Your income is not your profit. Simply stated, an entrepreneur can see a monthly income on their ledger; however, this does not necessarily result in the running of a profitable business.
Creating a positive and enduring income flow is only part of the equation. Two tandem items that need to be closely attended to in order to create a profitable business are valuing of services and recurring expenditures. Combining these two variables can lead to a financially successful business.
Valuing of Services
Valuing of services can be loosely defined as determining the selling price of your goods and services. A primary thought to consider is, “What is a comparable market value and what is my personal value?” The value of your services should be priced higher than the amassment of your monthly business expenditures to leave a monetary surplus.
This surplus can be used in the future to account for unexpected expenditures. When considering market value, do your research. Explore what industry competitors are charging and see if their numbers match the forecasted operational requirements of your own massage practice.
In my experience, it can be beneficial to see what has worked in the past for others and incorporate specific tactics that fit with your business ethics and values. This alleviates the stress of having to engineer an entire massage practice business plan along with financial requirements and executive orders. Work smarter, not harder!
Determining your personal value can be much more difficult and takes some introspection. At this point it is important to measure what your time and energy are worth. In a comparison of an employed massage therapist and a business owner, there is a difference. A therapist who works as an employee will sometimes have the comfort of arriving and leaving the workplace without the stress of after-hours operations and planning. An owner does not have that same luxury.
The countless hours spent outside of providing actual services to clients need to be considered in determining your value, and thus establishing your point-of-sale prices.
Before taking even your first client, the enterprising entrepreneur needs to establish their cost of doing business. This could take a brainstorming session of listing and prioritizing all monthly expenses. (Recurring expenditures is a value I have fallen victim to when it comes to underestimation.)
Include items like rent, utilities, expendable and non-expendable items, subscriptions, taxes and salaries. Remember to include your personal salary in this list as well. Even the most insignificant expenses need to be included in the original brainstorming session. Always leave room for unexpected expenses, as they are bound to appear as your massage practice grows.
Once you have prioritized all recurring expenses, it is time to choose what is essential for basic monthly operations. At this stage you will need one more thing: a monthly operating budget to establish the financial threshold for you to keep your head above water.
The Operating Budget
Within the operating budget you should have essential line items you prioritized while brainstorming. The operating budget is an evolving worksheet that will shrink and expand according to the revenue generated by sales. If sales are up, then the budget may be increased, and vice-versa when sales are down. It is also key to consider acceptable risks in the early stages of beginning a business. At times, business may not be growing at the rate you had forecast.
During these times, opportunities for advancement might be abounding and you may want to take advantage of them. It is up to you as the massage practice owner to accept the risk of going over your budget for the month in anticipation of making up for it through proper investment on the back end. I experienced this when I was transitioning from my first out-of-home office to my first multi-room clinic.
The opportunity was presented to me for a clinic with more square footage and the ability to add another therapist. The option of adding another therapist outweighed the initial moving costs and the increase in rent. I eventually took the opportunity, which in turn created more profit—and I never looked back. Even though I was operating outside of my operating budget for a small amount of time, the revenue generated created a new operating budget during the next financial quarter.
Review Your Budget
Budgets should be reviewed weekly to monthly by you or your office manager, and you should set up quarterly and annual meetings with a CPA to discuss your current financial status and expansion opportunities.
Being able to subtract your monthly operating expenditures from your income and result in a surplus is a sign of a financially successful business. As your massage practice progresses, you will add employees and equipment. The cost of doing business will increase, as should your prices.
A great rule of thumb for the management of your profit is the rule of 33:
• 33% of your profit should go back to your business
• 33% of your profit should go to taxes
• 33% of your profit should go to your personal wealth.
The most difficult discipline is learning to be consistent with your finances and checking your bank accounts daily. I recommend setting up several suffix bank accounts to help you determine where your money is going—for example, to rent, utilities, taxes, payroll, payroll taxes and marketing. Be sure to use ledgers and spreadsheets to keep track of all financials going in and out of your business. (Spreadsheets are a business owner’s best friend.)
Automated ledgers and spreadsheets will assist with organization and allow for a less-stressful operation of your massage practice. If you do not have specific experience or knowledge of how to make or use one, search for spreadsheets online or hire a professional. This may be an item that needs to be added to your operating budget, so you can focus more on items that fall within your experience or comfort level.
Ask for Help
The last but most critical value that is a cost of doing business is pride. Becoming a businessperson is a humbling experience. At times I felt exposed, unworthy and helpless.
Without the assistance of professional mentors, online tutorials, and countless hours with multiple help desks, I do not know where I would be as an entrepreneur. I quickly realized I had to be evolving as a person just as fast as my business was evolving. Understanding that you will need to learn through experience is a tough pill to swallow, but being an entrepreneur is not for the timid. To succeed as an entrepreneur and not succumb to the cost of doing business you will need to search for support.
Search for a mentor whom you can call at all hours to bounce ideas off of. Search for industry professionals who can fill the gaps of experience you lack until you get to a point you can retake the reins. Search for supporters within your community who encourage you to keep working hard in the face of adversity like economic downturn and pandemic fallout.
I have always used a humble-yet-aggressive approach when it comes to business. I genuinely believe I will never have all the right answers, but I will know someone who does. Sacrificing your pride is a small price to pay to run a successful and profitable massage practice.
Be Humble Yet Aggressive
Outside of the current impact of COVID-19 on businesses, scraping and struggling to keep a new massage practice open may be expected at least in the first year. Taking the proper steps to establish a concrete foundation will help ensure your business stays in great form through even the most trying of times.
Understanding the market value and the intangible value of your time is essential to creating your price point. Knowing your numbers and recurring expenditures will alleviate the stress of wondering if you can afford the next big business investment. Establishing an accurate operating budget gives you firm guidance as to your financial standing. Always make it a point to have a planned layout of costs, financially, physically and mentally.
Finally, developing a mindset of progressive learning and humble-yet-aggressive pursuit will set you and your business up for a profitable journey.
About the Author:
Jeanette Falu-Bishop owns Massage Business Education & Branding LLC, through which she teaches how to start or improve an already-established massage business through pre-recorded online courses, live trainings and business conferences.