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Financial Management


No matter whom it is you consult with, spa industry experts will tell you it’s all about the numbers and how to take them from paper, to profits. So the focus of this article will be how to take the information your financial statements is providing you with, and turn it into something tangible that will help sustain your businesses well into the future.

There are 4 Financial Statements you should know

3 basic Financial Statements that tell you the shape your business is in, by providing you with an historical analysis of actual financial outcomes; and 1 Financial Statement that is used to plan for future business needs and goals.

These statements provide you with information that is not obtainable through any other means. They help to identify such things as: areas of over-spending as well as those areas that are under-performing. They can provide comparisons in sales to cost of sales on an ongoing basis, pointing out where changes may need to occur, for example within our staff compensation plan.

As well, knowing how you measure up to spa industry benchmarks as they relate to revenue and profitability is invaluable. Understanding percentages in relation to revenue on your controllable line items within your Operating Costs can tell you if your marketing budget is too low, or if your lease payments are too high, among so many other things. Understanding your business’ liquidity will help you to understand what kind of financial flexibility you have in order to effectively act upon future business needs and opportunities.

Having an intimate working knowledge of each of these statements is a sound business approach, but not necessarily a common, or popular one. If as a minimum you were to strive for a basic understanding of each statement; study what they are telling you and take action on the information they have revealed, you will at least have a chance at financial success. All too often however, we are consumed in other areas of the business and don’t take enough notice of the numbers. Perhaps we may even mistakenly believe that high revenue means our business is profitable and therefore there is no need for us to monitor it.

The good news is that it is never to late to get a-hold of your financial situation. Begin taking accountability for your financial successes and failures and you will see that the freedom and power that comes from this knowledge can literally be life-changing.

1.  Cash Projections Worksheet (Your Budget)

This is a projection statement and is used as a planning tool to help predict the outcome or viability of future business needs and financial goals; it is your “action plan” for both your short and long-term ambitions, and every business should have one. Considering your “beginning cash”, or the anticipated amount left over from the previous period (week or month) and added to your current sales, provides you with your total sales (cash inflows) for the period. Subtracting your cash outflows (expenses) from total sales, gives you either a cash surplus or a cash deficiency, and indicates to you if cash is required to meet your needs and goals for that period. Having this worksheet in place is the only way we can tell if we should be controlling our spending, or if there is room for spending. It is very useful to compare your projected figures to actual outcomes, as this will provide you with an even greater level of accuracy in predicting future business possibilities.

2.  Cash Flow Statement

This spreadsheet will show you how much money is needed to operate your business, and when it is needed. As with the Cash Projections Worksheet, it is only concerned with the amount of actual cash coming into the business (revenue or cash inflows) and the actual amount leaving the business (expenses or cash outflows), in a given time frame. Subtracting your expenses from revenue gives you your Gross Profit Margin (or Cash Excess). Once you have deducted your Operating Costs from the GPM, you will arrive at an Ending Cash Balance (either positive or negative) for the period, which will reveal to you if and when you need to tighten up operations.

3.  Income Statement or Profit & Loss

This statement tracks revenue and expenses in order to analyse your profitability. The components that make up the P&L are: Revenue (Sales); COGS (Cost of Goods Sold) and Gross Profit (Revenue minus COGS = GP); and below the Gross Profit line are your Operating Expenses; and when subtracted from the GP give you a Net Income (before and/or after taxes). This statement acts as your financial report card at the end of each month to tell you if sales have improved; if you have controlled expenses (if the percentage of expenses to revenue has gone up or down, and where); and therefore if your profit margin has increased or decreased. It will be helpful to note that if you are at anything less than 50% Gross Profit, you may have trouble covering your Operating Costs and making a profit. Operating Costs traditionally run at 40-45% of revenue in the spa industry, leaving us little room to move if our COGS are too high. COGS include our service staff payroll and product costs for both retail and professional.

4.  Balance Sheet

This reports the business’s Assets, Liabilities and Shareholder’s/Owner’s equity at a specific date. It explains what the company’s investments, obligations, and resources are to help predict the amounts, timings, and certainty or uncertainty of future cash flows. Total Assets must always equal the Total Liabilities + Total Owner’s Equity number, hence the term “Balance” sheet.


Get your Finances in shape for life, with our Spa Financial Bundle, including our Business Finances Manual and Financial Plan Program, containing 68 Excel Spreadsheets.


About Leslie

Spas2b Inc. is a full service Spa Development company, specializing in Online Spa Management Distance Learning Courses, Spa Business Manual Instant Downloads & Resources, and Spa Consulting Services.
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