Dr. Sharp: Hello, everyone. Welcome to The Testing Psychologist podcast, the podcast where we talk all about the business and practice of psychological and neuropsychological assessment. I’m your host, Dr. Jeremy Sharp, licensed psychologist, group practice owner, and private practice coach.
This episode is brought to you by PAR. PAR has recently released the Feifer Assessment of Childhood Trauma, or the FACT, the first and only comprehensive instrument measuring how stress and trauma can impact children in a school-based setting. You can learn more or purchase the FACT teacher form by visiting parinc.com\fact_teacher.
Hey, y’all. I am back with you today with another business episode. Today we are talking all about financial literacy and knowing your numbers. Today’s episode, like a lot of episodes, was inspired by some of the discussions in one of my recent mastermind groups.
During one of the hot seat sessions in this particular group, we got to talking about this whole topic, about financial literacy. So, understanding money, moving money around within your practice, profit, revenue, all sorts of things. We also got into talking about specific benchmarks for budgeting and targets that you should be shooting for within your practice to make sure that your practice is financially healthy.
I thought that I would share some of the key points on the podcast and expand a little bit on that discussion in the hopes that it would be helpful for the rest of you.
Now, at this point in time, I think there’s still a spot or two left in both the intermediate mastermind group and the beginner mastermind group. So if you’re in that beginning phase of launching your practice, and you would like some support with that and some guidance, we have a group for you. Likewise, if you are a solo practitioner who has mastered the beginning phase, but you’re feeling overwhelmed and you need better systems and maybe want to hire an admin person or train an admin a little bit better, the intermediate group could be a great fit for you.
So these are group coaching experiences. There’s lots of accountability. There’s homework. There is guidance. There is support. And they are pretty awesome. If that sounds interesting to you, you can go to thetestingpsychologist.com/consulting and book a pre-group call to see if it’s a good fit.
All right, let’s jump to this discussion about finances.
Okay, y’all. This will be a pretty short and sweet episode. If you’ve been listening to the podcast for any amount of time, you know that I’ve had a number of financial folks on the podcast. I’ve had accountants. I’ve had financial planners. I’ve had Tiffany McClain talking all about the money mindset.
So we’ve talked about money before, but just recently, I started working with a new accountant over the last six months or so, and they have shared some really helpful information that has never really been articulated at least to me in the context of accounting for my practice.
My new accountant is Green Oak accounting. Shout out to Green Oak. There’s a link to them in the show notes. I don’t have any sort of affiliate relationship with them or anything like that, but Green Oak has done a great job at helping me get an understanding of the benchmarks that I should be shooting for within the practice. So, I’ll get to that here in just a little bit.
First, I want to do a little bit of an introduction just around what this all means, what I mean by financial literacy, some terms, and some ideas that I’ve run into in my own practice that I wonder if they might resonate with you as well.
The main idea is that for many of us money is either scary or at best unfamiliar to most of us. We do not learn much about money management in grad school unless you had the foresight to take a business class at some point. And so, most of us get thrown into the situation of being a great clinician and starting a practice because we want to be in private practice, but then not having a great idea of different aspects of running the business and money or finances or budgeting or accounting is a big part of running a business.
A little statistic that I found is that 40% of small business owners said that they are financially illiterate. So almost half of the small business owners would say they’re financially illiterate, yet 80% are doing their own books and finances. That’s not good.
If you are in that camp, don’t despair. That’s okay. That’s what this episode is about. And there are plenty of resources out there to help you. I know that I personally was in that boat for at least the first 5 or 6 years of our practice. I was doing the books “not well.” I was doing all the accounting. I was doing my own taxes. I was doing all the budgeting. And when I say doing, I mean scraping by and messing up and not actually doing a great job.
I think that’s super tempting when you just start out because you don’t want to pay for it. And it seems easy. That’s understandable, but if that’s happening for you, just know that you’re not alone. There are a bunch of small business owners out there who are again, financially illiterate.
So here’s what we do. I mean, what do we do as psychologists when something is uncomfortable or scary? Well, we confront that fear because we know avoiding makes it stronger and we’ve got to cut through that avoidance. We got to get comfortable with money.
If you get to the point in your practice eventually where you don’t have to look at your numbers and you just read the reports that come back from your accountant or your bookkeeper, that’s fantastic. Likewise, if you are totally financially literate and you’re super comfortable with money and you have no work or no avoidance around that, then this is not a big deal. You can totally avoid it. You can just let it ride and not make the soup overly complicated.
However, if you are one of the folks like myself who has or had a lot of avoidance around money and it’s scary and you’re not sure what to do with it, it’s great when you have it, it’s the worst thing in the world when you don’t, if any of those things resonate, then you got to approach it. That’s what I’ve found in my experience has been super helpful. So, forcing myself to learn more about the numbers. Talk with my accountant, look at the books even when I feel scared. You got to go and face it.
So, that’s dipping my toe into a small amount of therapy for some of you, but on totally my own experience. But let’s talk about some terms. I’ll just talk about two terms and then give a few benchmarks and then we’ll wrap up. So terms.
Gross Revenue. This is top line. You might hear the term top line revenue. This is just everything you bring in before expenses. For most of us that is client payments. So it’s just everything. It’s all the money that you bring in before your expenses. That’s the top line.
Your net income which is typically equivalent to profit is what’s left after you take away the expenses. So, gross revenue minus expenses, that is your profit. Sometimes people call this the bottom line.
A bookkeeper is an individual who makes your finances make sense. So a bookkeeper goes into your accounts. They reconcile all of the accounts. If you use financial software like QuickBooks or some kind of accounting software, the bookkeeper will go in and make sure that everything makes sense. All the math adds up. So they do the numbers. They look through and make sure all the numbers make sense. Your expenses match your credit card statement, and your profit matches revenue minus expenses. They just make all the numbers make sense. They live in QuickBooks or your accounting software and balancing the books if you’ve heard that, or kind of like balancing your checkbook way back when we had checkbooks.
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All right, let’s get back to the podcast.
An accountant is an individual who takes the information from the bookkeeper and then typically files your taxes. That’s primarily what an accountant does. Some accountants, like my own, like Green Oak, offer more services that dip into the realm of financial planning, or even like external CFO services where they’re really looking at the numbers, they’re diving deep, they’re helping you plan for expenditures. They’re budgeting for your practice. They can do a lot, but at the core, an accountant is going to file your taxes, which is important as you might’ve known.
Lastly, financial planner. I had Ariel Ward on the podcast a few months ago. She’s a financial planner. So financial planners really help you figure out where to put your money in terms of retirement savings, investments, things like that.
Okay, so let’s talk about some benchmarks. And again, this comes straight from the folks at Green Oak. I imagine that these numbers may vary a little bit depending on who you talk to, but I’m going to give you a little bit of a range. So when you think about where the money in your practice should go, these are some things to shoot for:
Payroll, which includes your own salary or your own compensation but also includes any clinical staff you might have. It does not include any admin staff. So we’ll hold that for a second. But your payroll is by far the largest expenditure within your budget. And that’s going to account for anywhere from say 53% to 60% of your budget goes to payroll and paying your folks, including yourself.
Your admin staff should eat up about 5% to 7% of your budget. So let me go back. Admin staff, that includes: receptionist, billing staff, anyone, any non-clinical staff. Rent, I talked about briefly in a podcast a little bit ago, I think in finding office space a couple of months ago. I ballparked that a little bit high and said, if you’re around 10%, you’re good. My accounting folks say 6 to 7% is more of a target to shoot for. So if you make, let’s say $100,000 a year, about $7000 of that should go to rent, or if you want to make it easy, $6000 goes to rent. That’s about $500 a month.
Let’s see. Other overhead. For us, this would include things like testing expenses, furniture, computers, iPads, and so on and so forth. Other overheads should comprise about 10 to 12% of your revenue.
And then lastly, the profit in your practice should fall, especially if you’re smaller, should fall around 15% to 20%. So profit is what is left over after all expenses, everything’s said and done, including payroll. This is just the profit from the business. This is the free and clear money that you can do whatever you would want with. So, that’s where we’re at. And then that’s where you pay taxes from. So you pay taxes on your net profit.
Okay. So what if you are listening to these benchmarks and you’re not there? Well, that is totally okay. Full disclosure. Our practice is not right there in those ideal ranges for each of those categories. That’s something to work toward. It fluctuates month to month a little bit. So that’s totally okay. There have been a few times, I can think of two times right off the top of my head here in the practice when I was extremely concerned about money. Every time it was because I just wasn’t paying attention and had avoided the financial reality within the practice.
And then as soon as I got it together and faced that fear, things always got a lot better. I’ve said on the podcast many times that a lot of anxiety can be solved with math and that has always been true in my case. So if you are someone who tends to avoid finances in your practice, doesn’t like to talk about it, doesn’t like to look at them, this is a call for accountability to turn that around and get some folks on your team who can help you with the financial part and just generally, stop avoiding it.
There are all sorts of reasons we might do that and that’s outside the scope of this podcast, but I know that money is powerful and there are so many emotions tied up in money, but this is, like I said, a quick and easy, kind of scratching the surface discussion around money, some benchmarks for your practice. Some things to think about.
There are folks out there who can definitely help. There are the financial folks, but then there are also financial therapists. There are people that do work on a money mindset. So there are lots of resources out there if you would like to get some support. So, don’t hesitate to do it.
If you want to take things into your own hands, you can always take a class on small business finance. That’s easy. You could take an accounting class just to get more comfortable, more familiar, do a little exposure around finances. There are tons of podcasts out there. I’ll give another shout-out to my friend, Tiffany McClain, who has a podcast called the money sessions, where she talks to therapists all about money mindset and rates and fees and wrapping your head around the money. So, lots of resources out there. Don’t despair. If you are struggling with money, it happens, but it’s totally doable to jump in there and turn things around.
So I hope this was helpful for some of you. Even talking about this for me is a little bit therapeutic, because like I said, I’m an avoider when it comes to money. So, it’s just all part of the process of facing that fear.
Like I said at the beginning, if you would like some support in the beginning stages of your practice or in that sort of messy middle stage of your practice after you’ve gotten past the beginning, The Beginner Practice and Intermediate Practice Mastermind Groups are open at the moment. They both start in mid-November. I think there’s a spot left in each. So you can schedule a pre-group call at thetestingpsychologist.com/consulting and we’ll see if it’s a good fit.
Otherwise, I hope everyone is doing well. And I will catch you next time.
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