ABMP Financial Literacy Series
Money: It's a force for both good and evil. Money, or the lack of it, can cause stress, joy, fear, and comfort. It's a loaded topic, especially for creative business owners, and is worthy of our mindfulness.
Learning how to be mindful of—and manage—money is one of the most valuable skills to develop. Those who manage money intentionally, mindfully, and gain financial literacy have a distinct advantage in business and in life.
Financial literacy is essential to moving from being a hobbyist who does massage for fun to becoming a professional business owner who performs bodywork to earn a living. Financial literacy is where your massage business stops being a philosophical idea and starts becoming an entity that gives you professional enjoyment and financial security.
Financial literacy is you owning your worth. Financial literacy is you no longer accepting that “money stuff is hard,” with the shoulder shrug that often accompanies caregiving and artistic careers.
Financial Literacy: Our Focus for 2020
Understanding money and how it works is deeply empowering, and we know you are absolutely capable of running a financially strong business. That is why we are dedicating our 2020 Blueprint for Success columns to financial literacy.
Step by step, we’ll provide a framework to help you build and flex your financial muscles—to help you mind your money—because we want you to feel more confident and competent in your business. As we move through the year, you’ll find links to each column and all the supporting videos and resources at www.abmp.com/money.
Most of the information we’ll provide is based on a one-person massage practice. This applies to a practitioner who operates a sole-proprietorship or an LLC that files taxes with a Schedule C (included with a 1040 personal tax form). This is probably you, but if you are not sure, look at your last federal tax filing or check in with your tax preparer.
If you have a larger business with contractors, employees, or renters, most of this information still applies! Your record keeping may be more in depth than what we cover, but the structure and routines should stay the same.
If you’ve been in business a while, some of this information may seem simplistic at first. If so, you have a choice. You can skim over the beginner stuff or dive in fully and absorb some tips and ideas that might improve your system.
I’m a fan of the latter. We can all use efficiency updates. If you have never intentionally thought through your processes, or if you are defaulting to a years-old system you have never reconsidered and updated, now is a great time to refine your routines. So let’s jump in!
Get Your Bank Accounts in Order
Having the right bank accounts set up is super helpful when creating a strong financial foundation for your business. You should choose a bank or credit union that is convenient for you to visit for making cash deposits when needed, and it should have a good website and mobile app to make it easy for you to access information and remotely deposit checks.
Depending on your business type, your bank or credit union may offer you a business account or a personal account with a DBA. DBA stands for “doing business as,” and it’s a document used to connect your real name to your business name. For example, if Jane Smith owns Zentastic Massage, her document would read, “Jane Smith DBA Zentastic Massage.” Having a bank account with the DBA attached means you can deposit payments made to Jane Smith and to Zentastic Massage.
Usually you get a DBA certificate at your town or city clerk office. Some localities consider a DBA and a business license the same thing. Check with your clerk’s office for the correct protocol for your locality.
It’s worth looking around for a credit union with no fees in your area, if available. You probably don’t need a fancy business account. A personal account with a DBA will do just fine and usually have lower or no fees. It can be helpful to ask some other small business owners in your area for recommendations as well.
Start with a basic checking account. Every penny you make in your business will get deposited into this checking account (we’ll talk more about this shortly), and you will pay bills from this account. Also, there are a few separate savings accounts you may want to open to keep your money well organized and out of temptation’s reach. Here are a few examples:
• Tax savings. This savings account is a safe place to hold a portion of your gross income to pay estimated quarterly and annual taxes.
• Short-term savings. This account is a great place to keep funds for the next big equipment purchase and emergency savings. In a perfect world, you would have 3–6 months of business expenses in this account for emergencies. But, don’t let that goal freak you out. This is about baby steps, and the first step is opening that savings account.
• Gift certificate savings. If you sell gift certificates or packages, you may choose to have a separate savings account to hold that income until the services are redeemed. It is wise to check with your state regulations regarding gift certificate sales. Some states require that gift certificate income be set aside, and they have strict rules about how the funds are handled if the business closes while gift certificates are still in date.
You may find that these account suggestions are more or less than what you need, but they are a good starting point.
How do we handle money that comes into our business? In this month’s article, let’s start at the very beginning and discuss gross income.
In a small business, gross income is the amount of money you receive for services rendered. On your Schedule C, it’s Line 1, called “Gross receipts or sales.” Quite simply, Gross Income is every penny you make in your business. Every penny. Here are some examples:
• If you perform 10 massages this week, charge $90 each, and do not accept tips, your gross income is $900 for this week (10 x $90 = $900).
• If you perform five massages this week, charge $80 each, and three clients tip you $10, your gross income is $430 for this week (5 x $80 = $400, plus 3 x $10 = $30, for a total of $400 + $30 = $430).
Tips should be claimed and recorded as income. If you file a Schedule C, tips are considered gross income. You may choose to record them separately for your own tracking purposes, but they are still included on Line 1 of your Schedule C, “Gross receipts or sales.”
Now that you understand what gross income is, you’ll begin to see why it’s so important to record it properly.
There are a variety of methods to accept money into your business, and it’s wise to consider how to make each work efficiently. This includes cash, checks, credit cards, and online transactions.
As a business owner, you get to decide what types of payments you accept. Let’s work through the ins and outs of the basics.
Cash is standard, but if you hate having to keep change on hand or going to the bank, you can certainly discourage clients from paying with cash and encourage other forms of payment.
If you accept cash, you’ll be well-served by a simple, repeatable process for handling and recording cash payments. What does that mean exactly? Probably something like this:
Have an envelope of smaller bills to provide change if needed. Typically $50–$100 worth of $5 and $10 bills will work, depending on your volume and how frequently you get to the bank to make deposits or get more change. A transaction would look like this:
• A client pays in cash. (You provide change when needed.)
• You make a note of the transaction. (We’ll cover this in a minute.)
• You hold the cash in a specific place in your office.
• You deposit all cash into your checking account regularly.
Always, always, always deposit all cash into your bank account for two reasons. When you deposit all your cash, your bank statements become an accurate record of your gross income from services provided. You’re going to keep track of gross income on your own too, but it’s wise to have deposits be an accurate secondary record.
Also, depositing every penny creates a clear separation between you and your business. Instead of pocketing cash to pay yourself (which can be easily forgotten and not properly recorded), you create a structured process for tracking your business’s gross profits and how much you pay yourself, which we’ll cover in upcoming columns.
Gross income and take-home pay are two very separate transactions and should not be muddled. Remember, we’re treating this business like a business, not a hobby or an experiment or a game. It’s a business!
You can choose to accept personal checks as payment, or you can choose not to accept them. A small, informal poll told me that bounced checks aren’t a big problem for most of us, but if you’ve ever had to chase down payment on a returned check, you may have some negative feelings about accepting checks as payment.
If your client base is made up of tourists or non-regular clients, or if you’re a bigger business with multiple practitioners and high client numbers, it may be best to not accept checks. But if you are an individual, hyperlocal massage business, accepting checks can make sense. Most banks and credit unions have apps to easily manage remote deposit, so accepting checks doesn’t need to mean more trips for deposits.
Same as with cash, you’ll need a simple, repeatable process for handling and recording check payments. A transaction would look like this:
• A client pays with a check.
• You make a note of the transaction. (We’ll cover this in a minute.)
• You hold the check in a specific place in your office.
• You deposit all checks into your checking account regularly.
Here in the 21st century, it’s standard to accept credit card payments. Most debit cards also function the same as credit cards in regard to easy swiping and signing, and people are carrying less cash in their wallets.
Accepting credit cards means you don’t have to make a trip to the bank or deal with remotely depositing a check, and the money gets dumped right into your checking account automatically. Accepting credit cards also makes it easier for clients to pay online before their appointment.
The downside of credit card payments is the fee your business is charged for each transaction. There are a few popular credit card processors, and if you’re just getting started, it’s wise to compare a few options. You’ll want to consider three factors when making your choice: transaction fees, monthly fees, and the equipment needed to process the transactions.
Most processors charge a combination of flat and percentage fees. Some processors also charge a flat monthly fee on top of per-transaction fees. Some processors require only a smartphone and a small device attachment for processing. The device may cost $0–$50. Processors that serve larger business may have more expensive devices with more capabilities, such as paper receipts.
It’s easy to get overwhelmed by the options and calculations, so here’s a general rule: For most very small, one-person massage businesses, who do less than $4,000 in credit card transactions per month, Square (and similar transaction-fee–only options) are the best bet. If your business does more than $4,000 in credit card charges monthly, it’s worth your time to explore a more robust processor. Check your local bank or credit union for their processing options.
Just like with cash and checks, you want a simple, repeatable system for recording credit card payments. A transaction may look like this:
• A client pays with a credit card. (You then complete payment through software/device.)
• You make a note of the transaction. (We’ll cover this in a minute.)
• The credit card processor deposits those funds (minus any fees) into your checking account.
Whatever payment method you decide to accept (or not), be sure to communicate this information clearly to new and current clients. Put your payment information on your website, in your email confirmations and reminders, and on your intake forms, and note it verbally when you book new clients in person or over the phone.
Record Every Penny
The final beginner step is creating a system to record every single penny that comes into your business each day. The goal is to have a complete record of all the monies your business has taken in and what payment method was used. You should be able to look at this record and quickly see your gross income over any day, week, or month.
If you haven’t started a system for this yet, it can feel overwhelming. But really, it’s less than five minutes of work a day. (We’re going to demonstrate this for you in the video companion to this column!)
There are options for how to record this information, and you get to choose a system that works best for you. Here’s what you want to record:
• How much money you received (total)
• How much money you received for each payment method (cash, checks, or credit cards)
You may also choose to record separately how much was taken in to purchase gift certificates or packages.
If you use a paper calendar, you could make a note at the bottom of each day. You can draw columns on a notebook page, use graph paper, or print out a fancier template you make yourself.
If you record income information on paper, make a habit of “backing it up.” Use your smartphone to take a picture of your paper record at the end of each week. Email that image to yourself or save it to your computer or cloud storage. Then, if your paper gets destroyed or lost, you won’t have to recreate the record from scratch.
Business owners who are savvy with a laptop or tablet may prefer to use a spreadsheet. Spreadsheets make it easy to add mathematical formulas and see your gross income by day, week, month, etc. Computers are easy to back up, and you can easily store spreadsheets in the cloud for safekeeping as well (for example, with the “Sheets” program in Google Drive). Click here for a free downloadable spreadsheet template, or click here for a printable PDF version.
Something Else (Sometimes Software)
I (Allissa) found my software by accident. I had been using Square credit card processing for years and saw that I could also record all my cash and check transactions directly through the Square app. Since it’s easy and I already love the app and the available reporting (you’ll see that in the companion demo video), it is my go-to method for recording income.
You may already have software you love, and we’ll cover more on money software in the next column. If you’re not already using software, don’t make this the time to spend three months testing out different apps. Just start simple, and you can graduate from there later. Again, the goal is to be able to look at this record and quickly see your gross income for any day, week, or month.
Getting organized is the first step toward improving your money habits and taking control of your financial life. If you are already doing all these things, maybe you can fine-tune your methods. If this is all new to you, get started and we’ll take the next step together in the next issue!
Allissa Haines and Michael Reynolds can be found at www.massagebusinessblueprint.com, a member-based community designed to help you attract more clients, make more money, and improve your quality of life.