Set Up Skin Care as a Cost Center

If your practice offers skin care services, are you certain that they are profitable? If you review a monthly profit and loss for the entire practice, the answer may not be clear.

To truly determine the profitability of skin care services (or other ancillary services for that matter), set up a profit and loss statement specifically for skin care services. Here are the basics:

• Determine which revenues come in from skin care services. For example, products and treatments.

• Determine which expenses can be allocated specifically to skin care. For example, aesthetician salary, benefits, and training, product costs, supplies, linens.

• Calculate the amount of rent "paid" by the skin care cost center. The typical way to do this is to multiply your rent-by-square-foot by the total square feet in the area where skin care services are provided.

• Allocate "indirect expenses." There are a number of expenses--administrative staff salaries and benefits, accounting fees, postage, general marketing costs, office supplies--that cannot be allocated directly to the skin care cost center, but are nonetheless used by skin care and all areas of the practice. For example, while you cannot directly allocate the Receptionist's salary to skin care, in most practices the Receptionist likely answers phone calls, takes messages, schedules appointments, and performs sales transactions related to skin care services.

After totaling all expenses in the "indirect expense" category, multiply the sum by the percentage of revenues brought in by skin care services. So, if total "indirect expenses" are $100,000 and skin care services comprise 15% of total practice revenues, you would allocate $15,000 in "indirect expenses" to the skin care cost center.

Reviewing skin care services in this cost center format can clarify the profitability of this and other ancillary services. And while the process of cost center analysis takes a little time to think through and set up, once you have developed a chart of accounts, your manager or bookkeeping service can simply post revenues and expenses to the appropriate line items.

Set a goal to implement cost centers in 2002 and get your accountant involved. His or her input can be invaluable in your efforts.

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