A budget is one of the most important documents that any massage business, whether big or small, can create. It is an ongoing overview of the current state of your business’s finances. This document is essential, as it helps guide a business owner’s decision-making around the following areas:
• Growth of the company vs. cutting spending. The budget can help you determine areas in your business where you need to cut spending or increase spending to help improve profitability.
• Charting a road map toward getting to your financial goals.
• Making it easier to access capital and funding if needed to help with growth.
Before you start creating a budget, there are a few valuable tips you should consider.
Your budget will be a living document and can always change as your business needs change. It should not be a static document that is done once, that you never revisit. Plan to review your budget periodically. I recommend new business owners revisit their budgets at least once a month the first couple of months they are in business. Once you have been in business for at least a year, you can switch to reviewing the budget every quarter.
You may be asking, why should you need to revise your budget? It’s important to frequently revisit your budget, especially if you are a new business—as it may take a while to figure out your industry’s cycles. Frequently revisiting the budget will help you with your day-to-day financial decisions.
Let’s Talk Financial Cycles
Every massage business should familiarize itself with the sales cycles of the massage industry. Is there an industry sales increase during May and June due to the celebration of Mother’s and Father’s Day? Or during holiday season?
Again, if you are starting, this will take some learning but will significantly help you make a budget that can truly reflect your business’s needs. Having more money in the bank during your slow seasons can be a tremendous asset to your business, and only by knowing your sales cycles can you budget for this.
Slow cycles may also offer an opportunity to increase marketing and maybe capture a market share you were unaware of. But again, without understanding your sales cycles, you may not be able to budget for this activity appropriately.
Clearly understanding and defining the financial risks associated with operating in the massage industry may also go a long way in helping you make an optimal budget.
A good example would be understanding the impact of minimum wage, salary, paid time off and offering things like health insurance to your employees. Understanding the financial implications of this will make your budget look vastly different.
You Don’t Have to Create a Budget Alone
If you have employees, try and involve them when making your budget. They can be a helpful resource when trying to get a holistic view of your business. Make use of the diverse skills your employees possess when trying to determine how the resource of money will be spent in your business.
Another reason to involve your employees is this will engender trust among them, especially if they are aware of changes that pertain to their jobs. Keeping employees updated on your short- and long-term financial goals and what they can do to help reach them is something you can do by involving them in the budget-making process. This way, you can have everyone moving toward the same goals. However, remember that while employee input can be invaluable, the decision rests with you, the business owner.
One of the most important hallmarks of a budget pertains to expenses, salary and employee benefits. While you may be tempted as the business owner to save every penny for your budget, remember to pay yourself, too.
If you need additional budget guidance, do not hesitate to reach out to a finance professional who is experienced with the massage industry.
Show Me the Money!
Like Jerry Maguire said, “show me the money.” The first step for any size massage business when making a budget is to determine all your income sources.
Using your profit-and-loss statement will help you determine your sales figures, which is a great place to start. You can use this as the basis of deciding where your likely largest source of income (Hot Stone Massage, Swedish Massage, Prenatal Massage) will be coming from. From here, you can add any other sources of income from your business as the month progresses. The total number of sources of income will depend on your business model.
Let’s Talk Costs/Expenses
Now that you know your sources of income, let’s determine your costs (expenses).
Fixed costs: It is usually easier to start with the fixed costs, as these are the expenses that remain the same from month to month. These include things like rent, licenses, telephone and internet plans. Looking at your bank statement or credit card statement should help shed some light on what your fixed expenses are from month to month if you are not already aware of them. If you are a new business and do not have fixed expenses on your statements to look at, use projections to decide what your fixed costs may be. As noted before, the budget should be a dynamic tool you can always revisit and make amendments to once you have more data.
Variable costs: For a massage business that is starting off, variable expenses can be hard to determine. However, these are the expenses that can or will change from month to month. For massage therapy studios/spas, a variable may be professional supplies, merchant fees or commission salary. These costs will change depending on how much service you provide.
As time goes on, you will start to have a better idea of the variable costs associated with running your massage business. If you are just starting out, you will need to make some projections. Don’t worry; you can always go back and make changes as needed.
Oops, it Happened Again …
Life happens, and businesses should plan for those unexpected things that happen. You cannot account for every eventuality; but you can account for many one-time expenses within your massage business.
If you have computers, at some point they will stop working and need to be replaced. If you have just purchased these and they are under warranty, that may not be something you need to consider in that year’s budget.
However, if your massage tables are a few years old, the likelihood of them having problems that necessitate purchasing more will go up. Accounting for such unexpected expenses in your budget makes sense.
Once you have all this information, you can start making a preliminary budget and determining the financial standing of your massage business.
• You will essentially want to tally all your income sources to determine your total business income.
• With all your expenses tallied up, you will be able to have a good idea about your business’s total expenses.
• You can then determine what your cash flow into your business (income) is compared to your cash flow out of the business (expenses).
• With this method you will be able to determine the profitability of your massage business.
• When you combine both your income and expense items, your budget will turn into a profit-and-loss statement which would look like the following:
Income minus expenses equals net income or net loss
P.S.: Your goal is to have net income.
Stay Calm and Budget On
While it may initially be hard and time-consuming to do a business budget, the insight you will gain from the exercise will be very valuable to you. As a business owner, you will start to develop financial insight into how your business is running (or is supposed to run) and help yourself make the business decisions that will lead to further growth and profit.
Remember, your business budget is a working, living document. It will change as you weather the storms of the massage industry. Changing your budget is not always a bad thing; your massage business may see a huge increase in sales due to unforeseen circumstances that you were not aware of when you created the budget. Therefore, you will need to modify both your income and expenses, as you may need to increase your massage supplies or your salaries to compensate for the growth.
You got this!
About the Author
Lozelle Mathai, MBA, CFEI, is a financial accountant with over 18 years of experience in the field of financial management and accounting. She is the owner of The Body of Accounting, a division of Closing Your Books LLC. The Body of Accounting is an accounting consultancy firm that educates massage and bodywork business owners on how to manage, maintain and understand their business finances.