If you own or operate a med spa in a state that requires a Management Service Organization (MSO) structure, you already know it adds a layer of complexity to your business. But here’s what I see all the time: owners invest in getting the legal documents drafted and the entities formed, and then nothing changes operationally. The MSA sits in a drawer. The funds flow—arguably the most important piece—isn’t being followed.
I recently sat down with Justin Marti of Marti Law Group to break down MSO funds flow from the accounting side—what it should look like, where med spa owners go wrong, and how to make sure your structure actually holds up. Justin’s firm handles the legal side of MSOs and transactional work across healthcare, so between us, we covered the full picture. Here are the key takeaways.
Why the MSO Structure Exists
For those who are newer to this, the MSO model exists primarily because of the Corporate Practice of Medicine (CPOM) doctrine. In many states, a clinical entity—like a med spa providing injectable treatments, laser procedures, or other medical aesthetic services—must be owned by a licensed physician (or in some cases, a nurse practitioner or PA). That creates a challenge for entrepreneurs, investors, or non-physician practitioners like RNs who want to own and grow a practice.
The solution is a two-entity model. You have the clinical entity, which is physician-owned and provides the medical services. Then you have the MSO, which handles the business operations—management, marketing, staffing, facilities, and so on. The two are connected by a Management Services Agreement (MSA) that defines who does what, who pays for what, and how the management fee is structured.
The documents are important, absolutely. But having the right legal structure on paper is only half the equation. If the money isn’t flowing properly between those two entities, you’re still exposed from a compliance standpoint.
Step One: Separate Everything
The foundation of a compliant MSO structure starts with separation. Two legal entities means two sets of books, two bank accounts, and clear documentation of every transaction between them. This sounds straightforward, but you’d be surprised how often it’s not done.
The most common mistake I see is a single bank account being used for everything. Sometimes the account is under the MSO’s EIN, and all the clinical revenue is running through it. That’s the exact scenario you’re trying to avoid. The MSO—which is owned by a non-physician—cannot be the entity receiving revenue for medical procedures. That revenue must flow through the clinic entity.
So the very first operational step is ensuring your EMR or payment processing system deposits into a bank account tied to the clinical entity. That’s where patient revenue for medical services belongs. Once this is set up correctly, it’s largely a systems issue—deposits go where they’re supposed to go. The key is getting it right from the start.
How Expenses Should Be Handled
Revenue is the critical piece, but expenses matter too. Your MSA should define which entity is responsible for which categories of expenses. In most cases, the majority of operating expenses—rent, marketing, technology, administrative staff—flow through the MSO. That’s the entity managing the business, so it makes sense for those costs to live there.
Payroll is where things get a little more nuanced. Providers who are performing medical procedures should generally be paid through the clinical entity. Administrative and operational staff can sit in either entity, but they’re typically under the MSO. If you’re not careful here, payroll can get muddled quickly—and that’s one of the more common areas where I see things go sideways.
When we work with med spa clients on their bookkeeping, this is something we’re actively monitoring—making sure the right expenses are hitting the right entity and that the separation is maintained month over month.
Structuring the Management Fee
The management fee is how the MSO gets compensated for the services it provides to the clinic. There are a few different ways to structure this, and from an accounting perspective, I prefer an approach that builds in flexibility.
A structure that works well is a base monthly fee combined with a variable component tied to actual costs incurred. The variable piece can be a dollar-for-dollar pass-through of expenses or include a modest markup—say 5%—to reflect the MSO’s management overhead. This approach protects you during slower months when revenue dips because the variable component naturally adjusts with activity levels.
The ultimate goal is for the clinic entity to roughly break even at year-end. You don’t want profit or loss sitting in the clinic—that should flow to the MSO, which is owned by whoever is actually running and building the business. Some people think of the management fee as a flat percentage of revenue, but I’d encourage you to reframe it as a billing of the actual costs the MSO incurs plus that base fee. It’s a cleaner, more defensible approach.
What Happens When Revenue Drops?
This is a real-world scenario that every med spa owner should plan for. Maybe you’re crushing it for ten months and then things slow down in November and December. If your management fee is a fixed high number and the clinic can’t cover it, you’ve got a problem.
This is exactly why the base-plus-variable structure is so valuable. The base fee stays manageable, and the variable component scales with the business. During slow months, the total fee is naturally lower. If the clinic still can’t cover the full amount, we’ll accrue what’s owed and then catch up when revenue picks back up. The key is having your MSA written to accommodate this kind of flexibility—something your legal and accounting teams should coordinate on together.
Don’t Let Your Structure Sit on a Shelf
The biggest takeaway from my conversation with Justin is this: having the legal documents in place is necessary but not sufficient. Compliance isn’t a one-time event—it’s an ongoing operational discipline. Your books need to reflect the structure your MSA describes. Your bank accounts need to be set up correctly. Your management fees need to be calculated and paid consistently. And your payroll needs to align with which entity each person is actually serving.
If you’re a med spa owner who has an MSO structure but aren’t sure whether the funds flow is right, that’s worth addressing sooner rather than later. The good news is that these issues are very fixable—it’s usually a matter of getting the systems and processes aligned with the legal framework you already have in place.
Get Your MSO Funds Flow Right
At Liguori Accounting, we work exclusively with medical aesthetic practices and understand the nuances of MSO structures inside and out. Whether you need help setting up your books for a new MSO, untangling an existing structure that isn’t being followed, or ongoing bookkeeping and fractional CFO support to keep everything running properly, our team is here to help.
You can watch the full conversation with Justin Marti on Office Hours here, and if you’re ready to get your financial house in order, reach out through our website to schedule a complimentary discovery call.
