest that they kind of do that?

Sharon Muchow:

My recommendation is, as you see the ebbs and flows in a year, it's kind of like really big for spring break and really big right before summer, and then, you know, really big for the holidays, but then you've got these valleys, if you will, in between. So I recommend trying to offer good deals on gift certificates to increase your cash flow while you've got people walking off of it, which is still going to get your employees tipped, and hopefully you have great people who are trying to upsell products and services after they get in the door. That's probably my number one tip for trying to combat that, but you have to also keep your eye on the ball that, oh hey, I did great. I sold $5,000 worth of gift certificates during my busy period when I had foot traffic. You got to save that five grand for when they're not walking in the door.

Kari Jo:

Yes, yes, yeah, I, um actually I I love what you just said, cause that was it's almost um the yin and yang to my strategy, which is I always tell people, you know, like so in a say, you know you sold a bunch of gift certificates in December and then January comes and it's like slow. You know, I'm like you got to go out and remind all the people that got their gift cards, like send out some emails and get them to come in and use their. Like that's that's when you work on all the people that bought their gift cards to come in and use their. Like that's that's when you work on all the people that bought their gift cards to come in and use that in january. But I like how you said, when it's slow, like that, focus on trying to get them to buy gift cards during the slow season. So we're both like using the gift cards, but we're using it like different strategies. But what I love is that it just told me like you got to use those gift cards.

Sharon Muchow:

Your strategy is, if you put out a month calendar and you see where your ebbs and flows are, like where you are, your slow months are, that's when you market your gift cards are your slow months are that's when you market your gift cards exactly and hopefully, when you had a good gift card month, you put some of that in your citizen access savings account is growing at a rate of four percent, so when you go to draw from it, it'll feel like you're taking four percent less out of your savings during your slow period. Wait, wait, I wait wait, I'm sorry.

Kari Jo:

Can you repeat that? What kind of account should we put it in?

Sharon Muchow:

Our citizen access savings account, which has the, you know, almost 4% daily APR.

Kari Jo:

So yeah, I love that because I when I first started my company, I didn't know what I was doing. When I got gift cards, I would just use it because I was like money. And then when that person came in, obviously when you're scaling and you're bringing in employees, you can't spend that gift card money until that person comes back. That's not money until that client comes back. And so I love how you're like put it in another account that has a really good interest, you know, and then pull from it when they come in, and I love that. That's. That's genius. You got any other good little tips like that for?

Sharon Muchow:

us. I could probably go on for days. The only other reason I may or may not hit my gift certificate cash a little early is if I have a really high end product and if I could just spend an extra 1000 or $2,000 more, it's going to bring down my price point by 1015%. That's it. That's a long term investment that's going to pay off, but when in doubt, keep it in savings.

Kari Jo:

When in doubt, keep it in savings. I love that, oh my gosh. So for everyone who doesn't know, you can obviously tell Sharon she actually is an accountant and she works solely with people in the beauty industry, like. So she really gets the esthetician's finances, she gets the hairstylist finances and stuff like that, and that's why she's able to be like know all these little tiny things which I think is so important. When you're looking for someone to bookkeep, you find someone who's kind of in your field. Don't you think, like, what are the factors someone should really be looking at when they're trying to choose a bookkeeper?

Sharon Muchow:

There are so many different strategies, so many different strategies. You know, if you're just trying to go with compliance and you are, you know, maybe have a business or finance background you can go somewhere like a bench accounting who, I think, can offer plans at like $99 a month. Just know that you're never going to have a personal relationship with the person doing your book, so you're just going to get a report every month and that might be enough for some people. In general, the larger the firm you go to, the less personalized the service is going to be. I do think that obviously we get into industry specific places because we're passionate about it, and anybody who's passionate about you and or your business is going to serve you better. So, you know, just find somebody who's going to bring more to the table than just your debits and credits, no matter who you are. Yeah, because that's going to have a major impact in your future success.

Kari Jo:

Yeah, and what I do love about you is you have called me before with some of your estheticians and you do have their best heart. Like you are thinking about them and like you don't have to make a call to a business coach about any of your clients. That's not your job but, like you, you are invested and so that is why you specialize in this beauty industry. I, sharon, I want to thank you so much.

Kari Jo:

This conversation has been so eyeopening to me and I know so many estheticians. They struggle with the financial side and maybe even the word, I don't know but financial side of their business, and I feel like today's episode just really showed the right systems and how it can make your business more successful. Speaking of systems, really, really quickly, I also just want to say, if you've been stressing out over how to pay your team or how to set up a profitable pay structure, I just released my new course, which literally teaches you how to pay them the state laws, the federal laws, level systems, everything that you need to know, so you can grab it in our link below today. Sharon, I want to say thanks again for sharing your expertise on the Esthetician Podcast. You have been amazing and I love your tips. How can my listeners find you?

Sharon Muchow:

My website is MsAccountabilityorg. My cell phone is listed on there, so I'm happy to give the shout out for it 360-213-6940. And you can also book online to schedule an appointment to just have a powwow. Uh see if I can give you any advice and or if it's time for you to begin a relationship with an accountant.

Kari Jo:

Yes, yes, I love that and you definitely want her. So if you guys love this episode, make sure to subscribe, leave a review and share it with another beauty business owner who needs to hear it. Until next time, keep on growing, keep on scaling and I will see you in the next episode. Bye guys.

Announcer:

Thank you for listening to the esthetician Podcast with Kari Jo Patterson. Each week, Kari brings you real-world lessons on how to grow your empire. To learn more about Keri's Fearless Prosperity Mastermind Group, one-on-one VIP coaching opportunities and more visit wwwkarijopattersoncom. That's wwwkarijopattersoncom. That's www. kar wwwcarrijopattersoncom. See you next week for more insights and strategies on the Esthetician Podcast.

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