Revenue is not the same as profit, and neither one guarantees cash in the bank. In a recent webinar hosted by Lengea Law, Nick Liguori of Liguori Accounting joined healthcare attorneys Sara Shikhman and Emily to unpack why one med spa can post $5 million in revenue with almost nothing to show for it, while a $1 million practice runs clean, profitable, and ready to sell. The difference comes down to financial structure, recordkeeping, and a handful of decisions owners get wrong early.
See the full episode here:
What does “revenue doesn’t equal profit” actually mean?
The starting point for any of this is having financials you can trust. As Nick put it, “Revenue doesn’t equal profit. Revenue doesn’t necessarily equal cash flow either.” Without a reliable picture of the numbers, there is no data to dig into when something feels off.
At Liguori Accounting, we work with med spas across the country, handling the monthly bookkeeping and reconciliations that produce financial statements an owner can actually use. From there, the work is analysis: comparing this year to last year, watching trends over six months, and finding where the structure of the business is quietly leaking profit or cash. We covered this disconnect in depth in why a full schedule doesn’t always mean a profitable one.
How does money actually flow through an MSO structure?
Most states restrict the corporate practice of medicine, which means non-providers cannot own a clinical practice or collect clinical revenue directly. Emily walked through the workaround: clinical revenue routes first to a physician-owned entity’s bank account. From there the practice pays the medical director fee and other clinical expenses like provider payroll. What is left over becomes the management fee, which the management company (the MSO) collects each month. That is how a non-physician owner legitimately participates in the economics of the practice. Lengea has a clear primer on the legal scaffolding here: how to legally set up a med spa MSO and MSA.
The accounting wrinkle is that an MSO structure means two entities and two separate sets of books, which we recommend keeping distinct for legal and tax reasons. The catch is that neither set of books tells the whole story on its own. Our approach is to combine the financial statements of both entities when analyzing the business, so owners see the true picture of the med spa rather than a fragmented one. We break down the mechanics in setting up MSO funds flow correctly and how to structure the MSO management fee.
Is an S-corp the right setup for the management company?
A common misconception is that an S-corp is a separate legal entity you have to form. It is not. An S-corp is a tax election. An LLC files with the IRS to be treated as an S-corp, which creates separation between business and personal taxes and lets the owner take a reasonable salary while remaining profit avoids self-employment tax. For the legal side of choosing an entity, Lengea’s overview of LLC vs. Inc. vs. S-Corp is a useful companion.
For an established MSO with real profit and owners who are paying themselves, that election often unlocks meaningful tax savings. The work is finding the right balance between compensation paid as wages and profit taken as distributions, which is exactly the kind of planning we cover in tax strategies that can cut taxable income by six figures.
Where do med spas get W2 vs. 1099 classification wrong?
This is one of the most frequent and most expensive mistakes we see. A true contractor sets their own schedule within reason, brings their own supplies, has no non-compete, and serves multiple businesses. The trouble starts when owners want, as Emily described it, to have their cake and eat it too: 1099 treatment to avoid the tax and administrative burden, paired with W2-level control over schedule and non-competes.
It usually stays quiet until there is a dispute. The moment an owner tries to enforce a non-compete or a training reimbursement, a misclassified contractor can counter with a claim for back pay, overtime, and misclassification. Nick’s summary of the pattern was blunt: “It kind of goes well until it goes really badly.” The other surprise lands on the worker, who faces the roughly 15% self-employment tax at filing time, a flat tax covering both the employee and employer sides of Social Security and Medicare. We go deeper on the test itself in how to classify your injectors and aestheticians, and Lengea handles the contract side through employment contract review and negotiation.
Why am I profitable on paper but out of cash?
Two financial statements answer this, and they only work together. The profit and loss report shows activity over a period: revenue, cost of goods sold, operating expenses, and the bottom line. The balance sheet is a snapshot in time showing assets, liabilities, and equity, including inventory, payables, deferred revenue from packages and gift cards, and debt.
Inventory is where the disconnect bites. Buy $100,000 of filler and that purchase lands on the balance sheet as inventory, not on the P&L. When the bill comes due it drains cash, but it does not hit cost of goods sold until the product is actually used in services. The result is the question we hear constantly: I’m seeing profit, so why is there no cash? Often it is locked up in inventory or in product already paid for but not yet used. The same timing trap shows up with prepaid packages, which we explain in deferred revenue and why it distorts your books.
What happens when personal and business spending get mixed together?
Running personal expenses through the business account is not just messy, it is a legal exposure. The liability protection of an LLC depends on treating the entity like a real business. Funnel personal lunches, car payments, or a mortgage through the practice account and a court can find the formalities were not upheld, putting personal assets at risk. Courts can subpoena bank records, and if the company has no assets, that transaction history is exactly where a plaintiff looks. Our cleanup process is to separate the accounts completely, move recurring personal charges to a personal account, and restore a clean view of true business activity.
What does it take to get books clean enough to sell?
A buyer typically wants at least three years of financials. Reconstructing that from scratch is a months-long, expensive undertaking, which is why the advice is always to start now and stay current. There is also the net-income-zero trap: minimizing taxable income feels good until a buyer asks why a practice you say earns $300,000 shows zero on paper. Clean books, with discretionary owner expenses clearly identified, protect the sale value you spent years building.
Nick’s parting advice ties it all together: know your financials, and review the P&L and balance sheet together at least monthly to catch the trends before they become problems. The five KPIs every med spa owner should track are a good place to start that monthly habit.
