Profit vs. Cash Flow: Clarifying the Difference for Medical Spas

Dear Dangerously in Love with Finance,

I’m the owner of a small but growing medical spa that offers aesthetic treatments like Botox, facials, and laser hair removal. We’ve been in business for about two years, and our client base is expanding steadily. I’m excited to see our monthly revenue climbing! But when I look at our bank account, I don’t see the cash I expected to match my profits.

For example, in a recent month, we made $50,000 in revenue, and after deducting expenses, the profit was supposedly $15,000. However, at the end of the month, I barely had $3,000 in my account after paying bills. I’m trying to figure out why there’s such a difference between my profit and loss report and the cash in my bank account. I’ve been told this is a “cash flow” problem, but I’m not sure what that really means.

Can you help me understand why profit and cash flow are so different? How can I make sense of these accounting terms for my medical spa so I can better manage my finances?

Sincerely,
Confused About the Numbers

Dear Confused About the Numbers,

Thank you for your question! Your experience is quite typical for small business owners, particularly in service-based sectors such as medical spas.. The distinction between profit and cash flow often trips people up, but understanding it is essential for your medical spa’s long-term health.

So, Let’s dive into the details ~

Profit: What It Means for Your Medical Spa:

Profit, or net income, is the money left over after you subtract all your expenses from your revenue during a given period. For example, if you brought in $50,000 in revenue and your expenses (such as employee wages, product costs, rent, and utilities) totaled $35,000, you’re left with $15,000 in profit.

The key thing to understand about profit is that it’s an accounting number. It’s calculated based on your income statement, which uses accrual accounting principles. This means revenue and expenses are recorded when they’re earned or incurred, not necessarily when the cash changes hands.

In simpler terms, profit shows you whether your medical spa is running efficiently and generating value, but it doesn’t necessarily reflect how much cash you have available right now.

Cash Flow: The Day-to-Day Reality

Cash flow, on the other hand, tracks the actual movement of money into and out of your business. It’s a measure of liquidity—how much cash you have on hand to pay bills, buy supplies, and invest in your business.

Here’s why cash flow and profit often don’t align:

Timing Differences: Let’s say a client pays you for a Botox treatment using a credit card, and the payment processor takes a few days to deposit the money into your account. Or, you might offer memberships or packages that clients pay for upfront, but you recognize the revenue over several months. These timing lags can create a gap between when revenue is recorded and when cash is received.

Debt Payments: If your medical spa took out a loan to buy an expensive laser machine, your monthly loan payments are cash outflows. However, these payments don’t show up on your income statement as expenses—they’re reflected on your balance sheet. This can cause cash to drain from your account even if you’re turning a profit.

Inventory Costs: Many medical spas need to purchase products like fillers or skincare items in bulk. These upfront cash outflows impact your cash flow immediately, even though the inventory may not be fully “used up” or sold during the same period.

Accounts Payable and Receivable: If you’re delaying payments to vendors (accounts payable) or waiting for clients to pay you (accounts receivable), this affects your cash flow. Your profit may look great, but slow collections from clients or suppliers demanding quicker payments can leave your bank account dry.

How to Get a Handle on Cash Flow for Your Medical Spa

Track Cash Flow Separately: Along with reviewing your profit and loss statement, monitor your cash flow statement. This document will show you how cash is moving through your business in three areas: operations, investing, and financing.

Understand Fixed vs. Variable Costs: Break down your expenses into fixed costs (like rent and salaries) and variable costs (like skincare products). Knowing these distinctions can help you predict cash flow needs during busy and slow seasons.

Implement Strong Billing Practices: If you offer payment plans for treatments or memberships, ensure clients stick to their schedules. Use software that automates billing reminders and tracks late payments to reduce the risk of cash flow issues.

Build a Cash Reserve: Aim to set aside enough money to cover 2–3 months of operating expenses. This buffer can help you handle unexpected cash flow gaps, such as slow client payments or sudden equipment repairs.

Work with an Accountant or Bookkeeper: A professional experienced in accounting and bookkeeping for medical spas can help you understand your financial reports, forecast cash flow, and spot red flags before they become major problems.

Why Both Matter for Your Medical Spa

Profitability ensures that your medical spa is viable long-term. It tells you whether you’re charging enough for your services and controlling costs effectively. Cash flow, however, is what keeps the lights on and the business running day-to-day.

Think of it this way: Profit is the destination, but cash flow is the fuel that gets you there. Without proper cash flow management, even a profitable business, like your medical spa, can run into trouble.

Hope this help…If you need help with creating a cash flow statement. Please reach out…as this is what we do…

Much love,

Dangerously in Love with Finance

Mindful Financial Tips:

Your situation is a great opportunity to dig deeper into the financial side of your medical spa. By understanding the difference between profit and cash flow—and tracking both carefully—you can avoid surprises and make informed decisions to grow your medical spa sustainably.

If the numbers still feel overwhelming, consider, reaching out to Healthy Bodies of Finance. We are your expert medical spa accountants. We provide tailored advice and help you get a clear picture of where your money is going.

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]