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Foreigners. I wanted to talk about a topic that I think super relevant to all of you listening and you might have your own system. So for those of you that do, hopefully this is just a different perspective, a reminder on how to emphasize profitability in your practice. At the end of the day, we're not spinning our wheels, just generating revenue for no reason. So I know this has been really important in our business. This is something I learned from a couple or an agency group that we're in that really stuck with me. And it's this idea of profitability management and how to create a cash flow system that locks your profitability percentages in place or at least comes close to it. So that's what we're going to talk about today is Profitability Made Simple a Cash Flow system for Med Spa owners. If you have any advice or insights that you want to share related to this topic, we'd love to see those down in the comments below. This is a general guideline to the best of my knowledge on some things that you can do to lock your profit percentage in place and to ensure your med spa is profitable, stable, growing and paying you as an owner. So many med spa owners grow revenue but still feel broke. This happens all the time in conversations that I have is I I learned this really early on. So I've been in the marketing space since 2011, 2012, professionally started this business in 2012 and through the course of those years worked with a variety of different businesses including some med spas, many medical practices. But it really 2022 and on the last three plus years where we've been really serious about talking about financials, coaching, customer acquisition cost, ROI with our clients cash flow impacts. Where I really learned early on, especially in the med spa space, there are a lot of med spas that have really good revenue numbers that look successful from the outside where the owners are struggling to attain and obtain the level of profitability that they should have as a successfully operating med spa. And there are a few reasons I think that happens and this is going to be a framework for helping you. Whether you're humming along and you're feeling good about this, even if you're really profitable and you're taking home lots of money, if that feels uncertain or unpredictable or just like the decision is made ad hoc on a weekly or monthly basis, you're just kind of doing what you feel like. I think this can give you a system and some clarity to rest easy knowing that your decisions are fundamentally sound and based on a plan. So here's the Usual formula that we think about in business, which is sales minus expenses, equal profitability. Right. That's how most of us think of profitability. And whatever is left over at the end of the day is our profit. And this puts profit as an afterthought. It's a byproduct of our other decisions, but we don't control it upfront. So let's talk about the profit focused mindset, which is flipping the formula here. And that's going to be sales minus profit, equal expenses. So we're basically going to take our revenue numbers and then we're going to decide and this could change. If you're just starting with this and you actually are in a place where your business maybe is not profitable, you need to at least have this in mind and start benchmarking some amount. Literally, even if it's only 1% or 5%, you need to benchmark this. But let's just say that that number is, I don't know, 15%, 20% that we want to lock in after owner's compensation is the key here. So as the owner of the Med Spa, the goal should be you're working toward a system that provides you a fair market salary. If you were to leave the business and replace yourself in the day today, how much would you have to pay someone else to step into your. If you're wearing multiple hats as the manager, the, you know, the CEO slash injector, there's a certain compensation if you're just wearing the CEO hat. If you're doing the CMO role, the chief operating officer role. Right. Figure out though realistically, what hats you were wearing and what is it going to take to replace those? If you wanted to step away from the business, or God willing, you had to step away from the business, what does that look like to replace you? After that number and all of the other things, you want to lock in a profit percentage, and I would say roughly, you probably want this number to be somewhere in, in the, in the realm of 15% or more. So what we're going to do now is we're going to take, if we have $100,000 in monthly revenue, that's our sales, we're going to lock 15% as our profit. Right. So $15,000 of that $100,000 revenue is going to be our profit number. Now we have $85,000 to work with to manage our expenses, our inventory, our hires, our overhead, our rent, all of it. So that's what we mean when we talk about a profit first to profit focus, mindset is putting profit at the forefront of the calculation, making sure that we're locking that number in. So a weird paradigm shift for many of you. And that number is going to look really different if you're a small, independently owned med spa, these numbers can get very, very blurry. But I would at least practice this to some extent if you want to combine the profit number to be like, hey, my pay press profitability. Still, you want to lock a percentage in place for that and anchor the rest of your revenue to manage expenses. So this is working in reverse order of how most of us think about profitability. So let's talk about some core principles for implementations. The first is something we talk about with our team internally all the time, is the idea of Parkinson's Law. Your expenses rise to meet what's available. So many of you, you're just doing this, like I said, on a whim. You're buying the new device because you think it's going to bring in new revenue. You're hiring the extra person because you feel like you need to. You're getting a bigger office space because things feel t. And you start to do this. And what you're doing is you're constantly chipping away at your profitability of your med spa, because as long as there's money in the account, you feel comfortable spending it. And that's what many of us do as business owners. And this is kind of tied to the idea of Parkinson's Law, that something will grow to fit the size of its container. And that's what happens to our expenses in business when we don't manage and anchor our profitability metrics. Hey there. Wanted to briefly interrupt the episode to make a quick ask. If you're a podcast listener, it would mean the world to us if you leave a review for the podcast, whether that's on itunes or Spotify. It's something I hadn't really remembered or thought of asking for, but it does help us show up more frequently so that we can reach more people with the information that we're providing. So it mean the world to us if you'd leave a review on itunes or Spotify. If you're listening on audio, if you're watching on YouTube, make sure to hit the subscribe button so you're in the loop for future videos and you don't miss any of the content that we're putting putting out. So here's one of the first things that I recommend doing. We do this internally. This is something that I learned and I really like, which is separate bank accounts to earmark funds. So many of you probably already doing this. If you're not strongly recommend doing this, at least in a simple form. As you get more advanced, this can become even more complicated and nuanced and detailed. But let's talk about what this might look like in terms of managing the money in separate accounts with earmarked funds early on. The second thing I want to mention here is this needs to have a rhythm. So these allocations as money are coming in, I recommend doing this weekly. That's how we do it. So every Friday I've got a time block on my calendar where I look at the bank account and I manage the cash flow. So let's get a consistent rhythm. Whether it's weekly, bi weekly, whatever that is, put it on the calendar, time block for it, and make sure these allocations happen on a schedule. From there, we're going to talk about our different types of accounts. So let's just boil this down to four simple types of accounts. Operating expenses, a tax account, owner's pay and profit. If you want to, you can combine owner's pay and profit, combine these percentages. But in ideal world, I'd say you have those four at the core. And really, I would add a couple more, to be honest. And this is one thing that I wish we had set up. We don't, but I would add. So whatever your current bank account is, where all of the money comes in, specifically, I would rename that to being. So you can make that your operating expense account. If you spend, if you put. If a lot of money is coming out of that account, it's going to be logistically challenging to change that. So if a lot of money is coming out of that account, keep that as your OPEX account, your operating expense account. Start a new account where all the money will come in. So any deposits, since that's probably singularly focused, they're all coming through one channel or maybe two channels. It's easier to switch that one over and call that account your income account. What's going to happen is all of the money that comes into the business is going to come into the income account and then you're going to distribute it to these other buckets. So if we're looking at these percentages, let's say we've got it, 60% is going to be our expense account as soon as money comes in there, right? So for every hundred dollars that comes in, we're going to put $60 into our operating expense account. Operating the business, we're going to take 15 of every 100 and put that in our tax account. So we have money set aside for taxes and, and then the rest will be a combination of profit and owner's pay. And that can look different at different stages of the business. But I would be shooting for 25% or more in the bucket of owner's pay and profitability combined. I think that's a good general benchmark to shoot for if you're a smaller med spa. If you're getting really, really big, that number might be a little bit smaller than that. Right. Your percentages shrink when, when your revenue grows, you're generating a smaller profit percentage, potentially at a certain level of scale, but a lot more profit in terms of gross totals. But that's a general idea of what you want to do with your bank accounts on income account where all of the money comes in and then it distributes out to these others. If you want an even more boiled down version, you can keep your operating expense account as kind of a catch. All on top of this, you want two and a half months minimum of cash in your operating expense account to fund the business. So if it costs you $100,000 a month in your expense sheet, between payroll and overhead and your additional expenses to operate the business, you want to keep $250,000 in cash reserves in the business. So you can keep that all tied into the operating expense account instead of having an income account and an operating expense account, just make that the place where all the money comes in and goes out and anchor it. So any money that comes in after $250,000, that's your floor and you distribute the excess. So if you've got $250,000 in your operating expense account and all of a sudden it spikes to 300, well, we're going to take that $50,000 extra and we're going to distribute it to taxes, profit and owner pay. But a system like this is transformative. If you're not already doing this in your business, figure out some target allocations, distribute the money, assign these dollars a home as soon as they come in. This ensures that you're locking your profit percentage in your owner's pay. And it creates a fix to the Parkinson's law issue, which is we're going to cap our expense rate on a certain percentage. We're not going to allow it to be an unlimited, you know, rabbit hole of, of expenses that are racking up for our business. One other account, if you want to get one extra layer and you're going to be extra Conservative with it. If you're a business that has miscellaneous things that pop up right, you know you want to be saving for your next device and that's an expensive purchase. You're going to attend a conference, you're paying for team training, you're going to do a team retreat. You want a bonus your team at the end of the year, you can add an additional account. We call this like a sinking funds or like an additional savings and we chunk off some of the profit into that account. So we've got additional money earmarked for special projects and things like that. If we wanted to do a big marketing initiative or go to an extra conference, do a team retreat, team get together, we have the money set aside in addition for those types of things. That's a lot. If you're listening to this on podcast form, we have this in a YouTube video and I've got some resources at the end that I'll share that can give you a better frame of reference for this to go back into in more detail. This episode is brought to you by Med Spa Magic Marketing, my agency. We help Med spas and aesthetics practices grow with more effective marketing strategies. And I know that's a vague phrase, right? That's a vague claim. So I have an offer for you. I offer this to any new prospects. If you're interested in exploring any of another marketing option, a new agency or just getting into Facebook, Instagram, Google Ads for the first time, I'd love to show you why we're different, what we're doing for clients. And we, we can do that via a one and a half hour planning session where I'll outline a specific marketing plan and I'll give you all of the blueprints that we would implement if we were to do business together. Now you can take that, use that on your own, hire someone else to help you execute it or work with us. We really don't hold anything back on that strategy call. And I think you'll have a lot of confidence in how you manage your marketing investment moving forward. Understanding some of the nuances that can help you implement more effective marketing strategies for your business. So if you want to do do that, you can go to medspa magicmarketing.com let's talk about some pitfalls as you get into try to anchoring profit, manage your expenses. First one is overspending on payroll before profit is secure in the Med Spa space. Your payroll expense can be, you know, suck of your of your dollars and your revenue. So you have to manage your payroll expenses. We had a previous podcast episode with Ben Hernandez where we gave some benchmarks on how to manage your payroll expense and what percentages you might be looking at. Do some research here. There's a ton of information available on what your payroll percentage should be in your med spa based on certain revenue thresholds. Use a tool like ChatGPT if you want to sort of role play this and give it different scenarios based on your specific business and your current situation, you can get some benchmarks. But we want to make sure that our payroll is managed. That's going to be one of the biggest things that eats our profit. If we've got an endless list of people on payroll where they've got like undefined roles, they're not necessarily operating at full efficiency. We've got people doing things they shouldn't be doing, overpaid. We've got wrong pay structures in place. Those things can be really detrimental. Other things that creep up new devices, devices in general, device payments. Those things can really eat into your profitability. If you're doing fluffy things in your marketing. Those like I would make sure that if you're spending money on marketing and you're trying to manage for profitability, you have a high amount of confidence in the efficiency and the ROI of your marketing efforts. If there's things that you're doing that are fluffy, like buying blogging SEO too early, maybe you're paying somebody to do organic social media for it's a really high expense when you can have somebody internally doing it maybe better for a lower cost and giving them a little bit of an incentive or bonus. Look at some of those things and then not not Separating owners pay from business reinvestment is another thing, right? We want to make sure that some of our profit is going toward owner's pay and some of our profit is staying in the business to fund additional endeavors, growth and to add additional padding to the business. Some clothing Closing thoughts here. Key Takeaways let's focus on profit over revenue. Revenue does not equal profitability. We get excited a lot of times about growing a business and growing our revenue numbers. It's kind of the surface level stat that a lot of us like to brag and pat ourselves on the back. Our business hit a certain revenue threshold. But the thing to brag about most at the end of the day is really profitability. We're running a business here. A business is designed to be profitable. If not, this is a hobby, a non profit. It's something that's, that's really. We might as well go do something else. Because a business is here to generate a profit. If we're not, we're not going to give ourselves the padding and the cushion to take home a healthy pay to justify the investment and the risk of being a business owner, to pay our teams to provide growth opportunities and all the other things that come along with running a business. So again, revenue does not equal profit. There's an accountant that spoke to our group that I really liked, Greg Crabtree. He's got some really good resources on this and he talked about the thing that you should measure your success on is how big the tax bill you write to the IRS is at the end of the year because that's going to directly your actual profitability. So if you don't owe a bunch of taxes means you didn't have a profitable business. So the next thing is profit is a habit, not an event. Making this a routine and planning for it I think is critical. Running your med spa like a real business, not just a passion project, is what we're trying to accomplish here. So my call to actions Next steps here. Set up these accounts if you don't already have this, and start earmarking your allocations so that you can lock your profit percentage in. Take home a healthy pay. As an owner, create a ceiling for how your expenses work and make sure that they don't get out of hand and eat into your profitability. This not only helps you as a business owner make sure that you're able to take home money at the end of the day, it also gives you margins so that you can reinvest. Make your business serve your clients better, serve your team better, give them the growth opportunities that they deserve. Not managing the profitability of your med spa, I think you're missing a major opportunity to do so. If you have any questions on this, feel free to comment them below. If you have your own thoughts or opinions on how you manage profitability in your med spa, we'd love to hear those as well. Thanks and see you on the next one.