There are two basic ways to keep books. Cash basis records income when money arrives and expenses when money leaves. Accrual basis records income when it is earned and expenses when they are incurred. For a med spa, the difference is significant.
Where cash basis distorts the picture
Packages and memberships
On a cash basis, a big package sale is income on the day it is sold, even though the treatments happen over months. Months with strong package sales look very profitable; months of redemption look poor.
Inventory
On a cash basis, a large injectable order is an expense when paid, not when used. Product cost swings with ordering, not with treatments.
Payroll timing
Commission earned in one month and paid the next shows up in the wrong month on a cash basis.
What accrual basis fixes
Accrual accounting matches income and costs to the month the work happened. Package and membership cash sits in a liability until earned, product cost reflects what was used, and payroll matches the month it was earned. Monthly results become comparable, and margins become meaningful.
Tax is a separate question
How you file taxes and how you manage the business can differ. Some businesses file on one basis and use accrual-based management reports. Which basis you can or should use for tax depends on your circumstances and current rules, so decide that with your CPA.
A practical approach
Many med spas keep management reports on an accrual basis, or at least adjust for the biggest items:
- Prepaid packages, memberships and gift cards as liabilities
- Product cost based on monthly inventory counts
- Commission matched to the month it was earned
These three adjustments remove most of the distortion and make your monthly P&L a reliable tool for decisions.
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