How to Run a Profitable Med Spa

1. The financial process of opening a medical spa

Opening a medical spa business to be profitable and sustainable in the long term requires a lot of planning to set yourself up for success.

Just like with any small business, having a clear and well-defined business strategy and financial plan is crucial for a smooth start-up process. It lays the foundation for success and ensures that you are well-prepared to hit the ground running financially.

Whether it's identifying your target market, analyzing competition, or mapping out your financial projections, a well-crafted business strategy and financial plan will serve as a roadmap to guide you towards achieving your goals.

By following these steps diligently, from the initial stages of planning to the much-awaited opening day, you will be equipped with the knowledge and tools to navigate the challenges that may arise along the way.

Make a business plan for your medical spa

We'll go into more detail on this below, but when putting together your business plan keep the following questions in mind:

• What treatments and services do you plan to offer?
• What partners, providers and staff will you need to hire?
• What technology, equipment and inventory will you need?
• How much will the physical space cost? Are you leasing or buying? Do you need to build out that space?
• Do you need a management services organization (MSO) in order to be compliant? Have you established a management fee structure?
• How do you plan to market your practice before opening? Have you set a marketing budget? 
• Will you offer memberships?
• Will you need lending?

Once you have a business plan in place, what are the next steps to opening your medical spa practice?

You'll need to address the financial aspects, and you will need to plan business and legal operations.

Additionally, you'll develop a comprehensive marketing plan, unlocking the potential to effectively promote your business and engage your target audience. You will need to analyze your geographic location, carefully assess the competitive landscape and highlight the unique factors that differentiate your practice from other establishments nearby.

Understand your state's med spa laws

While medical spas need to be run as a business to be successful, since most of the services performed are medical treatments, the organization needs to adhere to the same rules and regulations as any other medical practice.

The main legalities to be aware of concern ownership, the good faith exam, supervision and delegation and provider scope of practice.  Medical spas also have to be aware of patient privacy issues, fee splitting and medical-specific regulations regarding truth in advertising.

Read more here about how to open a legally compliant med spa.

Put the right partners in place

You’ve laid out your plan for success—now it's time to assemble a team that will bring it to life. Your team will be the driving force behind your business, the beating heart that propels it forward. It is of utmost importance to carefully select the right individuals who will not only contribute their skills and expertise but also align with the vision and values of your organization.

Nobody is excellent at everything, and as a business owner it's important to understand the tasks you can handle, and the aspects of your practice where you need to bring on support. Together, you and your hand-picked team will form an unstoppable force, ensuring the realization of your business goals and paving the way for a prosperous future.

From a legal standpoint it's important to have people on your side who understand the specifics of this industry and how much variability regulations can have state by state.

In terms of business operations, like any small business you'll need solutions for accounting, insurance, marketing, HR and in some cases assisting you with both the day-to-day and long-term financial planning of your practice.

Of course, as a service-based industry, having excellent clinical and non-clinical providers is essential to your success. The quality of your nurse injectors, NPs, PAs, laser technicians (depending on your state's laws) and aestheticians can make or break your practice.

Set up your financial processes

Once you've established your plan, understand how you will tackle the brass tacks, every day financial tasks required to run a successful business. Have answers to these questions before you open your doors.

• Do you have a bookkeeper and/or online accounting software to track your monthly transactions?
• Are you writing checks or using digital tools to pay your bills?
• How are you managing and running your payroll?
• What software solutions do you need? Do you have an electronic medical records system and/or a point-of-sale system? How are you handling scheduling for consultations and treatments?
• What KPIs are you measuring and how often are you reviewing them?
  

Set up other operational procedures

As a medical practice it's very important to have SOPs for every procedure your practice offers. You'll also want to set up processes for managing inventory and supplies, room turnover, patient follow-up and so on. AmSpa members save up to 50% on standard operating procedure form packages, intake forms, consents and more.

Together, you and your providers can avoid inefficiencies and set standards moving forward.

Read more detail on the financial process for opening a med spa here.

Listen as AmSpa CEO, Alex R. Thiersch, JD, speaks with Nick Liguori, CPA, founder of Liguori Accounting. They discuss the bookkeeping challenges medical spas face and the steps you can take throughout the year to prepare for tax season.

2. Medical spa business plan

A detailed business plan is essential for a successful medical spa practice. In any small business it is possible to be busy, to be generating a lot of cash and to still be losing money. It's important to remember that sales don't always equal profitability.

To achieve a positive bottom line, it's crucial to closely monitor operating expenses and truly understand the significance of the numbers and how to keep them in proper alignment. This involves breaking down the numbers into manageable, actionable steps that can be taken on a daily basis.

A properly laid out business plan not only lets you walk forward with confidence in your day-to-day operations, but it also sets you up for success if you need to raise capital in the form of investments or loans.

It all begins with having a clear vision for your practice. By envisioning where you want to take your business, you can create a roadmap for financial success. This vision serves as a guiding light, helping you make informed decisions and prioritize your financial goals.

To get started on making your medical spa business plan, get to know the following concepts.

Financial projections

Including pro forma financial statements is a crucial aspect of every business plan. These statements not only provide a snapshot of your current financial position but also serve as a powerful tool to project and anticipate the future profitability of your business.

When crafting your projections, it is paramount to base them on realistic research and reasonable assumptions. Honesty and transparency are key, as any exaggeration of revenues or underestimation of expenses can lead to misguided expectations and potential financial instability down the line. 

By presenting a comprehensive and accurate financial forecast, you can instill confidence in lenders and investors, demonstrating your commitment to responsible financial management.

Including well-crafted pro forma financial statements is not just a formality, but a critical step towards establishing the credibility and viability of your med spa. These may include:

• Pro Forma Income Statement
• Pro Forma Cash Flow Statement
• Pro Forma Balance Sheet
• Yearly Projections (Income Statement, Cash Flow Statement, & Balance Sheet)

Income statements

Income statements are a valuable tool for assessing the profitability of your business. By carefully reviewing your gross sales in comparison to the expenses you incur, you can gain insights into the overall health and performance of your operations. This allows you to accurately calculate both your gross service and retail sales, while also accounting for the various costs associated with running your business.

While you do not necessarily have to personally handle the calculations, it is crucial to understand the process and its implications for your business.

If numbers and financial analysis seem overwhelming, don't worry! There are plenty of resources available to help you out. A knowledgeable bookkeeper or accountant can provide expert guidance and ensure that your financial statements are accurate and insightful.

Additionally, widely available programs like QuickBooks can make the process much easier and simplify your financial record-keeping. If you prefer, you can also use a computer spreadsheet program like Excel, which offers flexibility and customization options. There are also some specialized med spa software platforms that can help keep a handle on these figures.

Cashflow statement

The cash flow statement, also known as a budget, provides a comprehensive projection of your business's financial needs in terms of dollars for a specific period. It serves as a crucial tool in determining whether your business can effectively manage its bills and expenses, as well as identifying the precise timing of cash infusions required to sustain its operations.

By focusing solely on actual cash transactions, this statement offers a clear and concise overview of your business's financial liquidity, excluding any non-cash expenses such as depreciation. This analysis allows you to gain a deeper understanding of your business's financial health and make well-informed decisions to ensure its long-term success.

Balance sheet

A balance sheet is a powerful financial tool that provides a comprehensive snapshot of a company's financial health. It not only reveals the value of the company's assets but also highlights its liabilities.

When lenders analyze a balance sheet, they carefully examine key aspects such as liquidity and capital structure. Liquidity measures how easily a company's assets can be converted into cash, giving them valuable insights into its ability to meet short-term obligations. On the other hand, capital structure sheds light on the sources of financing utilized by the company and the amount of debt it has incurred.

By evaluating these factors, lenders assess the strength of a company's cash reserves, the stability of its financing sources, and its overall financial stability. This analysis ultimately aids lenders in determining the level of risk involved in extending credit or loans to the business.

Business owners must prioritize maintaining a healthy balance sheet to showcase their financial competence and ensure a solid foundation for their organization's success.

Payroll expenses

Your costs for salaries, commissions on technician's revenues, EDD, FICA, and workman's comp insurance are totaled and listed here. Managing payroll expenses can be quite challenging, but it is essential to monitor them closely as it directly impacts your profitability.

By developing a strategic plan that aligns with your business goals and allows for profitability, you can overcome these challenges and ensure the financial health of your company.

Get a more detailed look at building your medical spa's business plan, including etc etc etc.

Important medical spa KPIs

You can have most detailed business plan, the best practice management software, the most robust financial projections and the best team in place, but if you aren't utilizing all of those tools and looking at the right numbers you still won't be operating as successfully as you could be.

It's important to look at the right key performance indicators, no matter how new or established your practice. According to AmSpa's State of the Industry Report,

• 60% of practices can't calculate their total expenses.
• 30% can't estimate their revenue.
• 21% can't determine their revenue sources.
• 50% can't calculate expenses as part of their total revenue.

You need to understand these baseline financial metrics because without knowing your numbers you can't make informed decisions, you can't course correct and you can't scale.

Here are some other important KPIs to track:

• Net profit
• Revenue per hour
• Average revenue per invoice
• Revenue per provider and procedure
• Conversions rates (phone, web, consults)
• Operational—staff capacity and productivity
• Lead acquisition cost—what is converting and how much is it costing?

Read more here about tracking KPIs in your medical spa.

3. Building a medical spa team

Overwhelmingly, when asked about the secret to their success, the top medical spa practices in the country always point to the strength of their team.

As you begin to think about hiring for your business, think back to your original vision and the details you established in your business plan. Be sure to stay true to building the practice that you want, and bring on team members that align with your vision.

It's not just about the skills and expertise they bring to the table, but also the passion and commitment they have towards providing exceptional patient care. Look for team members who share your dedication to delivering top-notch services and creating a welcoming and nurturing environment for your patients. Their enthusiasm will not only contribute to the success of your practice but also enhance the overall experience for your clients.

As your practice grows, be sure to incentivize your team in a way that rewards performance and is financially viable for the long term health of your business.

By staying true to your original vision and making strategic decisions when it comes to hiring and financial management, you can build a successful medical spa practice that stands out among the competition. Remember, your team is the foundation of your success, so choose wisely.

The hiring process in a medical spa

Medical aesthetics is a competitive space, not just for customers but also for quality team members. With the rate that the industry is expanding there are not enough trained aesthetic injectors to meet the consumer demand. Additionally, front office staff that can elevate the patient experience are crucial to your success, and practice managers who understand what success means in this industry are key to long term, sustainable growth.

When it comes to hiring and recruiting, there are many things to consider before you even post the job. It's important to build a job description, and later a job listing, that fulfills not only your needs for today, but also the needs of the practice you want to grow into. Think about the vision you have for your business and how you will need this new team member to contribute to achieve this goal.

Brush up on best-practices creating job descriptions, hiring and retaining team members.

As you proceed to the interview stage it's even more important keep your overall vision in mind. Remember, you're looking to bring on someone with the drive and desire to grow with your practice, not just someone to fill a spot today. Hiring strictly to solve today's need can leave you in a position of bringing in the wrong person and finding yourself back in the hiring process perpetually.

When you interview potential team members remember these tips:

1. Always ask open-ended questions. Let the candidate tell you about their background so that you can hear how they communicate. (Example: "Tell me a bit about your background.")
2. Clarify information that you find interesting by asking them to elaborate. (Examples: "That's really interesting, tell me more." "How so? What made you come to that decision?")
3. Be curious. Try to learn more about what makes them tick and the "why" behind their interest in the position. (Examples: "What made you decide to apply for this position?" "What about the aesthetic industry excites you?")
4. Determine their research or motivation level. Ask questions to gauge whether or not they did their homework about your practice. Remember, you are looking for long-term candidates, not just anyone needing a job. (Examples: "What interests you about our practice?" "How much do you know about the services we offer or the clientele we serve?")
5. Ask them about their past experiences and how they were able to overcome challenges. This technique can give you a lot of information about the candidate and assess their problem-solving skills. (Example: "Tell me about a time you had a challenge at work or with a customer or client and how you handled the situation.")
6. Always end by asking the candidate if they have any questions for you. Putting the ball in the candidate's court can often give you good information about their true motivations and level of interest.

Read more about streamlining the hiring process and interviewing for your medical aesthetic practice.

AmSpa members save 10% on postings on the medical spa job board.

Medical Spa Compensation

Implementing the right compensation structure is critical to the success of your med spa practice. The ideal structure takes into account incentivizing and rewarding your team properly, but also the profitability of your practice.

Keep in mind these five non-negotiable aspects of compensation:

1. Must be sustainable. Your compensation strategy must fit your practice's business needs based on factors like length of time open, fixed overhead, projected profits and industry benchmarks.
2. Must be a controllable expense. Your payroll structure must fit within your budget and must scale with the level of revenue your practice brings in.
3. Must be legally compliant. Medical spas are medical practices, and as such are subject to the same compensations restrictions as medical practices when it comes to things like paying commission.
4. Must reward skill and behavior. Be sure that your structure aligns with your team's performance and performance reviews, encourages growth, rewards continued training and learning new skills and rewards meeting performance goals.
5. Must provide clear guidelines for growth. To retain talent you need to incentivize based on clear, defined criteria, create a career path for the team member to develop, communicate goals regularly and establish a system to reward based on these goals.

Get more information on the three strategic components of med spa compensation: determining base pay, determining pay increases and setting a bonus structure.

Listen to AmSpa founder Alex Thiersch, JD discuss aesthetic injector salaries, what makes a quality injector and more with Mary Beth Hagan, founder and CEO of Titan Aesthetic Recruiting.

Learn the rules of successful med spa businesses

The medical aesthetics industry is growing quickly as talented medical professionals from a wide range of specialties enter the space. While these practitioners may understand how to work in or run medical practices, medical training does not cover how to run a profitable business. There is a lot of opportunity in running a medical spa, but it's still a competitive field and owning a business of any kind is never easy. Getting a handle on the basics of financials, team management and planning can give any med spa owner a leg up when opening a successful med spa practice.