Tanning salon owners face an evolving customer landscape as more information comes out about health and beauty. While a great many traditional tanning salons do still exist, there’s an ever-growing number of salons offering “sunless” non-UV options as well as additional services that complement tanning. There is space for all of these to exist, and you can give your salon an edge by understanding what your customers want before investing in some of the newer health and beauty technology that is becoming more accessible for the average person.
In addition to developing good relationships with your customer base, you can understand more about your business by getting your books in order. You can glean so much information about the health of your business by ensuring that everything is kept up-to-date, looking over your financial statements each month, and understanding what everything means in the grand scheme of your specific business.
Income and Expenses for Tanning Salons
The first step in getting your books in order is to take a hard look at your Chart of Accounts (CoA). The CoA is the list of categories that make up your general ledger. Each transaction you make has to be entered into your accounting software, such as QuickBooks Online, to ensure that everything is properly accounted for. This is referred to as double-entry bookkeeping and is the meat and potatoes of getting your books in good shape. (And in this day and age of POS systems and credit card payments, you’re probably not going to be manually entering each sale into your accounting software. Hopefully your POS system can sync with QuickBooks Online and will transfer automatically!)
So, in order to make this make the most sense for your particular business, you will need to update those categories with names that are customized for your needs. Tanning is obviously your main service offering, so you’ll have income accounts with names like:
- UV monthly memberships
- Silver
- Gold
- Platinum
- UV single sessions
- Level 4 bed
- Level 5 bed
- Standup
- Sunless monthly memberships
- Sunless single sessions
You may also have additional services like airbrushing, infrared light therapy, cryotherapy, saunas, or traditional spa services like nails, massage, or facials. You’ll want to list these like I did above – every different stream of income needs to have its own category to give you as much information about your business as possible!
These all have their own expenses that go along with them, so you’ll need to ensure that this is all set up properly in your accounting software. You’ll want to have a COGS (cost of goods sold) category with sub-categories or accounts for the various services so you’ll be able to run a P&L and immediately see your costs for each offering. It would look something like this:
- COGS
- UV COGS
- Bulbs
- Eye protection
- Sunless COGS
- Tanning solution
- UV COGS
You’d have listings for each service you offer, but this is just a sample that goes along with the first part where I listed the tanning income types.
It might seem like your P&L would get ridiculously long like this, and that is true, but within QuickBooks Online, you can run reports that are condensed or detailed so you can get both the bird’s-eye view as well as see all the details depending on what you’re wanting to see at any given time. I recommend running these reports at the close of each month, or whatever specific periods your company uses (e.g., franchisees might have periods set by the corporate office).
You’ll have all your operating expenses and overhead accounts listed after your COGS, so make sure each of those is named something useful, too.
Tanning Salon Assets
While COGS is an item that goes on your P&L, the inventory itself is an asset.
The COGS amounts are determined based on your inventory counts, and this is estimated based on calculations such as “Each spray tan uses up X amount of solution.” When you make a purchase of supplies, this is entered into the system. Periodically, you’ll go through and do a physical inventory count and this will be your ending balance. Inventory value is determined like this:
Beginning inventory + net purchases – COGS (what is used)= ending inventory
Thinking back to middle school math, we can solve for any of these simply by rearranging the equation, so by doing a physical count at the end of each week or month, we can get to the COGS expense.
Tanning salons have extensive assets due to the very nature of what is being offered. The cost of your beds, booths, and equipment necessary for other service offerings is not inexpensive, and these items would typically be depreciated and booked as assets. The rule of thumb is that equipment or any other physical purchase exceeding $2500 that has a useful life of two or more years will be capitalized rather than expensed immediately. You do get to take a depreciation expense that will reduce your tax burden for each year of the useful life of these assets. Once they have been fully capitalized, you would no longer take that expense but the assets remain on your Balance Sheet until you dispose of them, giving your business a value that exceeds your profits alone. This is important if you go to sell your business, and so is having clean books for a buyer to look at.
Your build-out is also considered an asset. If you’re leasing your space, this is called a leasehold improvement; if you own your space, it’s considered a building improvement. This would be all the money you poured into putting up walls, painting, getting the electrical systems in place, that kind of thing. Your furniture and fixtures such as your reception desk, lotion display shelves, and the dressing areas in each room would be part of FF&E (furniture, fixtures, and equipment) and are likewise assets to be depreciated. Hopefully your tax preparer went over all this with you the first year you were in business!
Tax Considerations for Tanning Salons
Speaking of taxes, tanning salon owners should be aware of the federal excise tax on indoor tanning that was implemented in 2010. This has made things like gift card sales a little more convoluted if you sell anything other than UV bed sessions since it doesn’t apply to product sales or other services. A 10% tax on your total UV bed sales must be reported quarterly on Form 720, Part II and remitted to the Treasury Dept. Of course, this is a cost of business you should be passing on to your customers, but this is yet another reason for separating all your income in your accounting software.
Tanning salons may also have a state-related tax, but there is not one in Florida at the time of this writing. Florida also does not levy a sales tax on most services, including tanning or salon services, but you’ll be subject to collecting and remitting sales tax on any products you sell.
Payroll taxes, worker’s comp, and unemployment insurance (called re-employment tax in Florida) are all part and parcel of operating a tanning salon business when you employ people other than your family.
Payroll for Tanning Salon Employees
Pretty much everyone who works for you at your tanning salon is going to be an employee based on the nature of your business. You may, however, hire skilled contractors to perform certain services on your premises, such as nail techs or massage therapists. These folks may be paid via 1099, assuming you do not exert too much control over how and when they perform their duties. Make sure to have them fill out a W-9 when you first start working with them! And preferably, they would give you an invoice to pay rather than you tracking their time like you would an employee.
For your other workers like your receptionist, managers, etc., those are going to be employees for sure. A nice perk you could offer is commission on sales of products, and this does complicate your payroll a little bit but makes it so you’re more likely to retain those workers for a longer time…not to mention the higher income to your business for sales of product!
Outsourced Accounting for Tanning Salons
Tanning salon accounting is a little more complex than other types of service businesses. It’s more similar to that of a full-service salon or spa, with lots of moving parts. As the owner, you may be looking forward to the day you can take a step back and put the business on autopilot, and one thing you could do to head in that direction is outsource your accounting duties. Things like making sure your Chart of Accounts is set up properly, getting those inventory orders entered, getting your income entered from your POS system, and paying your workers (both W-2 and 1099 folks) can be accomplished virtually with minimal input from you.
If you want to explore this option, first check out my new pricing tool to give you a roundabout estimate of how much accounting services will cost your Florida small business. If you’d like to proceed after that, schedule a quick call with me so I can answer your questions and get things finalized. I can take over your books in under a week, leaving you free to focus on generating income or just having more personal time!
