Dear Dangerously in Love with Finance,
I’m the owner of a successful medspa, but despite having a growing client base, I still feel like I’m missing something when it comes to understanding my financial statements. I’m not sure how to efficiently use the numbers to make better decisions about increasing sales, productivity, and profitability. I hear other business owners talk about metrics and financials with such ease, but it’s like they’re speaking another language! How can I master my financial statements and use them to make my medical spa even more successful?
Sincerely,
Perplexed in Aesthetics
Dear Perplexed in Aesthetics,
First of all, I hear you! Running a medical spa, or any business in the aesthetic industry, means you’re constantly juggling everything from client satisfaction to inventory management. But when it comes to your financial statements, they’re not just random numbers—they’re gold mines for decision-making!
Your Profit and Loss Statement (P&L) is your best friend when it comes to understanding how your medspa is performing. It gives you insight into your revenue streams, including how much you’re making from services versus retail products. Look at your cost of goods sold (COGS) and gross profit margins—those numbers show where you’re making the most money and where you might be bleeding a little. From there, make strategic decisions to increase sales in high-margin areas while tightening up any expenses that could cut into your profitability.
Now, don’t sleep on your Balance Sheet! This bad boy will tell you what you own and owe. Understanding your assets (equipment, cash in the bank) and liabilities (loans, outstanding payments) helps you gauge your financial health. Are you over-leveraged? Do you have enough liquidity to cover emergencies? These are questions your Balance Sheet can answer.
Lastly, metrics like Average Revenue Per Client and Retail to Service Ratio are key. They help you track productivity and sales trends. Are your clients spending more over time, or do they tend to plateau? If they plateau, it might be time to adjust your marketing or add more enticing services.
The best part? Once you learn how to efficiently use these financial statements and metrics, it becomes easier to not only manage your accounting aesthetic but also increase productivity and profitability. Start making data-driven decisions, and you’ll be scaling that medspa in no time!
Sincerely,
Dangerously in Love with Your Finances.
Mindful Take-Away Thoughts:
🌿What is a Financial Statement?
A financial statement is a formal record of your business’s financial activities. It provides an overview of the health of your business, including how much revenue is coming in, what your expenses are, and your overall financial standing. There are three primary types of financial statements: the Profit and Loss Statement (P&L), Balance Sheet, and Cash Flow Statement. Together, they help you understand your earnings, spending, and profitability, making them essential tools for decision-making and business growth.
🌿What is a Balance Sheet?
A Balance Sheet is a snapshot of your business’s financial position at a specific point in time. It outlines your assets (what you own), liabilities (what you owe), and equity (the net worth of your business). The Balance Sheet is key to understanding your financial health, helping you see if you have enough assets to cover your liabilities and identifying areas where you might be over-leveraged or need to improve liquidity. It’s a crucial tool for assessing your long-term stability.
See an example Balance Sheet
My Medspa Balance Sheet
As of December 31, 2024
Assets
- Cash: $25,000
- Accounts Receivable: $10,000
- Equipment (treatment machines, furniture, etc.): $50,000
- Inventory (products for retail): $5,000
- Prepaid Expenses (rent, insurance, etc.): $2,000
Total Assets: $92,000
Liabilities
- Accounts Payable (suppliers, vendors): $8,000
- Loans (business loans, equipment financing): $30,000
- Credit Card Debt: $5,000
- Accrued Expenses (salaries, utilities, etc.): $4,000
Total Liabilities: $47,000
Equity
- Owner’s Capital: $35,000
- Retained Earnings: $10,000
Total Equity: $45,000
Total Liabilities and Equity: $92,000
In this example, the Balance Sheet shows that Glow Medspa has $92,000 in total assets, which matches its total liabilities and equity. This balance is key, as the Balance Sheet must always balance, meaning Assets = Liabilities + Equity.
The medspa has some debt (liabilities), but it also has sufficient assets and equity, showing a solid financial position. This sheet can be used to assess the overall financial health of the business and inform decisions about managing debts, assets, and future investments.
🌿What is Average Revenue Per Client?
Average Revenue Per Client (ARPC) is a metric that shows how much money, on average, each client brings to your business over a given period. To calculate ARPC, divide your total revenue by the number of clients during that time frame. This figure helps you assess your profitability per client, track spending trends, and identify opportunities to offer higher-value services or products to boost overall revenue.
🌿What is Retail to Service Ratio?
Retail to Service Ratio is a key metric that compares the amount of revenue your medspa generates from retail product sales versus service-based income. It helps you understand the balance between these two streams and assess whether you’re maximizing the potential of both. A higher retail-to-service ratio can indicate that you’re successfully upselling products alongside services, which can significantly enhance profitability.
Running a medspa can be challenging, especially when it comes to understanding financial statements. We specialize in helping medspa owners like you navigate the complexities of financial management. Our team can assist you in analyzing your Profit and Loss Statements, Balance Sheets, and key metrics like Average Revenue Per Client and Retail to Service Ratio. By optimizing your expenses and using data-driven insights, you’ll be able to make informed decisions that boost your medspa’s sales, productivity, and overall growth.
Don’t let financial uncertainty hold back your medical spa’s potential.
Contact Healthy Bodies of Finance today and take the first step towards a brighter financial future.
This article is designed to provide information only and should not be considered legal or tax advice. Because of the complexity of the law and the variables in your own personal tax and accounting situation, you can’t rely on our advice specifically related to your unique circumstances. In order to get the best tax savings and legal advice available to you, you should consult with your own accountant, attorney or advisor regarding your particular facts and circumstances. Healthy Bodies of Finance is an accounting firm that specializes in working with health and wellness providers. We provide monthly accounting & bookkeeping services and financial education. For more information on our specialized services for health and wellness providers please contact us at [email protected]