Financial Success for Spa and Beauty Business Owners - Featured in DERMASCOPE March 2025

Financial Success for Spa and Beauty Business Owners

Financial Success equals confidence in your profitability and that you have good numbers. What this requires is that that you know what your profitability is and should be.  Accomplishing this is not as daunting as you might imagine. Understanding key elements of financial management can help you do what you do well and what you are passionate about.  I’m going to bet that those things that you are passionate about do not include processing and managing the financial aspects of your business.   When your financial systems and tools are in order, you can focus on taking care of your guests and creating a world class work environment for a business that is focused on a clear vision. If your energies are focused here, you can measure your success and grow your business.

Partnering with skilled financial professionals—such as bookkeepers, fractional CFO’s, financial advisors, and small business coaches—provide you the team you need to keep you on track. You can be confident that your operations are efficient, compliant, and positioned for long-term success. This guide provides essential tips to set up a strong financial foundation, improve cash flow, and avoid common mistakes that hold businesses back.

1. Building a Strong Financial Foundation – The Basics

Establishing clear direction for your business with practical financial systems is essential for growth and stability. Financial experts can help you:

• Define your business vision. What do you want your business to be when it grows up? Who is your guest, what services will you offer, how many treatment rooms, what is your business culture and how profitable do you expect to be? Businesses that do not clearly define their vision do not have the targets necessary to move forward.  It is though you are leaving on a trip without a destination in mind. If you don’t know what your vision is, how can you expect your partners, investors, guests or employees to know what to expect or what they are working towards?

• Choose the Right Business Structure: Can you legally own and operate this business? Whether it’s an LLC, sole proprietorship, MSO (Medical Services Organization) or partnership, professional advisors provide guidance to establish a business structure that is legally compliant with your licensure and scope of practice and considers your business goals and taxation.

• Set Up Business & Tax Accounts: How many bank accounts, credit cards and loans do you really need? The federal government requires that you establish business registration and tax numbers. Each city, county and state has its own requirements for business licensure and tax registration, Setting this up is sometimes a tedious process that bookkeepers can help streamline and complete.

• Start out with Good Numbers: How you measure profitability and growth requires that you set up your books and Chart of Accounts a certain way.  If you have Good Numbers from the start, you will always know if your business is on track (or not). Keep your personal accounts and spending separate from your business. Mixing the two might put your personal assets at risk if things don’t go according to plan.

• Have a plan. Take the time to build a pre-opening budget and a budget for the first 12 months of operations.  This is your roadmap.  Without it, you don’t know where you are heading and will not have the tools to measure your success.

• Use Financial Management Tools: Experts recommend and help you implement tools that you will need to manage your business.  These tools include your bookkeeping system like QuickBooks, Wave, or Xero. In addition, you will need a Point of Sale System (POS) and Electronic Medical Records (EMR) program to automate many accounting, marketing and medical charting functions. The choices for these are vast, and it is imperative that you chose the system that is going to perform the tasks you need and give you invaluable management information.

  
  

2. Understand and Plan your Profit.

                                        Sales                               = 100%

• (minus)                Direct Costs                      =  55 - 65%

• (equals)               Gross Profit Margin        =  45 - 35%

• (minus)                Overhead Expenses      =  20 – 30%

• (equals)               Net Profit (or Loss)         =   25 – 5%

• (plus)                    Other Income                   =  TBD

• (minus)                Debt Service                    = 12½ - 2 ½%

• (equals)               Working Capital              = 12½ - 2 ½%

Sales = Services + Products.

•      Services (by category)

•      Products (10-15% of Service Sales)

•      Memberships (some)

      Direct Costs = Costs that fluctuate with the amount of sales.

• Products for resale

• Professional Product, Consumables, Back Bar

• Direct Labor:  Wages, Sub-Contractors, Front Desk, Commission Taxes & Benefits  

• Guest & Spa Supplies, Medical Supplies

• Laundry & Linen

• Merchant Fees

Direct Costs for Med Spas should be 55-60%, Day Spa 65-70% of sales

     Overhead Expenses = Monthly operational expenses that don't fluctuate with sales

• Administrative Salaries & Taxes

• Advertising, Marketing & Promotion

• Bank Fees

• Continuing Education

• Dues, Memberships, Licenses

• Insurance

• Meals, Travel & Entertainment

• Office Supplies & Postage

• Professional Fees

• Rent

• Repairs, Maintenance & Janitorial

• Utilities & Telephone

Med Spa 20-25%, Day Spa 30 -35% of sales

Debt Service - Should not be more than ½ of Net Income.

• Notes, loans

• Interest, Depreciation, Amortization

• Credit cards, Lines of credit

• Leases

Bookkeeping Essentials for Spa Businesses insure Good Numbers

Accurate and consistent bookkeeping ensures you stay on track. Your financial team can:

• Set up your Chart of Accounts so they track profitability by sales category.

• Track Daily Sales and monitor transactions: From invoicing and collections for services, products, series, packages and memberships and all your purchases to discounts and refunds, professionals ensure all financial activity is planned, documented and accurate

• Manage Inventory Costs: Help you monitor product usage and ordering to prevent overspending and insure that you have control over your product.

• Maintain Organized Records: Outsourced bookkeeping ensures your financial data is accurate, organized, and ready for tax season.

  
  

3. Managing Budget and Cash Flow: Conservative is a good thing

Build your budgets conservatively  using lower sales projections and higher cost projections.  Be conservative, not pessimistic. When building your budget, use your job costs and other expense projections in accordance with the percentages discussed in the previous sections. This will allow you to understand your breakeven in terms of the number of services you will need to perform daily in order not to lose money.  Do your budget for cash flow as though you do not have terms with any vendors.  This is the most conservative way to project your cash needs.

Financial advisors and bookkeepers play a key role in helping you manage budgets and maintain healthy cash flow:

• Create Monthly and Annual Budgets. Update your budget in real time to monitor actual sales, expenses and trends.

• Forecast Revenue: Advisors provide tools and insights to anticipate income during peak and off-peak seasons. These should include productivity, number of Guests, number of services, and the percentage of Retail to Service Sales.  Project services when performed, product when sold, not pre-paids, gift certificates, memberships.

• Monitor Cash Flow: Professionals track inflows and outflows to prevent you from being caught short or low on cash. Build a cash flow as you operate above breakeven.

• Implement Strategies to Improve Cash Flow: Experts recommend strategies like pre-booking incentives, membership models, lines of credit and flexible payment plans.

4. Tax Planning and Preparation

Working with CPA’s, tax professionals and financial advisors reduces stress and ensures compliance:

• Understand and Plan Your Tax Obligations: From sales tax to payroll taxes, advisors keep you informed of your responsibilities and keep you current.

• Maximize Deductions: Financial experts identify deductible expenses like equipment, depreciation, supplies, expenses and staff training to lower your Net Income and reduce tax liabilities.

• Maintain Accurate Records: Bookkeepers close your books every month and prepare your books through “Trial Balance” to ensure all financial records are tax-ready and compliant.

• Partner with a Tax Professional: Your financial team should work with your CPA at year-end and broker the relationship and communication between your CPA and your business. Collaborating with a skilled tax advisor (CPA) minimizes errors and ensures your filings are completed on time.

  
  

5. Key Financial Metrics for Growth (KPI’s) – Expectations and Targets

Advisors and bookkeepers help track essential financial metrics to measure, identify and drive business growth and profitability:

• Revenue Per Client Visit (RPCV): Understand how much revenue each client generates.

• Client Retention & Re-booking Rates: Financial professionals help assess how returning clients impact profitability.

• Product vs. Service Revenue: Experts analyze sales data to strike the right balance and maximize revenue and profitability.

• Profit Margins: Bookkeepers and advisors by sales category, calculate profit margins and identify opportunities to improve them.

• Productivity.  Financial guides can help identify opportunities for growth based on the capacity and utilization of your facility. 

• Breakeven.  Understanding how much money you need to bring in and how many services you need to perform every day gives you the confidence to know that your business is on track and profitable.

6. Payroll and Employee Management Compensation Metrics

Managing payroll and employee finances becomes easier with professional support.  Often, it is easier and cost-effective to have a payroll company prepare your payroll.

• Set Up Payroll Systems: Bookkeepers bridge the gap between your business and your payroll company.  It is important that this process is as automated as possible for employees and contractors so that your business payroll is done accurately and in compliance.

• Manage your labor cost by department and sales categories. Bookkeepers ensure that your payroll company sets up your payroll in a way that is useful and practical for your business.  

• Track Tips and Commissions: Professionals ensure tips and commissions are documented properly for transparency. This impacts your payroll tax filings, net income and labor cost.

• Recommend Cost-Effective Employee Benefits: Financial advisors identify benefits that support employee satisfaction without straining finances. Businesses without employee benefits have difficulty being competitive for employees in most markets.

• Stay Compliant: Professionals ensure your payroll systems align with local labor laws and tax filing requirements.

7. Planning for Growth and Expansion – Business Planning

Financial professionals play a critical role in planning for future growth:

• Evaluate Expansion Opportunities: Advisors conduct financial analyses to determine the feasibility of adding services or new locations.

• Secure Funding: Bookkeepers and advisors help prepare loan packages and financial documents for loans, grants, or investor opportunities. They help you understand how much you need, for what, what you can afford and how you are going to pay it back.

• Build Emergency Reserves: Advisors help you establish an emergency fund to plan for  unexpected expenses, repairs or seasonality.

• Invest in Training and Technology: Experts recommend investments that increase operational efficiency and staff performance.

8. Avoiding Common Financial Mistakes

Working with experienced financial professionals helps you avoid costly mistakes:

• Know that you are legally able to operate your business. Know your scope of practice, corporate practice of medicine, and what local regulations and licensing requirements are before doing any sales projections.

• Have a plan, a roadmap, a budget that helps you project where you are going and how your business is going to perform,

• Underestimating Costs: Advisors help account for startup, operational, and hidden expenses like credit card processing fees.

• Neglecting Tax Planning: Financial professionals ensure funds are set aside for taxes to avoid surprises.

• Reviewing your Financials: Bookkeepers and advisors regularly review financial statements (Profit & Loss and Balance Sheets) to spot trends and potential issues affecting profitability.

• Ignoring Cash Flow Issues: A monitored cash flow plan and budget by financial experts prevents disruptions caused by cash shortfalls. .

Conclusion: Partnering for Financial Success

By working with experienced bookkeepers, financial advisors, and small business coaches, spa and beauty business owners can take be confident in their ability to know where they stand financially without processing their own data.  They can use tools provided to them to  control their finances while staying focused on their clients experience and providing a world class workplace for their employees . From daily bookkeeping to long-term financial planning, partnering with skilled professionals ensures stability, profitability, growth, and peace of mind for your business.

Book a free consultation with Monte today and get on the right track!

This article was published in DERMASCOPE magazine, March 2025