Part of my responsibility as a Financial Advisor is to observe and communicate what successful actions you as a private practice professional can do to ensure your financial future is certain and secure. The first step on your journey to obtain Financial Power is to Pay Yourself First!
You may ask yourself how to pay yourself in private practice first and this article will answer that question for you as a practice owner. Many a private practice owner has heard about “Profit First” and while we originally wrote this article before the wild popularity of that book this is a concept that we do agree with. A business owner needs to understand the below information to have an impact on your personal income and wealth.
The ability for you to be able to transfer a portion of your practice income each week and save it into some kind of Wealth Savings Plan is a staple of the Econologics Road Map ® Results-Based Financial Plan ® for Professionals. It is one of the most successful financial actions you can do to ensure the PROTECTION of the household and the business.
I have never met a private practice professional who has said to me that being able to retain the first 10% of the weekly collected gross income for the benefit of the owner is a bad thing. I know everyone aspires to do this. So why is it that 90% or more of professionals are unable to perform this most basic action?
Here are the most common examples of standard excuses I hear from small business owners:
- Too much overhead business expense.
- Not enough profit margin in our industry to allow for it.
- Accountant said it could red flag for an audit (fire that guy by the way).
- I have too much debt and bills to pay back.
- Payroll is too high for me to do it.
- Insurance companies pay us too slow and reimbursements are declining.
- Economy is bad and I don’t have enough patients coming in.
- And on… and on… and on… and on!
Does this strike a chord? Care to know the REAL reason why you don’t do it? Simple. It’s your current viewpoint. You are not treating the transfer of 10% of your weekly collected gross income as a required expense for the operation of your business. Yes, I said REQUIRED. So shift that viewpoint. Almost all professionals I work with make enough in their business to cover basic expenses: payroll, rent, taxes, materials, etc. Very few of private practice professionals are so insolvent where the business doesn’t cover at least these basic expenses. Until you see this as a REQUIRED expense which needs to be paid each week, it will never consistently stay in.
I can tell you the reason why some have been able to CONSISTENTLY reach the goal of taking their 10% of weekly gross income: They set up a weekly automatic payment which they gradiently increase each month and they make it part of the operating expenses of the business and therefore make it the responsibility of the business to cover this expense each and every week.
95% of those who THEMSELVES tried to go in each week and pay this 10% eventually stopped this payment. The point is that MANY (not all) of you will not be able to consistently go in and physically transfer this 10% of the weekly gross income. You see the books, you know what bills are coming up, and you will have some reason why you can’t do it. I KNOW, because I have seen it over 200 times. YOU MUST SET THIS UP AS AN AUTOMATIC DRAFT EACH WEEK WHICH YOU FORGET ABOUT AND MAKE IT THE RESPONSIBILITY OF THE BUSINESS TO COVER THE EXPENSE.
As a small business owner in private practice, it’s absolutely vital that even as you pay yourself first, you make sure your business structure is set up correctly. The reason for this is that you must protect yourself from various downsides. So whether you set up as a sole proprietorship, s corp, LLC or whatever your attorney recommends, we do recommend setting up profit distributions or salary that goes to you before anything else. This money should be considered sacred. Just as if you never considered not making payroll, so should you ensure that you never fail to pay yourself first.