This paper presents a comprehensive business plan for Magic Hands LLC, a sole-proprietor mobile massage therapy practice. The plan covers the choice of limited liability corporation structure to protect personal assets, the use of cash accounting methods appropriate for a one-person business, the start-up resources and financing strategy (targeting a 50/50 equity-to-debt split), and the internal controls necessary to maintain accurate financial records. Pro-forma financial statements — including an income statement and balance sheet — are provided, with revenue estimates grounded in Bureau of Labor Statistics data for massage therapists. The paper also discusses the relevance of GAAP, accrual accounting, and third-party auditing for a business of this scale.
The business being created is a massage therapy practice. This is a one-person, mobile operation built around a portable massage table and client site visits. As a trained massage professional, the proprietor will be able to provide massage therapy to a wide range of clients across a broad geographic area. Only a handful of tools are required: the table, supplies such as oil, a laptop, a phone, and a car for transportation to client sites. The business will also need a website and social media presence for promotional purposes. This business plan provides the information needed to obtain the necessary financing to start the business (Richason, 2016).
The massage therapy business, Magic Hands LLC, will be registered as a limited liability company. The reason for this choice is to obtain the advantages of flow-through income as a sole proprietor for tax purposes while also securing limited liability protection. Meier (2016) notes that the single-member LLC form provides protection against judgments and liabilities related to the business. Examples of such liabilities might include a car accident traveling to or from a client site, or any medical liabilities arising from patient care.
It is necessary to use this business form to protect personal assets in the event of adverse legal action. This structure may also be a requirement of the bank if those personal assets — such as a home — are used as collateral for a small business loan.
This form of business typically operates on cash-basis accounting. Generally Accepted Accounting Principles (GAAP) are only a requirement for publicly traded companies, and Magic Hands LLC has no ambition to become one. Probably the most important consideration for a sole proprietor is that separate accounts should be created for business and personal expenses. This separation will be especially valuable at tax time. Taxes will be filed on the basis of personal returns under the LLC sole-proprietorship form, because income and expenses flow through to the personal return. Business expenses can be deducted from income, but personal expenses cannot (Vitez, 2016).
For example, if a car is needed to reach clients, the vehicle and its fuel costs can likely be deducted as business expenses; however, fuel used for personal travel — such as driving to visit family — would not be an eligible deduction. Similarly, the square footage of a home office used for business purposes is deductible, but the remaining home expenses are not. The IRS publishes guidance on eligible deductions for home-based and self-employed businesses.
Most sole proprietors use cash-basis accounting for their businesses. It is the easiest method to use and can be managed in a spreadsheet application such as Excel, eliminating the need for more sophisticated accounting software. That said, accounting software can simplify the process for those who prefer not to build their own file system. In cash accounting, all income and expenses are recorded at the moment cash changes hands.
Accrual accounting is more sophisticated and might be useful if the business conducts significant work on credit — either by borrowing from a bank or by extending credit to customers. The timing of entries differs under accrual accounting and may necessitate dedicated accounting software. While accrual accounting is worth considering, fluency in GAAP is not necessary for this type of business. International Financial Reporting Standards (IFRS) are irrelevant here because the business will operate in the United States, where IFRS is not the applicable standard. Since the business will not follow either GAAP or IFRS, convergence between the two frameworks is not a relevant concern.
"Equipment needs and 50/50 financing strategy"
"Record-keeping, reconciliation, and audit practices"
"Projected income statement and balance sheet"
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