Money, Money, Money — Answering all your financial questions about running a business

The question I get asked the most about running a business as a therapist is how to make the money work.

So this week on the podcast, I’m sharing what I’ve learned about setting yourself up for financial success in private or group practice.

Tune in as we explore—

• Unpacking your money stories
• Finding your “ramen noodle number”
• Figuring out your business expenses
• Creating a savings fund
• Choosing your business structure
• Learning Profit First
• Getting your numbers right

If you’re interested in starting a private practice, I highly suggest pairing this episode with my workbook Laying the Foundation for your Private Practice for more in-depth exercises and reflections on choosing your business structure and setting up your business finances.


Links

• Get my workbook — Laying the Foundation for your Private Practice
• Join my Private Practice Circle in Fall 2023 — https://www.braveandwell.com/private-practice-circle
• Join my Group Practice Circle in Fall 2023 — https://www.braveandwell.com/group-practice-circle

Transcript

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Hi everyone. Welcome to the Brave and Well podcast. I'm your host, Vanessa Newton. I'm a group practice owner and social worker. I'm also a Latina, entrepreneur, mom, and recovering perfectionist. On this podcast, we teach mental health professionals how to build sustainable, profitable, and values aligned businesses. Here, you'll hear all about decolonizing the business side of private practice and supporting the entrepreneur and. Music. Therapist. We'll also invite fellow therapists and healers to share their stories. Our time together will be raw, honest, vulnerable, and held together by joy. If you like what you hear, subscribe to our newsletter at BraveAndWell.com slash newsletter dash sign up. Thank you for listening. Music. Hi everyone. Welcome to another episode of the Brave and Well podcast. I'm your host, Vanessa Newton. And today we're going to talk about all the money things related to private practice. This episode will be really fast and furious, but my hope is to give you a brief overview of things to consider and journal about or calculate before you go into private practice. So this was a question that I got a lot when I was getting feedback on what to share next. And I thought it might be good to just share what are the things that you should consider, before you start a private practice and then once you actually start. And so we'll kind of break it up into sections here and later on I'm going to do a follow-up episode around the profit-first model which I'll share about in just a few minutes. So let's talk about things to consider before you start private practice. So one of the biggest lessons I learned is that I needed to learn what my money story was. What were the messages that came up for me as I was growing up around money and what it meant? And so I grew up small town, McAllen, Texas, near the border of Mexico. My mom was a single parent most of my life and she was raising me and my sisters. And so we didn't have a lot of money to go around. We certainly didn't have money to save and we certainly didn't have money to do a lot of extravagant things, right? We could afford the basics, we could afford what we needed to cover our basic needs, but there was not much room for anything else. And so my money story was really centered around you have what you have and you use it for the things you need. And there was no financial planning, no financial literacy, no concept of saving money for a a rainy day savings fund or... You know, catastrophes or emergencies, things that happen that are beyond our control. And so I think when you think about your money story, you really want to think about. What is your earliest memory related to money? I think our stories are a culmination of our parents, our ancestors, and even your own experiences. You know, I had really a hard time putting myself through undergrad and grad school because I didn't have the financial support of my family. They didn't have it to give, not that they didn't want to, but they didn't really have anything to give me. And so I relied a lot on student loans, credit cards, and worked multiple jobs to make ends meet. And so, you know, you can imagine having that experience and then deciding, oh, wow, I want to become a business owner. I want to be an entrepreneur. It was like the finance piece really blew me away because I knew that I couldn't make that happen unless I had some sort of cushion available to me. So you want to think about your own money story. You want to think about how this money story will play out in your business and show up in those moments when a client knows shows, when you set your fees, when you raise your fees, when you decide to take time off, when you invest in your business, when you decide to grow your business, right? All of those things matter because essentially what you're doing is creating a job for yourself. Your business is going to be the thing that pays you, it's going to be the thing that provides you with benefits, it's going to be the thing that provides you with PTO. And so how you think about money and how you view money matters because it's gonna show up throughout entrepreneurial journey. So, unpack your money story. The next thing you want to do is think about your ramen noodle number, right? This is a term coined by Tori Dunlap and she talks about how your ramen noodle number really is what is the bare minimum that you need to be able to survive, right? That number that is encompassing of all my personal bills and all my business bills. So when you think about your personal obligations in terms of finances, that's a very different number than what your operating expenses for your business are. So one of the first things you want to do is kind of figure out what is my ramen noodle number. And then when you identify that number, you want to make sure you have at least three months of savings for both your personal ramen noodle number and your business ramen noodle number. You know, for most of us, we don't have the luxury of just deciding one day, I want to go into business for myself, so I'm going to quit my job and jump in and pray and hope that it all works out. I've shared this before, but my experience of working full time while starting my private practice was very much a necessity. I had to work to be able to create that savings to be able to leave my job. I didn't have a cushion. I didn't have a family inheritance. I didn't have a huge savings. I didn't have any type of financial backup. And so identifying my ramen noodle number for both my personal expenses and my business were crucial because I needed that savings for three months to be able to feel comfortable enough to leave my full-time job. And so I was able to do that over the course of six months. And everybody's comfort level is different, right? Some people need to save three months worth of expenses. I needed to save six months. That's what felt good for me. Some people feel like they need to save for a year. You know, you have to decide what it is that's going to give you the most confidence to be able to jump in. And so at a minimum, what I would say is that you want to think about three months. Okay? So after you've identified that number, think about your overhead. You want to calculate your overhead, right? Remember this is a business. This is not just what you're paying for your operating expenses to run the business. This is also how are you paying yourself? How are you compensating yourself for the time, for the effort, and for the work that you're doing? You're creating a job for yourself. So there are more expenses that come with being an entrepreneur. And so some of the expenses to consider are your EHR system. I use simple practice. So what does that cost per month? What is your website going to cost per month? I use Squarespace. What about your email account? You want to make sure you have a HIPAA compliant Gmail account. What are your credit card processing fees? Regardless of what you use to process payment for services, everybody has a credit card processing fee. I think Simple Practice integrates with Stripe and Stripe charges like 2.9% per credit card charge. So if you were to look at my statement at the end of the year of how much money I spend in credit card processing fees, you probably would be disgusted. It's thousands of dollars that I lose every year just in credit card processing fees. So imagine if you're charging someone $125 for a session and you're charging them with, the credit card, you're not getting that full $125. You're going to get less than that. So you want to calculate that in there. You want to take into account claims processing. So how much does it cost you to process a claim? So simple practice charges you. If you take insurance and you're processing claims through simple practice or through your EHR they're going to charge you a fee per claim. How much money do you need to set aside for taxes? So if your business is making $60,000 in a year, how much of that is going to need to go towards taxes? And this is really going to be dependent on your tax structure, your business structure, and the tax bracket that you fall under, whether you're filing independently, whether you're filing jointly with a partner, etc, etc. Are you paying for it to be on a therapy listserv? Something like Inclusive Therapist, Psychology Today, anything like that. What are your bank fees? So a lot of banks will charge you a monthly bank fee if your balance in the accounts are lower than a certain amount. So I bank with Chase. I have all my business bank accounts with Chase. And they have service fees, right? If I'm below a certain amount. Are you paying for office space? Which if you are, then you're paying for utilities. Are you paying to be a part of a monthly consultation group? Are you paying for any trainings throughout the year that you need to account for? You also want to think about how many vacations do I plan on taking in the year? Do I plan on taking time off? Am I going to be taking a week or two during the holiday season? If so, how much do I need to save to be able to take that time off? You also wanna think about expenses like health insurance and 401k and any investment accounts you plan on having or have, right? That's all gonna come from your bucket of money that you are earning as a business owner. Because unless you have an alternative. Stream of revenue unless if you have a side hustle if you're working at another Organization part-time if you have other streams of revenue. Then this this is gonna look differently for everybody But if your private practice is your your sole income and that's what you want, Then all of these expenses are gonna come from that and you need to plan accordingly in terms of how much do I need to set? Aside per month to allocate for all of these different things. So those are just some examples of overhead expenses to think about. Now, once you have your overhead and personal expenses kind of mapped out, you know those numbers, you know what you're spending your money on, you've focused on making a plan for savings, you wanna think about your business structure, right? So when I first started private practice, I was a sole proprietorship. I was a DBA, I was doing business as myself, and I filed, I think at the county tax office. Essentially, my business was under my social security number and my name, so if anything were to happen to my business or me, I was liable. As my business grew and I became a group practice, I decided to become a PLLC, right? I decided to separate myself from my business entity. And this was a recommendation done to me by my CPA, my accountant who said, you're at a certain level of income, you really need to separate your assets, right? Because at this point... At all of your personal assets are up for grabs if anything were to happen to your business. And I didn't know then that being a DBA was so vulnerable, right? That I was so vulnerable. And most people, I think, if you go into private practice, most people nowadays are filing an LLC or a PLLC. You definitely can go that route and file with the Secretary of State to get your for your corporation formed. But you wanna think about what's the business structure that's best for your business. And that's a really good question for an attorney and for a CPA to guide you through. Because whatever your business structure is, is going to impact your tax structure, which is a whole other conversation, right? When I was a sole proprietorship doing business as myself, I was paying quarterly taxes to the IRS. As my business grew and I became an entity, so now I'm a PLC and I'm an S-corp, which an S-corp is for folks who hit a certain bracket of income, right? Their business is making a certain amount of money. And at that point, it's financially smart to become an S-corp because you can save in taxes, but also with becoming an S-Corp, I became an employee of my business. So my business is paying me as an employee. I'm getting a paycheck from my business and my business is paying monthly taxes. And then it even gets more complicated as a group practice because I'm employing other clinicians and all my clinicians are W-2, so I'm not just paying my taxes, I'm paying taxes for them, and I'm paying taxes for the business, right? So you just wanna make sure that whatever your business structure, your company structure is, whether it's a DBA, whether it's a PLLC, whether it's an LLC, an S corp, et cetera, that you talk to your accountant and your CPA to understand what is my obligation when it comes to taxes? How often am I paying taxes? How much am I paying in taxes? How do I plan for saving for taxes, et cetera. So definitely wanna set up a consultation with a CPA and an accountant to make sure you have all that in place before you launch. The two bullets above so that identifying your business structure and your tax structure will inform what type of bank accounts you open up and how you save your money. This can look differently for everybody. Everybody chooses to set aside money differently, save money differently. I personally follow the profit first model. If you've never read that book, then you should buy it it right away. It's Profit First by Mike McAloitz. I've talked about it before and I'll link it in the show notes. But it's a really amazing book and it's really, I didn't start implementing it until about year three of being in business for myself. And it's really changed the way that I view money, the way that I save money, the way that I plan for the future. So definitely, definitely you want to buy the Profit First book. There are Profit First certified CPAs and accountants out there. So if you wanted to find one of those, you could go to the Profit First website and look for that. But that's the financial model that I follow. So I'm actually going to do a whole other episode on the Profit First model. So tune into that to listen to what that is, what that looks like for me, and how I save. After that, you want to think about how am I going to collect payment from clients for services provided? And like I mentioned before, what are the credit card processing fees associated with that? And if you're taking insurance, how will I file my claims and what are the fees associated with that? So all of those things are things to consider before you launch. And a lot of people do those things simultaneously. They launch and then they think about their money or they launch and then they're figuring out the pieces, you know, one at a time. I have done both. And what I can say is that my biggest recommendation to you would be to think about these things beforehand. And so once you actually start private practice, some of the other things to consider are, How will I be taking... Will I be taking insurance or am I a private prey or a mixture of both? So, you know, my practice is a mixture of private pay and insurance. So we file claims and we also do private pay. So it's a mixture of both. How many clients do I need to see per week to make a living for myself? So this is, this is why it's so important to know what that ramen noodle number is so that you can understand at a minimum, how much revenue does my business need to make every week or every month to, be able to just cover my overhead expenses? And then from there, how much do I aim to make so that I can actually turn a profit? Those are very different thresholds. And I think depending on the services that your business is providing, whether you're one-on-one therapy, group therapy, workshops, speaking engagements, webinars, etc. You're gonna have a diverse revenue stream which is ideal but initially for most of us we're providing one-on-one therapy. That's our main source of income, and so if you think about that you want to you want to know those numbers first. What do I need to make to break even? And from there, what do I need to do to turn a profit? To make more than just my expenses. And that's the goal. And in order to identify what that number is, right? Like how many clients do I need to see per week? You have to also figure out what is my rate? How much am I going to charge for the services that I provide? I think depending on where you live, depending on the demographics of your area, your community, the clients you serve, those rates are gonna vary. You know, everyone charges differently. People charge different rates depending on different types of therapy. So like I charge a different rate for traditional talk therapy, but then I charge more for EMDR therapy because I'm trained in EMDR. And then I charge more for folks want to focus on the daring way curriculum. And so depending on your certifications, your level of training, you know, that's going to all impact how much you charge your clients. So you want to think about what are my rates and based on that, how many clients do I need to see per week to again, break even, but also turn a profit? What's my sliding scale rate? Are you going to offer sliding scale rates? What are your boundaries around that? If I do offer sliding scale, how low am I willing to go and how many clients can I afford to have at that sliding scale rate. And then what types of services will I be offering and for how much? So, you know, I think this will change over time. You know, when I first started private practice, I was solely focused on providing individual therapy. That was my main source of income. As I started to get more confident in my work, in my clinical skills, I started to lead groups and workshops and do speaking engagements. And now I'm a clinical supervisor, and now I do business consultation. And so I've been able to diversify my revenue streams and not solely depend on individual therapy to bring money in. And so you wanna think about that for yourself. What's the menu of services that I plan to provide the community? And whatever that is, you wanna be sure that that's laid out really clearly on your website or wherever people are finding you so that they understand what it is that they can come to you for. So in closing, get your numbers right early on. There are things you will not know upfront, but calculate as much as you can. Find a CPA, schedule consultation with them so you can understand how much running a business is going to cost you, what tax structure you should consider, and how much you need to save for taxes on a monthly basis. It really can feel so easy to quit your job and run into private practice and just say, I'm just gonna do this. And while it's wonderful to be able to do that, I think for most of us, we can't afford to just do that. Right? There is no backup, there is no, you know, savings or financial net worth that we have, and we have to plan and be strategic about it. So once you've run your numbers. You can move on to building the rest and get creative with it. But really plan on sitting down with that. I know it's not an easy task. I know it's not fun. But I certainly am here to help. If you buy my book, my workbook, Laying the Foundation for Your Private Practice, which which you can find on my website, bravenwell.com. All of these exercises around your ramen noodle number, around streams of revenue, around how much you should put aside in taxes, around tax structure, all of those exercises are in the workbook. So if you wanna go more in depth, please buy that. It's a wonderful resource and I'm happy to, you know, more consultation with you individually with that. And then finally, I'll be leading two. Business consultation circles in the fall of 2023 when I'm back from maternity leave. And so you can register and sign up to join those registration is up for the waitlist. So if you want to join the waitlist and get on that so that I can email you once registration opens, go to bravenwall.com and we'll link all this in the show notes, but we'll have one for folks who want to start a, private practice and folks who want to start a group practice. So yeah, that's it for now. I hope you all are well and stay brave. Music. Thank you so much for listening to the Brave and Well podcast. You can find links and resources from this episode in the show notes at www.bravenwell.com. Music. Listening platform. Then send it to a friend. For free resources, special announcements, and discount codes, subscribe to our newsletter at bravenwell.com forward slash newsletter dash sign. Music.