Money Management: The 5 Bank Accounts Your Practice Should HaveJun 07, 2021
Money. The constant dance between how much we make and how much we spend. After all, Income - Expenses = Profit, right?
After 17 years in healthcare and owning my own practice, money was still the one thing that seemed difficult to get a grip on. We justify which bills to pay depending on how much we made in our private practice that month. Constantly checking the bank account balance daily, making sure our teams are paid and our overhead is met, so we can be left with enough crumbs to take home.
Why do we do this as business owners? We started a business because we wanted to be able to provide our own value on our own terms and be paid to do so! But we then start down the entrepreneurial path and that idea goes out the window REAL quick. We often hear the phrase, "pay yourself first." But, how? When I have rent for my space, equipment, utilities, CAM, staff salaries....
In this blog I'm going to share with you the 5 bank accounts that you should set up that will make your bank account balancing a thing of the past. Expenses and overhead for healthcare practices are unlike any other business out there and the majority of books on the topic of money management for businesses favor every other kind of business.
Here is the exact system I use to pay myself, create profit for my business, pay all my taxes, and cover the bills.
**Disclaimer: I'm not a financial advisor or accountant. I hire people to do those jobs for me and my business and I always suggest you do the same. What am I about to share is a system to for managing the money coming and going out of your practice.
You find the entire lay out in more depth in chapter 8 of my book. Purchase it at www.thehealthcareplaybook.com
The 5 Accounts:
- Revenue - this is where every dollar you make will go and you will move the money from this account into the other 4 each month. Traditionally this is the account that you do EVERYTHING with - pay bills, yourself, your taxes, etc.
- Expenses - %50 of the money in your income account will go here to pay the bills. Rent, utilities, equipment, salaries for your staff, stationary, etc. Some you may just want to make your current account your expense account and open a new "revenue" account as this account is already set up with all your payers for bills.
- Owner Salary - 30% of your revenue should be paying the owners each month. Yes, its your business and you should be taking the spoils.
- Taxes - 10% gets moved into the tax account. This will help you pay your taxes and avoid panicking at the last minute when they come due. If you are profitable you should be paying quarterly estimated taxes - talk to your accountant about this. At the end of the year if there is money left over in this account, guess who gets a bonus?!
- Profit - 10% should also go to creating a profitable business. This money gets spent once a quarter on growing the business. New marketing, new equipment, a second location, a new staff member, etc. It can also be used to crush debt or as a distribution to those who own the business. Check out the book to learn more about how to do this.
Some of you are probably thinking, "Yea right Daniel. My expenses account for 80% of business right now. There is no way I could do this."
I get it. I was once in the same boat as you and I will offer this piece of insight. As humans, if money is available we will spend it. Think about it, any time we get a raise at a job our first inclination is to take a vacation or move to a new bigger house or buy a new car. We increase our expenses based on our earnings rather than continuing to get by on what we were already making and use the increased earnings as an investment tool.
You must, as a business owner, learn to lower your expenses. It is time to learn how to get more resourceful with your money and your time. I'll bet you that If I gave $1000 or $5000 to accomplish a particular job, you could get the job done with either sum of money. One just requires a little more ingenuity.
These percentages are simply target percentages. Some of you in larger practices may have a larger than 50% overhead - I get it. The larger your practice the larger your overhead. This means the owners salary percentage will need to go down to compensate for this; however, this is not an excuse for you to make adjustments just because. If you are a solo practitioner or 2 person partnership, these numbers are pretty solid and you should be shooting for them.
Lastly, the best argument I get is the one for needing to bring more money in, which means bringing more patients in, which means I need more staff. But, do you? Or is that just what everyone else does?
Remember that whole paragraph earlier about using some ingenuity? Why are we not thinking about how to maximize revenue per patient instead of increasing the number of patients - another topic for another blog I guess.
Let me know your thoughts on this system in the comments and if you've seen any other money management systems for healthcare private practices work well for you!
'Til next time. Cheers!
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