Solo practitioners in the aesthetics arena require more knowledge than they often receive in school regarding how to not only manage and run a successful business but to leverage that success for years to come. Opening and operating any business requires knowledge of how income reporting works on an annual basis, and more importantly,why it is important to report income correctly for long-term success. The shining light at the end of the tunnel involves serving clients forever and managing to stay afloat in a creative space to one-day own real estate, buy a car, have stocks and bonds, maintain a retirement plan, send children to college, and so much more. By not setting yourself up for success in the beginning stages of your career, aestheticians may run around in circles trying to understand what it takes to have something to show for their work in the end.
A student of mine came to me at the beginning of her time in class to discuss business financial forecasting. She told me honestly that she had been performing eyelash extension services without a license prior to taking the leap into aesthetics school. She told me that she made over six figures last year and had nothing to show for it. She could not purchase a home, a car, or send her son to daycare because she did not manage her finances well. This is a story I hear more often than I prefer.
UNDERSTANDING YOUR WORTH
When legally forming a business entity, ensure that you are setting up your business as an LLC or some other form of an LLC, such as an S Corporation. Next, create an account with a payroll company, such as ADP, to ensure you are set up as a W2 Employee of your own company. You may then begin hiring others in the same way. However, it is important to invest in yourself and ensure all tax liabilities are paid weekly or bi-weekly on the income to take out of the company.
What is a W2 employee? An individual who fills out a W4 Form, which lays out the withholdings and deductions in all categories is a W2 employee. The company withholds the individuals’ Social Security and Medicare taxes and pays employer and payroll taxes. Companies control the clock hours worked, dress code, services, quality of services performed, hold annual evaluation meetings, lead and motivate workers to succeed, and more.
The reason that you want to become an employee of your own company is not only for tax obligations but for long-term benefits, such as producing professional pay stubs. Pay stubs are critical for purchasing real estate, buying a car, or financing anything worth investing in.
It is a great idea to increase your wages as the years go by it your business can sustain it. The more income you are able to take home, on paper, the more you are able to invest long-term.
Whether interested in staying solo or are thinking of eventually hiring talent to help grow the business,think of the bigger picture. You will want to set aside personal finances to invest in areas that can help grow a wealth portfolio. By setting yourself up as a W2 employee, you will have a set amount of funding going into your personal bank account that taxes have already been deducted. This makes it easier for you to take a portion of those funds and place into an interest-bearing savings account.
Connect with a wealth management advisor to discuss different avenues for personal savings, such as investments in the stock market. If stocks aren’t your thing, discuss other avenues to put funding aside for retirement. Making money with your money is always a great investment. Of course, with the stock market going up and down, there are risks involved. However, risks are what can reap great rewards in the long run. You have this choice.
In looking at the bigger picture, always think of the overall exit strategy or other sources of income. As stated before, real estate is always a great investment, once you do your research. You may want to purchase property to flip and sell, parking lots to rent out parking spaces in busy areas,or have a few properties that you own and rent out. Your exit strategy may be eventually selling your business or assets of the business. In being a W2 employee of your own company, there is complete separation financially between you and the business entity, which makes it easier to sell.
If interested in eventually selling the business, ensure that you have created strategic processes that can be handed down to the next owner. This would include employee contracts, employee handbooks (revised annually), and policies andprocedures manual.
In setting yourself up as a W2 employee of the company, always practice operations consistently. Meaning, set aside one day per week to work on your business rather than in your business. You must have the time to focusin order to calculate your income for that week, input the data into the appropriate payroll system, and ensure you are being paid through a bank draft consistently and on time.
Spa owners can set themselves up for major failure by not calculating their own personal finances and fiscal needs per month. What can transpire is something called a “member draw,” in which the owner takes funds out of the business account randomly. Member draws are legally appropriate if your company is set up as an S-Corporation; however, it is not a good idea when taxes are due at the end of a fiscal year. When drawing money out of your business account without the funds going through a payroll company in which taxes are paid on these funds, you are setting yourself up for tax liabilities that you may not want.
The idea is to live simply and not spread yourself too thin financially. Being able to work doing what you love in the creative space of aesthetics is even more fun when you don’t have tax payments looming overhead.
Aestheticians in today’s market deserve to be in the best place possible in business and that is financially strong. Instead of setting yourself up as a sole proprietor and taking on all liabilities, setting up the company as an LLC or a type of LLC ensures that you can hire employees. The number one employee you should take care of financially is you. Think of the long-term benefits of these best practices and watch clients roll in. When you are setting proper business standards for your business and acting on them regularly, clients can tell. By caring about the quality of how you run your company and not just the services you offer, you are setting yourself up for a great reputation and long-term success.
Courtney Sykes is the Chief Administrative Officer of Southeastern Esthetics Institute and licensed aesthetics instructor in South Carolina. Sykes also is the creator of Courtney Sykes Molecular Anit-Aging, a clinical skincare line for consumers and professionals. Her passion lies in creating real change in the aesthetics industry, assisting her students to obtain gainful employment, and make a difference in the lives of their clients. Sykes specializes in a science-based approach to skin health and education. Her primary focus is chemical peels, laser treatments, eyelash extensions, micropigmentation, and cosmetic lasers. Her background in medical spa management has led her to nationally-accredit the largest, licensed aesthetics school in South Carolina – Southeastern Esthetics Institute.