Features Continuing Education Education
Practice Management: Spring 2004

Part two of series looking At concepts for massage therapists in building wealth and managing finances. This article looks particularly at tracking money as it enters, and leaves, one’s hands and how through better “account-ability” therapists can turn their financial situation into a prosperous one.

As a small business owner, the odds are against you. Four out of every five small businesses fail within five years of starting up. According to a 1998 study* of massage therapists in Ontario:

• 50 per cent of MTs surveyed desired to increase their practices;
• 2 out of 3 felt their income did not meet their expectations;
• 50 per cent of massage therapists practicing more than five years earn less than $30,000 per annum (conversely, students polled expected to earn $40,000/year net income);
• 28 per cent of respondents work at another career outside the profession;
• Forecasts show those entering the profession exceed demand in Ontario.

It appears many massage therapists are struggling in Ontario, and perhaps in other provinces, to earn a reasonable living. There may be many reasons for this but I suspect a primary one may be undeveloped business skills, especially in the area of accounting.

Accounting is the practice of monitoring the revenues and expenditures of your business. Being accountable financially means that you know how money enters your business, and how the money leaves to circulate in the larger pool of the economy. Every year your accountant takes your financial information in the form of receipts, written cheques and financial slips issued, and creates a balance sheet and income statement.

As therapists, we may be less interested in this information than we are in ensuring we do not suffer the wrath of Revenue Canada by not filing a tax return. However, there is valuable information contained within these financial statements. And, there is a need to have this information long before year-end.

Being aware of your assets and liabilities provides you with essential information: What is my total debt? How well am I moving towards my retirement goal? What expenditures are directing my money away from my real priorities?

Your financial freedom rests directly on your ability to build assets that will provide you income even after you stop working, and to limit liabilities that would eat into those assets.

Every week, keep all of your receipts for business and personal use in two envelopes marked “business” and “personal.” Insist on receipts, even for items such as gasoline, groceries, and eating out. In addition, keep all your deposit slips for business and other revenues. Create a chart to record all income and expenditures. This chart will include main headings such as “fees” and “products” under revenue and “draw, home, auto, food, children,” and “business” for expenses. This is your Income Statement for the week, and will tell you how well
your revenue is covering your expenditures.

“Draw” includes personal care, eating out or buying clothes. “Home” includes utilities, mortgage or rent, and home renovations and property taxes. “Food” is obvious, and “children” may include childcare costs, expenses towards their music, dance or sports sessions and equipment. “Business” includes all your business expenses for the week – lease/rent, linen cleaning, lubricants, professional development, new equipment, etc. You can break these down further and make a larger chart if this serves your purposes. Try and not make the chart too onerous, lowering your success to fill it in on a weekly basis.

You should also create a Balance Sheet which indicates your assets (those things that generate income for you) and liabilities (those that require money from you to maintain). The balance sheet describes your financial picture at this time, and reflects how well you’re preparing for the day you will no longer work. A high liability ratio against assets creates a kind of financial slavery. The higher your liabilities, the longer you will have to work.

If you reflect on how your purchases today dictate the way you will live in the future, you will be far more careful in making those decisions. The goal is not to work harder, but to work smarter. Taxation is the greatest expense you will have in your life.

To work harder and make more money to pay off liabilities, you will increase your tax bracket and hence you tax expense. Then you play the life-long game of catch-up, only to find you’ve spent too much of your health and vitality for the contentment of your creditors.

To fill out your balance sheet, collect information from all investment accounts, savings accounts (including negative balances), credit cards and loans, mortgages, and outstanding tax amounts. Record them and tally the amounts. For those with access to their banking information on-line, it’s easy to check the status on your investments, mortgage, credit card balance and other financial information so you can create a very accurate financial picture of this moment in time.

Complete this process at the end of every week. If you are diligent about the process, it will only take about 20 to 30 minutes to gather all this pertinent information, record, and assess your financial picture. After a month of recording this information you will note patterns emerging. You will notice, for example, where you are spending money for essentially “quick comfort” items. My friend who has worked to build his financial intelligence calculated he was spending almost $400 per year on coffee at the coffee shop. He bought a thermos, made the coffee at home, and realized an increase in his cash flow he can now use to purchase higher priority items, or even better, invest for himself. This is only one example of “finding money.”

You will also notice incrementally how your wealth is growing. It’s exciting to see, for example, the $100 you put aside every month in an RSP fund grow over the years to move you closer to financial freedom. I love watching my liabilities get smaller, dreaming of the day when I will be solvent and have no outstanding debt.

• Next, we’ll talk about wealth consciousness, and real, tangible ways you can attract money to your honest and hard-working efforts. Until then, follow the money trail!