Home > Reasons Why Medical Spas Fail > Why Medical Spas Fail Reason #8: Lack of Cash Flow Planning

Why Medical Spas Fail Reason #8: Lack of Cash Flow Planning

One common pitfall for medical spa owners is the failure to properly account for prepaid services, such as discounted packages of laser or light-based facial treatments.  If you sell a package of treatments up-front, you can have obligations against those treatments for up to 8 months out (e.g. Laser Hair or IPL).

If you spend all of the money from those packages now, then you will have future expenses against revenue that has been long-spent.  This places you in a negative cash position which requires that you play catch-up, although it is difficult to ever catch up if you manage your cash flow in this manner.  The only potential solution is to offer higher revenue, single treatment procedures such as laser lipolysis or fractional CO2 resurfacing so that you can obtain significant revenue from single, one-time treatments that will offset the money spent in commodity-based treatment packages (Laser Hair & IPL).

The best solution is to never get into this situation and maintain an adequate cash reserve at all times.  You can help keep track of outstanding liabilities by using an accrual-based accounting versus a cash-based method.  By doing so, you will quickly realize all of the up-front money received from laser packages has liabilities against it for up to 8 to 9 months out.

Maintaining business liquidity is extremely important because you will have months in which you are offering promotions and selling packages, and follow-up months in which you are fulfilling the packages that have already been purchased from months prior.  You need adequate cash to offset the expenses you will face down the road when it comes time to deliver the services clients have paid for in advance.

Vin Wells, MHSA

  1. October 27, 2012 at 7:55 pm

    So true with Groupon/livingsocial! Another plastic surgeon owned med spa went out of business just because of this reason.

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