With patients to care for, employees to pay, and inventory to keep stocked, it can be tough to find time to look at your med spa finances. You may think that as long as the lights are on and patients are coming in the door, your business is doing just fine. But as med spa financial consultants, we urge you to take account of your med spa cash flow.
If you’ve ever been surprised by the dwindling number in your business bank account—or simply need more cash—it’s worth looking at where your money’s going. We’ll start with the key financial statements to understand. Then, we’ll discuss how to identify and handle common problems.
Let’s dive in.
Med Spa Financial Statements
The three med spa financial statements that our clients use the most are the profit and loss statement (P&L), balance sheet, and cash flow statement.
The profit and loss statement is a summary of business revenue and expenses over a period of time. It’s also the most common financial statement. A simplified P&L includes income, cost of goods sold (COGS), and fixed expenses to calculate net profit as the bottom line.
We suggest breaking out income and COGS by procedure type. Since both numbers are variable by the number of patients, it helps to know which procedures are profiting the most per patient—and which are profiting the least. Meanwhile, fixed expenses like rent, marketing, and payroll are not directly proportional to the number of patients. However, they often make up a large chunk of the P&L.
The balance sheet is a snapshot summary of assets (what you own), liabilities (what you owe), and equity (the difference) at one point in time. The value of your assets should always equal liabilities + equity. The balance sheet shows your loans, contrary to the P&L. However, it’s worth noting that net income does not equal cash.
Finally, the cash flow statement is a report detailing the net amount of cash (and cash equivalents) going in and out of a company over a period of time. Med spa cash flow statements are helpful for accrual accounting because they record what income is actually received. On the other hand, a P&L shows what revenue was earned, not what was paid.
In summary, a P&L and cash flow statement show the numbers over time—like a movie. However, a balance sheet shows a snapshot at one point in time.
Identifying Med Spa Cash Flow Problems
It’s tough to solve problems before you know how to identify them. For example, say you move into a new home and review your first water bill. You don’t think much of the price since you don’t have a frame of reference. But three months later, your bill is much higher than normal. Now it would be reasonable to suspect you have a water leak.
Paying attention to your monthly expenses makes it easier to identify “leaks” in the system. And using percentages and benchmarks helps you understand the numbers. We suggest setting aside 30 minutes each month to review your metrics. Here’s how it works.
Rather than just looking at your monthly financial statements side by side and trying to spot any outlier expenses, add percentages to your statements. This will help level the playing field across different expense categories. Calculate each expense as a percent of that month’s revenue. If COGS were 20% of revenue last month but 30% this month, you could dig deeper into the line items to spot the issue.
Also compare the expense percentages to industry benchmarks and KPIs. This is helpful for new practices with little historical data to review. Generally speaking, here are several industry benchmarks we share with our clients:
- Net operating income: At least 15-20% of total revenue
- Total fixed expenses: 37.5%
- Advertising and promotion: 6%
- Computer expenses: 1%
- Office supplies: 1-2%
- Professional fees: 2%
- Rent: 3-5%
- Other expenses: 7-10%
- Total COGS: 25%
- Consumables and injectables: 20-25%
- Retail products: 5%
- Total payroll: 22.5%
- Provider payroll: 20-25%
- Support staff: 6-10%
Ask your CPA to include prior months’ financials with each new financial statement. They can also add percentages of revenue to help identify potential discrepancies.
Common Expense Issues
Finally, if you’re noticing a dip in med spa cash flow, we might be able to save you some time and effort by sharing the most common expense issues our clients face.
- Payroll. While it’s often determined by the med spa’s capacity, it’s possible for costs to be too high when production is too low. Plus, a three-pay-period month may sneak up on you. If you pay employees every other week, there may be a couple months in the year that include three paychecks instead of just two. It’s not a cause for concern—it might just explain a month’s jump in payroll expenses.
- Rent. Your expense percentages might be high if your med spa’s capacity doesn’t fill the space. And a fair rent rate will depend on the location.
- Marketing. A marketing budget should align with your revenue goals. Remember to consider discounts as additional marketing. And be strategic about the best marketing for you.
- Supplies. It can be easy to lose track and let costs accumulate without noticing. A lack of an inventory system, over-ordering, and failure to price shop could rack up expenses. It also depends on your service mix.
If you’re searching for missing cash, it can be helpful to check your balance sheet. Loan payments and distributions that might not show on a P&L will show up on a balance sheet. And don’t forget about prepayments—if a high number of people use gift cards in one month, you might notice your revenue is down.
By checking out your financial statements and addressing common issues, you might be able to increase your med spa cash flow. But you don’t have to do it alone. Maven Financial Partners helps aesthetic practices understand profitability and compare financial performance to industry benchmarks. Ready to enlist help? Contact us today!