Updated: Dec 14, 2022
This is something I have wanted to share because it has not only been helping me out for quite some time, but helping my coaching clients as well. My question I have for you first is:
How do you feel about managing your money in your business?
When it comes to doing my monthly finances for myself it usually includes all my business finances first and then I go into my personal finances. We won’t talk personal finances, just the stuff I have been doing on a monthly basis to keep things moving along financially in my business.
A lot of what I've learned about handling money as a business owner comes from Profit First by Mike Michalowicz. It seems to be one of the top money management books that there is in entrepreneurship at the time of this writing. If you haven’t read it yet, I highly encourage you read it or look up a summary. Fair warning, it is very dense (at least for me). It's really great for those of you who feel that you need a step-by-step list. I feel like it does a really good job giving you some background on how to handle your new job and how to pay yourself.
One of the biggest questions that a lot of first time business/practice owners ask. “Now that I've made money, what do I do with it?” Profit First does a good job giving you a structure. I’ve taken that structure and adjusted it to my own needs. I’m sure this time next year it will also look different. If you are someone who wants to have a 100% structured list that never changes, I would recommend that you maybe try to pull away from that a bit. Doing that can give yourself space to evolve and grow how to manage your money. Ultimately, a monthly money meeting, or budgeting meeting, is critical for any physical therapy private practice business plan.
Set Aside a Day and Time
I do my monthly money on the first day of the month or close to the first if I'm unavailable on that specific day. I used to do my money meeting twice a month which is what Profit First suggests but it got complicated. I understand getting paid two times a month feels good, and that’s what a lot of us are used to. However, since I moved to one time a month, on the 1st day of the month, it’s a lot more simple. Which is nice, because we’re all looking for simplicity!
It usually takes me about 2-3 hours on average to get through all of my finances (business and personal). A big part of this is because I work with different contractors, so I’m checking that I’m paying everyone the appropriate amount that our work agreement says. I also like to triple check that. So, if it’s just you, it may take closer to a hour.
I want to show you this checklist that I have. This is the list of all of my monthly financial routine things for the business.
The first thing I want to point out is this is a standard operating procedure (SOP). The reason that is so important and why I really believe it will help you run a more efficient business,(even if you are a solo business owner), is because you get all of the thinking done at one point. Then, you can take action the rest of the time. If I had to sit down on the first day of every month and remember what I needed to do every month it would be a nightmare and very stressful. I don’t believe that taking care of your business finances should be stressful. I look forward to it every month because... well, it’s fun to pay yourself! At the very least it should be pretty indifferent.
I know a lot of practice owners tend to not pay themselves for a certain period of time. While I can understand the first couple of months when you're in your own business, it’s best, in my own opinion, to pay yourself ASAP. I feel when you’re able to pay yourself as the business owner it puts things into perspective so you can take your business as seriously as you do a full time job rather than look at it as a side business. If you're running a side business that's fine, but if it’s a full time business, you need to treat it that way. So, I recommend that you pay yourself as soon as possible
Writing all the steps down for a specific project/routine on a regular basis can really help decrease stress I have around this kind of stuff. I did all of my big thinking and decision making at one point when I made this checklist. At the first of the month, I open the checklist and follow it from top to bottom. Then, once everything is checked off I know it’s all done and I'm good to go.
Money Management Steps
Getting into the checklist here, the first one is essentially open up your budget, open everything you need and then buckle up! I use a budgeting tool You Need A Budget (YNAB) which I love. I’ve used it since freshman or sophomore year of college to do all of my personal budgeting. I really like this software (it costs about $100/year). It integrates with your bank accounts so it’s pretty well automated. When I open this budget, it’s another thing I set up one time, but now every 1st of the month it’s no big deal.
Steps 1 - 4
Open the budget
Open bookkeeping software (I use Quickbooks Self-Employed)
Open the business banking accounts (yes accounts with a "s")
Open up the spreadsheet that is used to track how much money is brought in in the past month.
I know a lot of people I’ve talked to have 1 - 3 different accounts and there are practice owners who only have the one. It’s not a life or death situation when you are first opening, but Profit First really explains why having multiple accounts can be really helpful. We won’t get into that much right now.
Get everything ready that you need and if you have access to a 2nd screen that really helps a lot in transferring info back and forth between the different softwares. Not 100% necessary since it's a one time a month thing, but if you’re able to do two different things between two windows that helps.
Once I have everything open, I review my business budget in YNAB to see where I am for this month and I look at last month. I also I go through my expense list, (typically every to every other month), to see if there are subscriptions or softwares that I’m currently paying for that I don’t use anymore. I also switch over monthly subscriptions to annual which doesn’t typically save a ton of money, but it's also kind of nice seeing it come out only once a year. When I look at the difference, it’s not super substantial between monthly and annual subscriptions, but hey, maybe you’re able to get more cashflow.
According to the Profit First method, I transfer all of the funds from the income account. It's just a regular checking account where all the month's money from Square, Stripe, Paypal, etc. is dumped. From that account, I disperse a certain percentage of that money into operating expenses, taxes, owner's pay, and what I'm calling “business savings”. One thing that I've learned from one of my old business coaches is to work on my personal savings account. I build up enough savings for 3 months of personal expenses, and then after that I can start to focus on putting savings in the business.
Again, as a solo LLC business I want to make sure I'm personally taken care of before I continue to leave money in the business accounts. This supports what I was talking about before when I said business owners won’t pay themselves for a long time. And that's fine, but you got into this to make money. You need to be paid for the work you’re doing so you’re not constantly scrambling or continuing to feel like you’re living paycheck to paycheck. Probably a topic for another day. Basically, all the money from the different processors go into this account and then I transfer them to 4 different accounts. The Profit First book talks about dispersing that money into different percentages:
50% of your monthly revenue into owner's pay
30% into operating expenses
15% into taxes
5% into savings
Of course you are totally allowed to change them. Many of us in the DPT to CEO Facebook group work mobile, online, or in my case... my garage, so we don’t have a lot of overhead. You're not renting a building or paying a mortgage, so you can do less in operating expenses because you don’t have a lot. So that money can go towards paying yourself more, taxes, savings, etc. Don’t use those percentages just because the book says. You can start with them and then adjust as you see fit.
Next, I pay any contractors/affiliates that we have on our courses. Then I check in to how many appointments Kyle has had. We have a separate work agreement on how much I pay him for the appointments he’s done for PT. I see how many appointments he’s done and I pay him for that and for the acute care course. I also pay my virtual assistant, web developer, and assistant coach. I double check that I pay everyone I need to. I also will pay my bills from the operating expense account. Lastly, I send myself money.
It’s a straightforward routine. I wanted to share this as I have been doing SOP's with a lot of my business coaching clients and this would be one of the SOP's. Overall, this makes things a lot easier so then I can schedule it in to my calendar when I have two hours to work on this. This way, I know I’m getting paid every month. I think having that routine makes things a little less scary when you’re new to this sort of thing. Having this monthly money meeting is the first step to determining your physical therapy private practice salary, and hey, that's pretty neat if you ask me.
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