An image of a businesswoman with a computer is used to illustrate the concept of financial reports for small business.

There are three financial reports for small business that every massage therapist should use. These reports answer three fundamental questions: Is my practice profitable?; Do I have enough cash to pay my bills?; and How much is my practice worth?

How Healthy is Your Massage Practice?

Several decades ago, I was in a seven-car pileup (I was car number three) at highway speed. Since nothing was broken and I wasn’t bleeding I thought I was OK. As you can imagine, I wasn’t—but since my injuries weren’t obvious to me I presumed they didn’t exist. I am still paying for that mistake!

Just as it’s important to check on the health of our bodies—and it shouldn’t take a major auto accident to do so—it’s also crucial to check in on the health of one’s practice. Likewise, it shouldn’t take struggling or bankruptcy to do so.

Yet, for many of us, the health of our practice comes down to “I can pay my bills” and “my schedule is mostly full.” Both of those are legitimately important health checks, but they’re not enough to honestly measure the health of your practice. It’s a bit like saying, “nothing’s broken, nothing’s bleeding, so I must be OK.”

If you want to genuinely know the health of your practice, you need to look at some of your own numbers. Big corporations use a raft of financial reports to do just that. Most of those reports, however, either don’t make sense for the kind of businesses we’re running or they answer questions we don’t generally ask.

3 Financial Reports for Small Business

There are three reports—the income statement, balance sheet and cash-flow report—I recommend every massage therapist understands and knows how to create.

These reports answer three fundamental questions

• Is my practice profitable (how much money am I actually making)?

• Do I have enough cash to pay my bills?; and

• How much is my practice worth?

Financial Report for Small Business: The Income Statement

This report answers this question: Is my practice profitable (how much money am I actually making)?

We need to make enough money to pay for our practice and pay ourselves (take-home pay). Is our practice actually supporting itself? Are we able to pay ourselves what we need? Are we making more than we’re spending? How much more?

To answer those questions you need an income statement (also known as a profit-and-loss statement). It lists all the money you made in a period of time (usually a month, quarter or year) and then lists all your expenses for that same time period.

Hopefully, the income is more than the expenses! That’s called your profit.

Bookkeeping apps can create this report for you. If you do your own bookkeeping in Excel or on paper, it’s just a matter of adding up the columns.

If you break your expenses out by category for the year you’re also ready to fill out your schedule C for your annual taxes. In fact, I usually create an income statement to help me fill out my schedule C.

I’ve used an income statement to analyze whether a new setting (a group practice vs. a home-based practice) was more or less profitable in the long run. I was surprised I made more profit in the group practice than I did at home. The income statement helped me see why: the group practice took care of a lot of the day-to-day business expenses I normally pay, like laundry and marketing.

Financial Report for Small Business: The Balance Sheet

This report answers this question: How much is my practice worth?

Are you wondering if you could sell your practice? Are you worried you’re carrying too many liabilities? Are you curious if your practice is worth more than it was when you started? You need a balance sheet.

A balance sheet shows you how much your business is worth on any given day. To create a balance sheet, list all your assets and all your liabilities. Subtract your liabilities from your assets. The difference is the net worth of your practice.

Your assets include things you can convert to cash: cash (obviously), the money in your business bank accounts, any money owed to your practice, any inventory—retail items like heatable pillows, self-care tools and lubricants—that you have waiting to be sold (each item’s value is what you paid for it, not what you’d sell it for), and expenses you’ve pre-paid (rent, for example), reference books, and (probably our biggest category) office and massage equipment (like tables, linens, laptops, printers).

You may be surprised how many thousands of dollars you have in assets.

Liabilities are money or services you still owe. Your liabilities are things like the balance on business loans, taxes you will need to pay this quarter, outstanding bills, and (one we learned a lot about during the COVID-19 pandemic) outstanding gift certificates and packages.

What about your client list and your practice reputation? They are important to you but they don’t easily convert to cash, so they aren’t considered part of your assets for the purposes of a balance sheet.

Balance sheets are particularly valuable for comparison. That is, if you generated a balance sheet for the last day of 2019 and another one for the last day of 2021, you could see if your net worth went up between 2019 and 2021. (We should all ignore 2020.)

Financial Report for Small Business: The Cash-Flow Report

This report answers this question: Will I have enough money to pay my bills?

We know how much cash we have right now because our clients pay as they go. Cash flow can be a challenge for us, though, if we sell a lot of gift certificates or packages or if we have many clients whom we invoice—meaning we also have to wait for payment.

What happens if most of our clients, in one week, pay with gift certificates or get invoiced? We won’t bring in a lot of new income that week.

A cash-flow report helps us anticipate periods of low income or high expenses. I do mine using paper and pencil and then transfer it onto an electronic spreadsheet. Start with how much cash you have at the beginning of the year. Follow that with the months of the year.

For each month, note the big expenses you know you expect to have. (You decide what qualifies as a big expense.) Some common examples might be:

• License renewals

• Conferences (and associated travel expenses)

• Continuing education (and associated travel expenses)

• Quarterly taxes

• New office equipment (laptop, cell phone)

• New massage equipment (tables or chairs in particular)

Next, you need to estimate your income for each month. How? Look at your own bookkeeping. You can run an income statement for several years, broken down by month. You’ll see what your average monthly income is over several years. Put that information in for each month as well.

Starting with the cash you had at the beginning of the year, add your income and subtract your expenses for each month. That shows in which months you might come up cash short.

If you’re the kind of person who is regularly uncertain or uncomfortable about having enough money to pay your upcoming bills, this report will help you take charge of that. Putting it down in writing gives you a more concrete idea of what you’ll need and when.

Additional Financial Reports for Small Business

There are other valuable questions you can answer with more reports. For example:

• What percentage of your available massage hours are actually booked each month?

• How effective were any discounts you offered?

• What percentage of gift certificates are redeemed?

• What size is your client base?

• What percentage of your client base are repeat clients?

• How long do clients tend to stay with you?

• How frequently do clients, on average, book massages?

• How do clients find your practice?

I could go on, but these are the kind of reports that help you understand how healthy your practice honestly is. With honest information you can see where you may need to take some kind of action to improve your practice’s health.

Report-Checking Frequency

I run an income statement every month, quarter and year. That’s a real workhorse of a report for me.

I recommend looking at some of these reports, such as percent booked and cash flow, monthly.

Some, including discount effectiveness, percent repeat clients, and marketing channel effectiveness (how clients find you), you should look at quarterly.

Other reports, including redeemed gift certificates, client base size, repeat clients, client retention and booking frequency, you should look at annually.

Become Informed About Financial Reports for Small Business

When you need to know how you’re really doing as a business, these three reports—the income statement, balance sheet and cash-flow report—can provide you a wealth of valuable information.

You can’t take care of your health, or your business’s health, until you know what it really is.

Kelly Bowers

About the Author

Kelly Bowers is the owner of the Healing Arts Business Academy. She is the author of four books: “The Accidental Business Owner,” “The Affordable Massage Handbook,” “Can I Deduct That?” and “Between Doormat and Diva.” She is a regular presenter with AMTA, an instructor in professional training programs, and an NCBTMB-approved provider of continuing education. You can find her on Facebook, Instagram and YouTube. She practices (NC license 16669) in Durham, North Carolina.