Why does my attorney say my med spa needs two entities, and what does that do to my books?

This question usually comes up right after your attorney explains corporate practice of medicine rules. In many states, non-physicians cannot own a medical practice or make clinical decisions for one. Since med spas perform medical procedures like injectables and laser treatments, they fall under these rules even though the business feels more retail than clinical.

The typical solution your attorney builds looks like this. A physician or physician-owned entity holds the clinical practice. You, the operator, own a separate management company. The two are connected by a management service agreement that spells out what the management company does and what it gets paid for doing it. The physician entity handles the medical side. Your company handles everything else, including marketing, scheduling, supplies, staff, rent, and operations.

Your attorney structures it this way to protect the arrangement legally. Your accountant’s job is to keep the books in a way that supports that structure.

That means two real sets of books. The clinical entity has its own chart of accounts, its own bank account, and its own financial statements. The management company has the same. The management fee your company earns from the clinical entity needs to actually be recorded and actually be paid according to the agreement. If the MSA says your company receives a percentage of collected revenue as a management fee, that fee needs to show up as income in your company’s books and as an expense in the clinical entity’s books. Actual money needs to move between accounts on a regular schedule.

You cannot blend the two entities’ finances and sort it out later. If your attorney built a two-entity structure and your books treat it like one business with one checking account and no intercompany transactions, you have undermined the entire point. Regulators, courts, or the IRS looking at those books would see through the structure immediately. The legal protection your attorney designed depends on the accounting reflecting reality.

This does mean more complexity and more cost. You are effectively running two businesses from a bookkeeping perspective. But that is the price of the structure, and the structure exists for good reasons. Working with a CPA for medical businesses who already understands these arrangements saves time explaining what you need and why.

Hunter Green CPA provides Multi-Entity and MSA Accounting for med spas operating under these arrangements. The firm handles the books for both entities, records the intercompany activity correctly, and keeps the records aligned with the structure your attorney built. Legal questions stay with your attorney. The accounting is what we do.

If you are opening a med spa or already operating one and your books do not clearly reflect the two-entity structure, book a consultation and we can take a look.