Profit First has been making waves in the private practice community, and group practice owners are finding it especially helpful in understanding, organizing, planning for and managing their finances.
After excitedly reading the book and feeling all in on being a Profit First follower, many of us were struck with all these obstacles that left us overwhelmed and deflated. I’ve been doing Profit First for 1 year this month. I feel like I have made every mistake that can be made, changed my allocations literally each month since I started (including this month-though, fingers crossed that I am FINALLY done with making changes). Even my financial planner and a Profit First Professional I hired said s.t.o.p. you have it right, but alas, I continue to find things I didn’t consider. I thought it would be fun (?) to chronical some of the things I learned that group practice owners may not realize or consider when setting their own Profit First accounts up.
Credit card fees.
Chances are you take credit card in your group practice. Unless you use something like Paypal, which pays you less their fee (so if you charge $20, you actually get only $19.xx), you likely receive your whole amount charged to clients, and then are charged a separate fee by the credit card processing company, which now means that you have to account for that as an operating expense. UGH. Can I tell you, it took me a few months to realize that?
If you offer incentives that are calculated in with payroll (like health insurance or retirement matching), remember to include the amount that the clinicians actually pay too, to your TOTAL payroll cost. Even though you as the employer don’t pay for it. Why? Because you likely pay a separate transaction to the health insurance company or retirement company, which includes the portion that the employees pay themselves. Sort of a similar scenario to point #1 in that even though you aren’t technically paying for the employee’s portion (let’s say you do 2% retirement matching and your employees also contribute 2%) you are still paying a bill of your 2% AND THEIR 2%. I underestimated payroll for months because of this. Oops.
Be sure to use your bank account (not your EHR revenue report) for your Profit First income amount. And don’t drive yourself crazy trying to have them match by the dollar. I realized much later that my EHR is more accurate, too accurate actually, with revenue. What I mean is that insurance companies notify us that a payment has been made and it gets applied into our EHR automatically, but the insurance EFT is still in transit to our bank account. Which means you may be short when you do allocations. Or if you don’t go to the bank and deposit cash/checks before you do allocations, but you already applied it in your EHR, you will have varying income reports between your EHR and bank account. Follow your bank account.
Technically your “reasonable salary” in payroll for yourself should be included in your owners comp. For some time, I looked at owner’s comp as distribution (for S-Corp-ers you know what this is). Well, it’s a PITA because your paycheck is included in overall payroll, which means you have to manually separate your payroll amount and subtract that amount from your total owners comp amount to accurately reflect owners comp total. Or you can do what I do now, which is say F-it and my payroll amount stays in payroll and my owners comp is an amount to give myself in addition to payroll. Problem solved (the author, Mike may not like it thoughJ).
Fixed payroll mixed with variable payroll.
Can I tell you that this has been the biggest pain out of it all to figure out? I pay a percentage to my employees, which makes it SUPER easy to calculate payroll percentage in PF (I have a separate PF account for payroll separate from operating expenses because my payroll is so high). Well, I have admin at fixed costs, which means the more I make, the lower the percent their cost is, and if my business makes a lot less one month, the percent I have to allocate to their costs goes up. I have since decided, after talking to a PFP, that all my payroll costs go BEFORE the real revenue (SUBS category). This has made my life so much easier. No more changing percentages every time I grow.
If you have a separate workers comp bill, you’re likely in the clear and have that in your operating expenses list. Mine gets taken out with payroll, but as a separate transaction, and I forgot to account for that. Secondly, since it comes out of the payroll company for me, it gets taken out of my payroll account (at this point Intuit and Gusto don’t allow multiple checking accounts on their file) so I have to remember to increase my payroll amount to include that-so just looking at your payroll total cost report may not reflect this.
Phew. After a year of doing PF I truly feel like although I’ve wanted to bury my head in the sand and go back to my old ways of spending whenever and however (I have always luckily been a frugal spender) I can honestly say that I have never been so aware of my business finances. Have any PF blunders yourself? Tell me about it!
*Need a good EHR for your group practice? TherapyNotes is it. I’ve been using it for years in my own group practice, and it does really well when it comes to having the features group practice owners need. Try it out for FREE for 2 months by clicking here.
* I am an affiliate for some of the businesses I recommend. These are companies that I use in my own group practice, and make recommendations based off of my experience with them. When you use some of these companies through my links, I receive compensation, which helps me continue to offer great free information on my podcast, blog, Facebook group, and website.