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[00:00:00] 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 podcast is brought to you by PAR.

PAR offers three co-normed tests to assess memory in youth: the ChAMP, the MEMRY, and the MVP. Used together, they provide comprehensive information about memory and performance validity. Learn more at parinc.com\memry.

Hey everyone. In the next two business episodes, we’ll focus on finances. The topic of finances comes up often in my consulting and it runs the gamut between folks who have little to no awareness of their numbers and those who are pretty financially savvy. So, today I’m diving into the basics- what numbers matter?

[00:01:00] If you’re a practice owner and you would like to dive deeper into finances and get some support with that, one of my mastermind groups might be appropriate. There are groups for every stage of practice, beginner, intermediate, and advanced. I lead all of the groups and there’s plenty of coaching, accountability, homework, and goal setting. They’re great. If you want to sign up for a pre-group call and see if it’s a good fit, you can go to thetestingpsychologist.com/consulting.

Okay. Let’s talk about finances.

Finances are such a loaded topic. For me, personally, [00:02:00] I’ve told the story and talked with guests about my own journey with financial literacy. I grew up in a family that didn’t talk about money literally at all, like none except for conversations with my dad when I was in my 20s when he shared very obliquely his fear of running out of money in retirement due to my mother’s chronic illness. So, that’s all I got and that’s what I carried into private practice. As long as I had “enough money” that was not well defined or defined at all, I didn’t pay attention to it.

The irony is that I’ve lost a lot of money over the years by taking this head-in-the-sand approach. So don’t ignore your money is the moral of the story. [00:03:00] But that’s what this podcast is about.

If you have any fear around finances, that is totally normal. If there’s a shame, that’s totally normal. If there’s confusion, that’s totally normal. It’s totally normal. There are lots of good folks out there to help get more financially literate. Tiffany McLean is fantastic. She’s been on the podcast before. Jennie from Simple Profit is a great resource as well. She talks a lot about finances for mental health folks. So lots of resources out there.

Let’s get to the message here.

The podcast title is what numbers are important to track. Well, it’s a misleading title because there is only one number that matters in your practice. And that number is profit. [00:04:00] So what is profit? I’m sure somebody out there is like, what is profit? Let’s define that.

Profit is, essentially, income minus expenses. In a very simple example, if you gross $150,000 in a year and you spend $120,000 that year on rent, overhead, furniture, EHR, and testing materials, then your profit is $150,000 – $120,000. So you have $30,000 in profit. It’s the money left over after you pay all of your bills and everything else.

Quick side note, Mike Michalowicz of Profit First, a book about business finances, would say that it should be the other way around. That is, expenses should equal income minus profit. Do you get that? He is saying, you [00:05:00] should set aside your profit first, and then fit your expenses into whatever is left over. I like that philosophy. It is harder to implement in real life, but if you want to learn more about that, check out Profit First.

Today, we’re going to keep it very simple and use the traditional definition of income minus expenses.

You might be saying, why is this the most important number?

Well, because it is truly the lifeblood of your practice. Without profit, you have no flexibility or freedom to do anything. Without extra money, you can’t pay yourself, which is pretty important. I’m guessing that most of you would like to make money and have a salary, even if you don’t call it that in private practice. Otherwise, you could go work for your local [00:06:00] hospital or university or nonprofit.

Without any kind of profit, you also can’t save money for say a bigger office suite if you want to grow, you don’t have money for new testing materials, and you don’t have a cushion to take time off. You don’t have an emergency fund.

Profit is the only thing that matters. Profit equals security in your practice. So if you look at your numbers and you don’t have any money left over after you pay your expenses, that’s a big problem. That’s the only number you need to be paying attention to, at least in the beginning.

Let’s take a break to hear from our featured partner.

When you’re assessing memory in children and adolescents, remember these three assessment tools from PAR. The ChAMP, the MEMRY, and the MVP. These measures were developed specifically for use with children, adolescents, and young adults. Used [00:07:00] together, the three instruments which are co-normed, provide you with comprehensive information about memory and performance validity. Learn more at parinc.com\memry.

All right, let’s get back to the podcast.

So how do you find it? How do you know if you have any profit?

Well, bookkeeping software is pretty key. I use QuickBooks, but there are plenty of other options. If you don’t know how to manipulate or work within accounting software, that’s fine. It’s relatively easy but can get complicated pretty quickly once you get past the basics.

If you don’t know how to manipulate those numbers and work through the software, then just hire a bookkeeper. It’ll be one of the best investments you can make. For a solo practice, a bookkeeper is going to run maybe $50 to $100 a month, even for a [00:08:00] practice as large mine, which now has over 40 employees, our bookkeeping is only $500 a month. So, a very small percentage of your income should be dedicated to bookkeeping. 

A bookkeeper is someone who goes through all of your expenses and all of your income each month, categorizes them in your accounting software, and then gives you a report at the end of each month that details what you made and what you spent. And guess what? Profit is one of the key numbers on that report. That’s the short version of how you find your profit.

All bookkeeping software will run a profit and loss report that shows everything I just mentioned. You can also run a report that shows profit as a percentage of income. This is what I really like. So absolute numbers don’t do that much for me because they can vary so much from practice to practice.

[00:09:00] If I’m talking with two practices and they both have $50,000 in profit, well, if the first practice grossed $100,000 and $50,000 of that was profit, that’s amazing. That’s a 50% profit margin. But if the second practice I talked to is a $5 million practice and they had $50,000 in profit, that is terrible. That is 1%. That’s not good. So absolute numbers like that don’t make a big difference to me. I want to know the percentage of your income that comes out as profit.

So for solo practices, your profit could range anywhere from 30% to 60% because our expenses are typically very low in the beginning. You typically have rent and maybe your EHR, some testing materials. There’s not a lot that you have to pay for in the beginning. So 30% to 60% [00:10:00] is pretty good. So again, if you’re grossing $100,000 in a year and $30,000 to $60,000 of that is profit, that’s great.

Now, as you grow, profit tends to go down at least as a percentage of your income. So larger practices, i.e, more than 20 employees can be anywhere from 10% to 25%. A medium-sized practice, that’d be like 5 to 15 employees, something like that is more in the middle, like 15% to maybe 35% percent on the very high end. So, it ranges depending on your stage of development as a practice.

I will say this though, profit is important, but you don’t want to sweat your profit numbers too hard. The times to be concerned are when there is no profit because that likely means you aren’t paying yourself at all [00:11:00] or if profit is consistently going down, independent of your practice growing. You want your profit to grow as your practice grows- at least the absolute number.

In the next episode, we will talk in more detail about other numbers to watch and how to increase profits in testing practices.

All right, y’all. Thank you so much for tuning into this episode. Always grateful to have you here. I hope that you take away some information that you can implement in your practice and your life. Any resources that we mentioned during the episode will be listed in the show notes. So make sure to check those out.

If you like what you hear on the podcast, I would be so grateful if you left a review on iTunes or Spotify or wherever you listen to your podcasts.

If you’re a practice owner or aspiring practice owner, I’d invite you to check out The Testing [00:12:00] Psychologist Mastermind groups. I have mastermind groups at every stage of practice development, beginner, intermediate, and advanced. We have homework, we have accountability, we have support, and we have resources. These groups are amazing. We do a lot of work and a lot of connecting. If that sounds interesting to you, you can check out the details at thetestingpsychologist.com/consulting. You can sign up for a pre-group phone call and we will chat and figure out if a group could be a good fit for you.

Thanks so much.

The information contained in this podcast and on The Testing Psychologist website is intended for informational and educational purposes only. [00:13:00] Nothing in this podcast or on the website is intended to be a substitute for professional, psychological, psychiatric, or medical advice diagnosis, or treatment.

Please note that no doctor-patient relationship is formed here, and similarly, no supervisory or consultative relationship is formed between the host or guests of this podcast and listeners of this podcast. If you need the qualified advice of any mental health practitioner or medical provider, please seek one in your area. Similarly, if you need supervision on clinical matters, please find a supervisor with expertise that fits your needs.

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