If your med spa operates under an MSO structure, you have already dealt with the management fee question. You have probably asked your lawyer what it should be, gotten a vague answer, and either picked a number that felt reasonable or copied what someone else said they were doing.
And it may have worked fine for the first year. But what happens when revenue climbs 40 percent? What about the slower January when the fee suddenly looks impossible to cover? What if your expenses shift and the structure no longer reflects the actual relationship between your two entities?
The management fee is the financial engine of your MSO. It is not a formality or a line item to check off. It is the mechanism by which profit flows from your clinical entity to your management company. Getting it right — and keeping it right as your business changes — is one of the most important accounting decisions a med spa owner makes.
This post breaks down exactly how management fees work, how to structure them, what flexibility you actually need built in, and what happens when the structure does not hold up under real business conditions.
What the Management Fee Is Actually Doing
To understand how to structure the management fee, it helps to start with the goal.
In a properly structured MSO, the clinical entity — the physician-owned entity that provides medical services and receives all patient revenue — is not where you want profit to accumulate. The physician who owns that entity is typically not the one running the business. You do not want them incurring tax liability on profit they are not keeping.
The management fee is how you transfer that profit to the MSO, which is owned by the actual business operator. By the end of the year, the goal is for the clinical entity to break even. Revenue comes in, expenses are paid, and the management fee pulls the remainder over to the MSO. The profit and the tax liability both land in the right place.
That is the concept. The execution is where things get complicated.
Why a Flat Percentage of Revenue Creates Problems
The most common management fee structure med spa owners land on is a flat percentage of revenue. It is simple, it scales with the business, and it is easy to write into a contract.
It is also the structure most likely to create compliance exposure.
A management fee tied directly to a percentage of revenue can look like fee-splitting to a state medical board. Fee-splitting — where a non-physician benefits financially from referrals for medical services — is prohibited in most states. A percentage of revenue structure does not always qualify as fee-splitting, and some states like California have legislation that explicitly permits percentage-based fees as long as they are not tied to referrals. But the regulatory risk is real and varies by state.
Beyond the compliance concern, a flat percentage also creates operational problems. If your revenue doubles, your management fee doubles — but your management company’s actual costs may not have changed proportionally. On the other end, if you have a slow month, the percentage may still require more than the clinic can realistically transfer.
This is why the structure needs more flexibility than a single percentage provides.
A Better Framework: Base Fee Plus Actual Costs
The management fee structure that tends to work best for most med spas is a combination of a fixed base fee and reimbursement of actual costs incurred by the MSO on behalf of the clinic.
Here is how it works in practice.
The base fee is a set monthly amount that represents the core management services the MSO provides — administrative oversight, operational management, and other foundational services. This number should be lower than what you might set if it were a flat fee, because it is not intended to cover everything. It is the floor.
On top of the base fee, the MSO bills the clinic for actual costs it incurs. This includes expenses like marketing spend, administrative staffing, technology costs, and other operating expenses the MSO is managing on behalf of the practice. The billing can be dollar-for-dollar reimbursement, or it can include a reasonable markup to reflect the value of managing those functions.
The result is a management fee that is grounded in economic reality. You are not assigning a number to a percentage of revenue. You are documenting what the management company is actually doing and what it costs. That documentation is your defense if the structure is ever scrutinized.
It also creates natural flexibility. When revenue is low and activity is reduced, the costs being billed by the MSO are also lower. When the business is growing rapidly and expenses are rising, the fee adjusts accordingly.
Payroll Is Where This Gets Complicated
One area that consistently causes problems in management fee planning is payroll.
The question of which entity pays which employees is not always straightforward, and if payroll is not properly accounted for in the management fee structure, you will end up with costs sitting in the wrong entity — or with a management fee that does not actually move enough money to cover what the MSO is spending.
The general principle is that providers performing clinical services should be paid through the clinical entity. Administrative and operational staff typically sit in the MSO. But some practices split payroll improperly, or run all payroll through one entity because it is simpler, and then the management fee calculation is built around a cost structure that does not reflect reality.
When we are setting up or reviewing a management fee structure for a med spa client, payroll is always one of the first things we audit. You need to know exactly which employees are in which entity and what they cost before you can build a fee that moves the right amount of money.
Building Flexibility Into the Agreement
Business changes. Revenue climbs. Revenue drops. Expenses shift. A management fee that made sense when you were doing $400,000 in annual revenue may not work at $1.2 million — and it definitely will not work when you have a slow quarter.
This is why flexibility needs to be designed into the management services agreement from the beginning, not added after the fact when you realize the current structure does not fit.
There are a few ways to accomplish this.
One approach is to build in an annual review provision. The agreement states that the management fee will be reviewed at the end of each calendar year and adjusted as needed based on actual financial performance. This gives both parties a structured opportunity to recalibrate without requiring a formal amendment every time something changes.
Another approach is to include a true-up mechanism. At the end of the year, you compare what the management fee actually transferred against what it should have been based on the year’s actual costs and results. If the fee came up short, the difference is settled in the true-up. This works particularly well when the base fee structure cannot fully account for an unexpectedly strong year.
A third option is building escalation triggers directly into the agreement — for example, a provision that the base fee increases by a specified amount if annual revenue crosses a certain threshold.
None of these approaches is universally right. The best structure depends on your specific situation, your state’s regulatory environment, and the way your practice tends to grow and fluctuate. What matters is that the flexibility is documented in the agreement, not improvised in the moment.
What Happens When the Fee Cannot Be Paid
In slower months, the clinical entity may not generate enough revenue to cover the full management fee. This is a real scenario, especially for practices with strong seasonal variation or for med spas in their growth phase.
The standard accounting approach is to accrue the unpaid amount. The management fee still gets recorded on both sets of books — as an expense on the clinic side and as receivable on the MSO side — but the actual transfer of cash waits until funds are available. When revenue picks back up, the past-due amount gets paid.
This matters for two reasons. First, it maintains the accuracy of both sets of records. The clinic’s books reflect the full cost of management services even if the cash has not moved yet. Second, it keeps the arrangement legally intact. You are not voiding or modifying the fee structure because of a short-term cash issue — you are accruing and paying when able, which is consistent with how any normal business relationship between two entities would work.
It is also why setting the base fee at a level that is achievable in a slower month is important. A base fee that can only be covered during peak revenue months creates regular accrual situations that can start to look like the clinical entity is not actually supported by the management company — which undermines the structure.
The Recording Side: A Common Mistake
Even med spa owners who have the bank accounts separated and the fee structure reasonably designed often miss this piece: the management fee needs to be properly recorded on both sets of books, not just tracked as a transfer.
On the clinic side, the management fee should be recorded as an expense — a bill payable to the MSO. On the MSO side, it should be recorded as income — a receivable from the clinic. When the cash transfer happens, it settles both entries.
What we frequently see instead is a practice simply moving money between accounts and noting it as an intercompany transfer. That does not create a proper expense on the clinic side and does not show the MSO’s income correctly. It also makes it harder to see whether the fee structure is actually working as intended.
Proper recording on both sides is what allows you to look at each entity’s financials independently and confirm that the structure is doing what it is supposed to do.
Getting Your Management Fee Right
If you are unsure whether your management fee structure is holding up, here are the questions to work through.
Does the fee reflect what the MSO is actually doing? If the number was picked somewhat arbitrarily and was never tied to real costs and services, that is a problem worth fixing.
Is there flexibility built into the agreement, or is it a fixed number that has not been reviewed since the practice launched? If the business has grown significantly and the fee has not changed, you are probably leaving money in the wrong entity at year end.
Is payroll accounted for properly on both sides of the structure? This is the single most common area where well-intentioned structures start to break down.
Is the fee being recorded properly on both sets of books, or are you just moving cash between accounts?
These are not hypothetical concerns. They are the specific issues that come up when we audit management fee structures for new clients at Liguori Accounting. In most cases, there is something that needs to be tightened up — and in some cases, the structure needs to be rebuilt from a clearer foundation.
Our team works exclusively with medical aesthetics practices. We understand the MSO model, the compliance context, and what the accounting on both sides needs to look like. If you want to make sure your management fee is structured correctly and being recorded the way it should be, our bookkeeping services and virtual CFO support are built specifically for this.
You can start a conversation with our team at liguoricpa.com. The management fee is too important to the integrity of your structure to leave unexamined.
Nick Liguori, CPA is the founder of Liguori Accounting, a specialized accounting firm serving medical aesthetics practices across the United States. Liguori Accounting offers outsourced bookkeeping, tax planning, and virtual CFO services for med spa owners.
