Brave and Well: Conversations helping mental health professionals build a sustainable, profitable, and values-aligned business

How to Set Up Profit First for Your Therapy Practice

• Vanessa Newton • Season 1 • Episode 14

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Nothing changed my relationship to my business more than implementing the Profit First model for business finances.

What makes it so radical? Well, it’s all based on paying yourself first. (Yes, really!)

Tune in to this episode to learn—

  • How Profit First works
  • Why it’s so important to pay yourself first
  • The magic of having five bank accounts
  • How to organize & use your accounts
  • Learning to look at & allocate your money

If you want to transform your business finances, I hope you’ll listen to this episode and share it with a friend!

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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 to our newsletter at braveandwell.com slash newsletter dash sign up. Thank you for listening. Music. Hey y'all. Welcome to another Brave and Well episode. Today, I'm gonna be talking about the profit first model. So if you heard my episode a couple of weeks ago, you heard me talk about the money aspect of private practice and things to consider, before starting a private practice, things to consider after you open and launch, et cetera. And so I had mentioned that I follow the profit first model, which is something that I didn't do initially. It was a book that was recommended to me kind of later on in my private practice journey. And so at about year three of being in private practice, right before I had launched into group practice, I started, I read the book and I started kind of implementing this model. And what I will tell you is that it has really changed the way that I look at my money, the way that I view money, the way that I plan for the future, but also plan for the immediate things, right? And so I want to talk a little bit about just what the profit first model is and, things to think about and resources that I want to share with you. So. So if you haven't read the book, read the book first. That's the first thing you should do. Buy the book on Amazon or wherever you buy your books, but grab that book. I also recommend getting a hard copy. I know that for a lot of people, we like to listen to books or use our Kindle, but this book actually is like a workbook. It's a really resourceful book. And so I think it would be helpful for you to have an actual hard copy so you can see a lot of the examples that he offers you. So anyway, read the book first, and I'll link it in the show notes, and I'll tell you kind of the whole idea around the profit first model is that Mike McCallowitz, who's the author, he talks about how you should pay yourself first, right? Like before you do anything, before you pay your expenses, before you pay your taxes, you pay yourself first, which is really hard to think about. You're probably thinking like, what the heck? I just started this business. How can I afford to pay myself first? And that's a really good point and a really good question. And what he says is, even if you're paying yourself a dollar or $5 a month, pay yourself something. When I think about when I started private practice, I didn't pay myself at the beginning. I had my three months of savings And I really leaned on that to cover my expenses and used every dollar that the business made to go back into the business, whether it was for resources, professional development, consultation with folks to help me make sure that I was building a business that had a strong foundation, and that was set up correctly, essentially. And so every dollar that I made went back into the business. And I wasn't paying myself anything. And so Mike talks a lot about how you're doing a lot of really important work. You're building this thing from nothing and you deserve to get paid. You deserve to get paid something and and I think paying yourself something whether It's a dollar, or five dollars, or 10 dollars a month. It shifts your mindset to understand that you are a resource in your business that is needed and you deserve to get paid and it gets you into the practice of paying yourself so that down the road as your business grows you eventually are paying yourself actually what you should be, right? And so that's the whole idea around profit first, right? Pay yourself first. And he talks about having five bank accounts. That's the whole idea behind this model. And a lot of people question like, how am I gonna open five business bank accounts or five bank accounts period without accruing service fees and bank fees and et cetera. I use Chase, I always have for my business. I bank with Chase for my personal bank accounts. So it just made sense for me to use Chase for my business bank accounts and I really love them. I've been with them for a long time. I actually started meeting with my business banker once a year, like at the beginning of the year. And so if you haven't established a relationship with your business banker, do that. Make sure you're checking in with them either once a year or twice a year to make sure that, You know, your money is right. You have the right bank accounts for the type of business you run and that you build a relationship in case you need support, in case you need a line of credit one day, in case you wanna open up a credit card one day, in case maybe you run into some hiccups or money trouble and you accrue a lot of fees or overdraft fees and you want them to cover those. I think we all are gonna have moments where. Periods of time are hard in our business and we're going to need that support. So establish a good relationship with your business banker and make sure that you're touching base with them as often as you can. So once you read the book, you understand this concept around paying yourself first and what that means and what the goal of this model is, is, then you're going to open up five bank accounts. Most of them are business accounts. And so each bank account serves a different purpose. One bank account is an income business revenue account. So this is the account that every single dollar that the business makes goes into the income account. I title mine business revenue. So I bank with Chase, I can go into my Chase account and label or rename each account, right? Versus it being the account number, I can rename it to be whatever I want it to be. And so your income account is where every dollar that's made for every service you provide is funneled directly to that account first. There. You disperse money into the other accounts to pay for different things. So your second account is your owner's pay. So this is the account where you pay yourself for all the hard work you've done. So for me, my owner's pay account is a personal checking account. Right. I mentioned before in the previous episode is that because I'm a PLC, because I'm an S Corp, I am an employee of my business. Therefore my business pays me a paycheck every two weeks by a salary that is determined by me and my CPA. And so every two weeks my income revenue account is, paying my owner's pay account a certain amount of money based on the salary that I've identified for myself that year. That's your second account. Your third account is your operating expenses. So this account pays for the overhead costs of the business. So depending on what your business expenses are every month, you want to make sure that a percentage of your income revenue account is going to your operating expenses account to cover the costs of the operating expenses of the business. Okay? Then your fourth account is your profit account. So this is essentially your quote unquote fun money. This is your profit account is really reserved if you want to take a sabbatical, if you want to invest money into a passion project that can generate passive income one day, if you You want to be up by a new couch for your office. If you're a group practice owner and you want to... Do a profit sharing model with your employees and and offer them a bonus. Um, so your profit account is essentially your savings. This is where you save money for. Different things, whatever your goals are. Um, so that's your profit account. And then your fifth bank account is your taxes account. This is where you pay your business taxes from taxes are the worst, but they're your reality. So you, want to make sure you're setting aside enough money to pay for your taxes, whether they be monthly, quarterly, whatever is recommended by your CPA and IRS. And so you this this account, basically houses that money that you don't touch. This money is not money that that is yours that you see, right based on what, tax bracket you fall under and what the income is of your business, there's a percentage of money that's going to be transferred, transferred from your income revenue account into your taxes account, to account for those those annual taxes. You don't want to get into a situation where you owe the IRS money. So if you set aside this money on a consistent basis, then it's not a surprise, right? When it comes tax time and you have to pay taxes, the money is already there. You don't have to think about it. So, you know, one of the things that will be helpful for you is to determine what is the percentage of the overall business revenue, that bank account number one, that goes into all four of the other accounts, okay? Based on the percentage of the business revenue that goes into those other accounts, you wanna create automatic transfers from your income revenue account to go into these other accounts, either on a weekly, biweekly, or monthly basis. But remember this, before you pay anything, pay yourself first. And identify a number that you don't talk yourself out of. Every dollar that the business makes is allocated in some way, right? So for example, this is how I do it. and I'm gonna share kind of how I manage this, but. My revenue account, okay, every day money is being dropped into our revenue account, whether it's payments from simple practice, you know, from client payments, whether it's payments from outside partnerships, we have paying for services provided, whether it's payments from insurance companies for claims, whether it's deposits from checks that we're receiving every single day, there's money that's coming into the business, at least for me. Now, based on that money, my CPA every month is running a report for me. He's running a profit and loss statement and a balance statement. And he's telling me, hey, Vanessa, for the month of January, your business earned $100,000. And so if I know the status of my business every single month, whoever's running those reports, whether it's you, whether it's simple practice, whether it's your CPA, he's saying, your business generated 100 grand, you spent 30 grand in operating expenses. That means whatever is left over, $70,000. That's a profit for that month, right? So the business made 100 grand in January, 30,000 of that went to operating expenses. How much of that is going to go towards my salary? How much of that is going to go towards taxes? How much of that is going to go towards my profit account. Once you understand how much your business is making and how much your business is costing you, you will understand how much needs to be put into these accounts on a weekly basis, monthly by monthly. I transfer money into these different accounts on a weekly basis. So every single Friday, because I generally know how much the business is making at any given time, I've estimated with my CPA support to allocate, for example, 10% for profit, 20% for taxes, et cetera. So every Friday, my business is making transfers automatically without me, because I've set it up, for money to be transferred automatically to my different accounts from my revenue accounts. They happen without me being in it. They're just automatic. So when it comes times to pay for things, the money's there. It's accounted for and it's in the appropriate bucket that it needs to be in for that particular expense. If you were to go to therapy for your money, I spoke on her podcast recently, it's Julie Ayers. She has a podcast called therapy for your money. She also, has her website. If you go to her website she has assessment tools and budget templates to help you understand how much you should be allocating in each of your bank accounts. And so if you are. She talks about like if you're a solo practice making under $250,000 a year, this is how much you should be allocating to these different accounts. If you're a medium group practice, making between $350,000 to a million a year, then you should be allocating this. If you are a $1 million plus practice, this is how much you should be allocating. So there are free resources, free templates. I would go there. Additionally, I have this exercise, this resource in my workbook, Laying the Foundation for Your Private Practice, which you can find at BraveAndWell.com. And even in the Profit First book, it kind of shows you like, depending on if your money he makes X dollars, this is how much you should be putting in these other accounts. It kind of shares those percentages with you, which is why I say buy the hard copy. But I wanted to share this because I think a couple things, it gives you breathing room to not have to worry about month to month, like, do I have enough? Did I save enough? How much am I gonna need? Oh no, I'm gonna have to dip into my savings Oh, I don't have enough to pay myself. So I'm not gonna pay myself. It really pushes you to identify every dollar and to give it a place, give it a purpose. I used to be so afraid of looking at my money. I never looked at my bank accounts ever because I was afraid of what I would see. Would I see a lot of money? Would I see no money? what I see that I'm like. Lacking something, I was terrified. And so now there's this model has given me the confidence, and the ability, like one of my practices every day, the first thing I do when I wake up, I open my bank accounts and I look, and I see what came in overnight, what went out overnight, what's the status of our financials? Are we in the red? Are we in the green? Do I need to like make a plan for what to do? But I look at my money every single day. And it's really empowering to feel like you have control over where the money is going. And you have control over how much you make. I mean, truly, I think when people ask me like, how did you create this workbook and these other offerings? Like, how did you make all that happen? How can you afford to like start a group practice and pay people to do leadership team tasks? How can you pay consultants? It's because of Profit First. It's because I started this process years ago and I started to put money into that profit account for my dreams and my goals. And I said, one day I wanna write a book, one day I wanna start a podcast, one day I wanna see less clients, One day I want to focus more on macro work and passion projects, but in order to do that, I'm gonna need help and I'm gonna need time, but I'm gonna need a savings. And so having this model has enabled me to save money over time that I can pour back into those passion projects and give myself some relief and flexibility. And so it's never too late to start this model. It's never too late to save for your dreams and goals. And your business doesn't have to be making thousands and millions of dollars to be able to save. You can save $10 a month to start with. The goal is to save something, to pay yourself something, and to eventually get to a place where you practice it more and more, and it becomes a consistent routine, that you make for yourself, but also that allows your business to grow and make a profit, you know? So. I just think I started very small, I started saving $5 a month, I think. And that just grew over time. And so I just think that this, whatever you do, right, whether it's profit first or something else, figure out a way to understand where your money is going, and what its purpose is. And when you can understand those things, paying for things, taking a sabbatical, buying yourself a new car or a new couch or giving your team a bonus doesn't feel as heavy, as maybe it does if you're just living dollar for dollar. So, those are my, that's my spiel on Profit First. That's kind of where I started, where I am now, and I will link these resources in the show notes for you. So happy calculating, and I wish you and your business lots of profit. Until next time, 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. If you enjoyed this episode, please subscribe, rate and review on your favorite podcast listening. Platform. Then send it to a friend. For free resources, special announcements, and discount code, subscribe to our newsletter at bravenwell.com forward slash newsletter sign up. Music.