May 25, 2018
Financial jargon can be frustrating and can make you feel dumb when you’re talking with your accountant or CPA. Let’s go over some basic business finance terms and what they mean.Listen to "E161: Simple Financial Terms You Need to Know in Your Massage Business" on Spreaker.
Financial jargon can be frustrating and can make you feel dumb when you’re talking with your accountant or CPA. Let’s go over some basic business finance terms and what they mean.
Sponsor message This episode is sponsored by The Jojoba Company. I firmly believe that massage therapists should only be using the highest quality products, because our clients deserve it, and our own bodies deserve it. I’ve been using jojoba for years. Here’s why: Jojoba is nonallergenic; I can use it on any client and every client without fear of an allergic reaction. Jojoba is noncomedogenic, which means it won’t clog pores; so if you have a client that’s prone to acne or breakouts, jojoba is a great choice for them. It also won’t go rancid; it doesn’t contain triglycerides like many products; so it won’t go bad. This makes jojoba a great carrier for essential oils, too. And finally, jojoba won’t stain your 100% cotton sheets; so your linens will look better for longer. And since jojoba won’t go rancid, they’ll always smell fresh and clean. For more information and to get some jojoba, go to massagebusinessblueprint.com/jojoba. That’s massagebusinessblueprint.com/J-O-J-O-B-A.
Allissa Haines Hello, everyone. Welcome to the Massage Business Blueprint podcast, where we discuss the business side of massage therapy. I am Allissa Haines here at the SpinWeb studios with my friend and business partner, Michael Reynolds, who is laughing, laughing off microphone.
Michael Reynolds I’m just laughing because — what these microphones do to you. You get in front of them, and you just go all-out radio broadcaster. You should really good, it’s just —
AH You should see what happens when you put me in front of a stripper pole.
MR [laughs] We probably won’t see that this week while you’re here.
AH We will not see that ever.
MR So — go ahead.
AH Welcome, Michael, welcome. What are you planning for our lunch today?
MR Well, we thought about doing sushi two days in a row, right?
AH Yes, we had considered that.
MR Because a new sushi place just opened up next to my office. It’s called Sushi Boss. So we could always try that.
AH We’re going to try that. We got restaurant sushi — full on sushi-bar-level sushi — and then the Sushi Boss is a little bit more of a fast food sushi establishment; so we felt like we might have to compare them today.
MR There’s also always our default, Chipotle.
AH I don’t want Chipotle.
MR Or my default, Chipotle.
AH I’m almost — I’m still eating the nacho — the tortilla chips and guac from yesterday.
MR For breakfast.
AH I had that for breakfast, everyone. It was delightful. And I am excited because Michael is in charge of today’s episode: simple financial terms you need to know in your massage business. Michael, take it away.
MR All right. You know I love talking about financial things. We’re not going to get too deep, don’t worry. Your head’s not going to be spinning too much. But these are the basic, general terms that your accountant might talk to you about, your bookkeeper, your tax person, you might hear thrown around when talking about financial stuff in your business. It’s just good to know what these things are. I don’t know about you, but I don’t like to look dumb in front of my accountant. I like to know what terms mean and know what they’re talking about. And it’s just good to know how this stuff works. It’s a fairly short list.
We’re going to start with “assets.” Assets are the resources you have in your business. Things like products and inventory, office furniture, supplies you’ve purchased, anything that is a tangible object that is worth something is an asset. Also, intangible things can be assets as well: things like trademarks or copyrights, any kind of intellectual property. Assets count toward the value of your business. So when you are looking at the value of your business, they are in that positive column of if you’re looking at what your business is worth, assets count toward that. The more assets you have, the more they’re worth, the more your business is potentially worth. Assets are things that could be sold, for example, if the business experiences — if there are times you need cash flow or something, you can sell assets. So again, think of an asset of anything in your business that is worth something. Typically it’s objects; typically it’s physical things, but again, it could also be intellectual property, copyright, things like that. Does that seem fairly straight forward? Does that make sense?
AH That makes sense. Yep.
MR All right. Fair enough. Next. The opposite of assets is “liabilities.” Liabilities are things that are in the opposite column. They are debts accrued by a business. They could be things that you’ve — debts you’ve incurred while starting up the business while you’re growing, maybe a line of credit you’ve taken out, bank loans, credit card debt, anything you owe to vendors or product manufacturers, anything that you owe.
So again, assets are what you own; liabilities are what you owe. That is kind of an easy way to remember them. Again, liabilities are things that count against the worth of your business. So if you’re selling your business, liabilities will take away from the value of your business because they are in that liability column, they are in the debt column. Did you have anything else to add?
AH No, not me.
MR You were poised in front of your microphone, so —
AH No, I was just looking at when we were going to do the halftime sponsor, but —
MR [laughs] That’s a good call. How about after this next one?
AH Yeah, keep it going.
MR So next is “expenses.” Business expenses are the cost that your business will incur to operate. Things like rent; utilities; legal fees; employees, if you have employees; contractors; marketing and advertising costs —
AH Linens, the cost of lubricants.
MR Yes, linens.
AH Linens, all of these things, laundering.
MR Yeah, stuff you buy. Things that are — yeah, things that you pay for. Ideally you want to keep expenses as low as possible, and so that is one of the factors when you’re talking about expenses and people are talking about keeping profits high and expenses low, blargedy blarg. Expenses are those things you have to pay for. Obviously this is getting a little more philosophical. Some people say keep expenses super low, and some people say well, don’t sacrifice quality. There’s always a balance point there. In general, think of the expense as anything you pay for. That is a good time for our halftime sponsor. You want to take it away?
AH It is. And today’s halftime sponsor is 99designs.
MR Oh, I’m so excited about this.
AH Our preferred choice for getting a logo made for your massage business. It’s a great online, custom logo maker, where you utilize a design contest to help you get the logo that you will love; guaranteed. Designers from around the world will submit logo concepts based on the creative brief you fill out about your business, and then the winning design is yours to keep forever. There are multiple price points. You get your logo file in all of the production-ready files that you need for print and digital media, and the copyright is all yours. And they have a 100% satisfaction — like a 100% money-back guarantee. We love it. I have used it for my own business; we used it for the Massage Business Blueprint logo; many of our members and friends have used 99designs. Michael, where can people go to get more information and get their own logo?
MR As you might expect, we’ve got a short link for you. If you go to massagebusinessblueprint.com/99, that will lead you to 99designs through our link; so please use that, massagebusinessblueprint.com/99. I can’t stress enough how much I like this site. I always say that it’s best to hire a professional or professional agency. You’ll be spending thousands of dollars if you do that, but that’s always the best route; you’ll get professional quality. But if — that’s not realistic for a lot of people, including many of my businesses. 99designs happens to be the only contest, logo design site that I really trust because it’s been such a good success rate for me and for Allissa. I don’t like the other sites where you pay 5 bucks or whatever and it’s kind of difficult to get quality. 99designs has the system figured out. I really like referring our clients to them.
AH And they have multiple level price points too —
AH — so 299 or 499 or799 or 1299, which you don’t need to go up that high. You can get a varying number of design concepts and choose from them and work with designers to perfect them. I chose the 499, Silver level. I could not be happier with my new massage practice logo.
MR Yeah, your logo looks great.
AH Their process makes it super easy and takes all of the guesswork out of it.
AH Michael, bring us back to the financial terms we need to know.
MR Next up is “revenue.” Revenue can also be called gross income or sales. It’s the money you earn overall from running your business. Anything that is money coming in — just the general money coming in is your revenue. A lot of people get this mixed up with profit versus revenue; so we’ll get to that in a minute. But revenue is before any expenses are taken out, before any kind of other math is done, it’s just the money you bring in from your business. So when you book a massage and you sell it for, let’s say, $70, the $70 is all revenue. When you invoice someone for a chair massage gig for 500 bucks, that 500 bucks is your revenue before any expenses are taken out.
Now next is “profits.” Profits is what happens when you take the expenses out. A profit is what’s left over. It’s also called net income or some people call it the bottom line. It’s the revenue minus the costs, and it’s for a given time period, typically. So it can be — if you’re looking at your annual profit, you’re going to look at what you made over the course of 2017 for example, or 2018, and you subtract the expenses over that same time period, and that is your annual profits. Or it can be monthly or quarterly or even weekly, depending on how you calculate things. A good way to remember — again, just remember revenue is overall sales before any math is done; profits is your revenues minus your expenses. So when you take your expenses out, that’s your profits.
Finally on our list is “cash flow.” Cash flow is the overall movement of money through your business. So cash flow is — I like to think of cash flow as kind of just flowing water or just a flow because it really literally is just an up and down flow of money through your business. It includes income and expenses. So when income comes in, that’s water coming in; if it’s expenses are going out, that’s water draining out. And you can visualize the flow of a river or a stream kind of how it flows, and it goes up and down. You track cash flow to determine the health of your business — that’s a good indicator of the health of your business. It’s determined by comparing your available cash at the beginning and the end of a specific time period. So some people calculate their cash flow or analyze it monthly or even weekly or quarterly. Depending on how often you look at cash flow, you’re going to see that ebb and flow of cash.
If you see time periods where you’ve got very, very low cash flow, those are times when you want to figure out how do I improve my cashflow? how do I put more water into the stream? how do I beef up my cashflow during those time periods? Maybe your business has a seasonal component to it. Maybe you’ve got a lot of tourists coming in or something and it’s very seasonal, and so you want to look at how do you keep those lows in cash flow from being quite so low. So that’s a way to look at cash flow. Anything you would add, Allissa?
AH No, I think that covers all of the basic financial terms we need to know, and we’re going to link in the podcast notes with some more in-depth ones —
AH — but I think it helps to have a working knowledge of the basic terms so that when we’re reading stuff about business monies and finances, we have a good base of knowledge so that we understand those articles. So thank you for the rundown and the glossary, Michael.
MR Right on. As you know, I always love talking about money.
AH We do. That about wraps it up for today. Here’s a reminder that you can visit us online at massagebusinessblueprint.com for all sorts of free stuff as well as our premium member community. If you have questions for us — and we do love your questions — you can email them to us at firstname.lastname@example.org, and we will try to answer it in a future episode or blog post. Tell your friends; tell your loved ones; show someone who doesn’t know how to listen to podcasts how to listen to podcasts and get them to us. And if you like it, if you like us, review us on iTunes or Google Play or Stitcher or wherever you listen to your podcasts. Until next time, be sure to visit massagebusinessblueprint.com and have a fabulous day.