As an accountant, when I submit month-end financial reports, balance sheets and income statements to my massage therapist clients, they are often surprised to see how much they spend.
They examine the numbers line by line and are shocked to see the results.
They frequently ask me questions, such as “Where did my money go? Did I spend that much on supplies? That much on meals and entertainment? Do I owe that much on my credit cards? Why is my income so low?”
My reply is always the same: “What did you expect it to be? Let’s compare these actual numbers to your budget to find out what happened. The answers to your questions are in the details.”
I am often met by blank expressions, with answers varying from “I don’t actually have a budget, but I know I should have one” to “I know I need to try and figure out where all my money is going, but it just seems like so much work.”
One of the most common, unfortunate answers is “I don’t do a budget because it is so restrictive, and I feel that it is just not that important.” The truth is, budgets don’t need to feel restrictive—and they are important.
Does My Massage Business Really Need a Budget?
Unfortunately, many massage business owners never seek out financial management help or attempt to create a budget. Others make a budget once and never look at it again. Businesses that do not have budgets open themselves up to numerous problems, such as:
• Making it easier to be a target of financial fraud and embezzlement;
• Supply issues with products;
• Over- or under-staffing;
• and many more issues that are beyond the scope of this article.
If any of these issues sound familiar, I am here to tell you that you are not the only one facing these challenges. Making a budget need not be a daunting task. It is a skill anyone can learn—and a skill that is vital for the survival of your business.
When making budgets, simplicity is key; no special software is needed. I often use Microsoft’s spreadsheet program, Excel, to make budgets for my own business and encourage my clients to use something similar.
What Is a Budget?
A budget is a tool used to keep your business on financial track. It is a projection of your massage business’s income, expenses and financial obligations. It is a financial roadmap that works along with your business goals.
You expect your business to reach its goals. Without a budget in place, you are hoping for financial rewards that will exceed your financial output. When you have a budget, you can project if there will be income that will exceed your business’s expenses.
Your business budget is dependent on decisions that you, the business owner, will make throughout the calendar year.
Think of a budget as a mini business plan that covers your financial goals. It is a guideline, not a commandment; it is not meant to be set in stone and should not be restrictive.
A budget is flexible. Like your business’s goals, it can be adjusted at any time. What you plan today can quickly change tomorrow. The key is to be ready for the change when it happens. A budget allows you to be financially proactive.
You can establish a simple, effective budget for your massage business in four steps:
1. Accurate tracking of your income;
2. Accurate tracking of your expenses, including estimated tax payments;
3. Using the previous year’s accurate financial statements or current industry benchmark;
4. Monthly and quarterly monitoring to ensure your budget stays on track with your goals.
Let’s take a look at each step in more detail.
Step 1: Accurate Income Tracking
A budget is an estimation, so it is essential to be as realistic as possible. Don’t inflate your income and don’t underestimate your expenses.
Start your budget with your business’s income in mind. Without income, you don’t have a business—you have an expensive hobby.
How much money do you need to make to accomplish your business’s financial goals? When you start to look at the income entries, there are several things you might want to consider:
• How many client massage sessions will you need to meet your earning goals? This number will dictate your ability to meet expenses such as staff salaries, supplies, your take-home pay, renovations, continuing education and everything else it takes to keep your business running.
• Consider client services you might want to add to boost your income. These can be services that are not your primary source of income but complement your massage business, like the retail sale of self-care products.
• Consider what services you want to eliminate or new services or modalities you want to offer.
Step 2: Accurate Expense Tracking
A core part of sticking to your budget will be managing expenses. Make note of any changes that might occur within the year or will change the next year. These may include but are not limited to:
• Changes in routine expenses. Rent, for example, may change within the year depending on your lease, while utilities, such as heating and cooling, may be similar each month or change with the seasons.
• Changes in client volume. Supply expenses will increase as your number of clients goes up.
• Changes in staff salaries as you increase pay or hire more employees. (This may not be much of an issue when your business is new.)
Using a chart of accounts is the best-practice method of tracking your expenses. Your chart of accounts should be simple and straightforward; it shows, within categories, the movement of your cash. It tells you how source income was earned, what type of expenses were paid, and what type of equipment was purchased.
Sample Chart of Accounts
Cleaning and Maintenance
Continuing Education and Training
Meals and Entertainment
Taxes and Licenses
Estimated tax payments need to be included in your budget and treated like any other expense line within your budget. Your tax accountant will give you this figure based on prior years’ income or your projected income. Including this amount in your monthly budget keeps you aware that you owe this money.
If you pay your estimated taxes or any other expenses quarterly, transfer the budgeted amount into a separate bank account so you can ensure you have the money when it becomes due.
Step 3: Using Previous Year’s Financial Statements (or Current Industry Benchmark)
Having accurate financial data from the previous year helps with making financial decisions and also acts as a critical element in preparing your budget for the future. You can use this data as a benchmark for predicting future expenses and income.
If you are just starting out, you can use your business plan and industry benchmarks as a guide and adjust the numbers as necessary to fit your business’s financial and organizational goals.
Step 4: Periodic Monitoring
Your budget should not be a static document that is done once and shelved. Instead, it should be a living document that you refer to monthly while comparing it to your actual business income and expenses.
The budget will inform you of how you are controlling cash and if you overestimated or underestimated your income and expenses. It also answers the question, “Can my massage business successfully accomplish its financial and business goals?”
Comparing actual figures with budgeted figures is called variance analysis. A variance analysis should be done at least on a quarterly basis so new issues can be identified and addressed. However, reviewing your budget monthly will allow you to course-correct, adjust more quickly and keep you in control of your business finances.
For example: Let’s say you spent $700 in October on continuing education. However, when you look at your budget you see you only allocated $500 for that category that month.
Budgeted Amount: $500
– Actual Amount: $700
= Variance: $200.
You overspent your budgeted amount by $200. The question then becomes how you will pay for the $200 overage. The $200 may have been an increase in training cost that you were not aware of when you created your budget, or maybe you required unanticipated training to renew your massage therapy license.
The benefit of doing the variance analysis is that you are now more aware of this difference in what you budgeted and what you spent. You can now identify the why of an increase in expenses for the month of October.
You can also arrange your business to make up for the acute shortfall. You may decide to take on a few extra clients to cover the cost, or reduce an expense by $200 within the following month.
Incorporating a budget and financial review process into your massage practice not only allows you to be financially proactive, it allows you to have peace with your financial spending and your business growth.
About the Author:
Lozelle Mathai, MBA, CFEI, is an accountant with more than 18 years of experience in the field of financial management and accounting. She is the owner of Closing Your Books LLC, as well as The Body of Accounting, a virtual educational accounting consultancy firm that teaches massage and bodywork business owners how to manage, maintain and understand their business finances.