The Therapy Business Podcast
We know how challenging growing a therapy practice can be, and don’t think it should require an accounting degree just to run your business. If you own a solo or a group practice, we’re here to help you build a business that creates more time, makes more money and serves more people.
The Therapy Business Podcast
Breaking Down Your Take-Home Pay: Financial Targets for Practice Owners
Understanding what percentage of revenue to take home as a therapy practice owner is crucial for building a sustainable business that supports your lifestyle and goals. We guide you through payment targets based on your practice size, helping you create financial clarity and direction.
Take our free assessment at quiz.craigdacy.com to discover your ideal compensation structure and schedule a free call with our coaches to develop a custom financial plan for your practice.
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*Intro/outro song credit:
King Around Here by Alex Grohl
A common question we get when working with a new client is how much should I be paying myself? How much should I realistically be seeing in profitability inside of my practice? Well, today I'm gonna guide you through some targets that you can aim for, depending on the size of your business and what you should be seeing as far as your take-home pay and profitability. My name is Craig and I'm the owner of Daisy Financial Coaching. Our team is on a mission to make your therapy practice permanently profitable. If you own a solo or group practice, we're here to help you build a business that creates more time, makes more money and serves more people. This is the Therapy Business Podcast.
Speaker 1:We've always been firm believers that you are your most valuable employee. You are the business owner. For whatever reasons you decided to start a business, most of the time, what we see is that it revolves around two things, and that's to have a freedom of time and to have control over your income and what you make. And yet, oftentimes, oftentimes, we find ourselves, as you likely know, making less than we thought we would or less than we want to, and working longer hours than we thought would be ideal, and it's taking us away from the things we want to do. This is a trap we all fall into. And then, all of a sudden, we're wondering how can I increase my pay? Am I taking home what I should be? Am I even where I'm supposed to be right now? Am I taking home what I should be? Am I even where I'm supposed to be right now? My way off the mark? And that fog, that not knowing, can really be overwhelming, and it just leaves us moving forward without direction. And so we are big believers in knowing what you should be taking home. This business should be supporting you financially, and so, starting with how much should you be paying yourself? And then building the business around that, and that's what's going to help you grow in a financially healthy way.
Speaker 1:Because, let's face it, if you are a $200,000 a year practice right now and you're struggling to pay yourself, when you reach a million dollars, it's not going to be any easier to pay yourself, because as you grow, expenses grow. You're going to need a team, you're going to have payroll, you're going to have other things coming in. The systems and softwares you're using now likely won't work for the bigger team. I'm discovering that now myself, that the softwares we have used to manage internally. They're not working now that we have a team that's growing. Maybe it worked when it was just me and an admin, but now that we have a full team of coaches, we're slowly having to ramp up our softwares, and that costs more. So, as you grow, more expenses are introduced and it becomes harder and harder to pay yourself. So let's dig in and talk about I'm going to go through four key, what we call buckets targets that you're aiming for to pay yourself.
Speaker 1:Now, before I dig into those, though, I want to talk about the difference between profit and owner's pay. So owner's pay is your salary for doing the work. This is the salary your business is paying you for seeing clients, for doing the marketing, for managing a team, managing softwares, whatever it is inside the business that you are showing up and doing. That's what owner's pay is all about. It's making sure that you're compensated for the time and energy you're putting into the business.
Speaker 1:I always like to say separate yourself from the business. Pretend that your business came and hired you as the CEO, hired you as a clinician, and that is your role. Or hired you as a physical therapist. Whatever type of business you have, that's your job. So separate that. A lot of times we just get so intertwined because it's our business, it's our baby, it is part of our identity. It's hard to separate that. But when it comes to the finances and it comes to scaling, I think it's vital that we separate ourselves from it and treat ourselves with that level of respect, like if you went and applied for a job. So your business is paying you owner's pay. That's again, that's your salary for the day-to-day work you're doing.
Speaker 1:Then we have profit. Profit is what you get for taking the risk of starting this business. This is your reward for putting it all on the line. For whether you quit your nine to five to start this, whether you took time to ramp it up slowly or you just jumped in feet first hoping for the best, there's so many levels and degrees, but all of it boils down to risk that you took to do this. This is no different than if you were to start another company or if you were to invest in a company. You're taking risk. If you're on the Shark Tank panel and you're investing in one of the companies that walks in, you are taking risk and therefore you are receiving a percentage of the profits. That's what we are talking about, when we're talking about profit being paid out to you.
Speaker 1:Now, we are big believers and we have a bunch of podcasts. In fact, if you go back to episode two, we talk about the profit first system, which is designed to pay you profit, not just at the bottom of a spreadsheet at the end of the year when you get ready to file taxes, it is literally money in a bank account that's paying out quarterly bonuses. So if you're not familiar with that or that sounds enticing to you, I recommend going back to episode two and listening to that as we walk you through how to set up a system in your business to do that. Now I want to talk about the four key targets, the four key buckets that we are looking for. This is a percentage of your revenue that is probably going to be ideal for you to be one taking home as owner's pay and two taking home in profit.
Speaker 1:Now let me give this caveat that every business is different, okay, so this is a general rule of thumb. Every business is different. Every therapy practice is different. Every physical therapy practice is different, so know that while we're aiming for these, a lot of different things can come into play, so we want to make sure that we know that your situation might be a little bit unique, however, without talking to you personally and giving you exact advice, when we work with clients, we usually deviate a little bit from our target percentages. Once we get to know who they are, what their goals are, what their expenses are, what they're dealing with, then we can customize these plans. But I think having General targets is still fantastic and if you're aiming for these, you're gonna be in a tremendously better place than most practices are out there.
Speaker 1:Let's start with the first bucket Now. This is for any business making between zero and $250,000 a year. So if you're making under $250,000 a year, I recommend aiming for 50% being your owner's pay. So that means half of what you're making you're taking home as a salary. Now salaries to be regular. We want them to be paying you out, whether it's bi-weekly, weekly, monthly, paying you on a regular rhythm and a consistent amount. But about 50% of your annual revenue is what you should be taking home. So if you're making $100,000 a year, $50,000 a year salary is what would be ideal.
Speaker 1:Now again, everybody's a little bit different and so in those early years so, for example, for me, when I first started my business and I was making less than $100,000, when I quit my job teaching, when I left education to launch this business full-time, I had to take home about 70% in order for me to make ends meet. Now, my expenses were low. It was just me. I didn't have an office. I had a few expenses here and there. Maybe a few hundred dollars a month was what my overhead expenses were. So I was able to make it work on about 70% as I grew. So I was able to make it work on about 70% as I grew, I slowly brought that percentage down and started aiming for 50%. So just know wherever you are. Today doesn't have to be. I'm not saying today go out and start taking home 50% of your money. I don't know if you can afford to do that. You might need to take home more. So figuring out where you are now and then slowly aiming for this I know it's weird to say I took my percentage down by 20%. That doesn't mean I took a pay cut. That just meant as my revenue increased, I slowly decreased the percentage I was taking home. I do this so that I have money for growth. So I'm allocating more percentage points to operating expenses.
Speaker 1:Now a lot of you listening may be thrilled as a solopreneur, maybe you're making $150,000 a year in revenue and you're like I don't want to hire a team, I'm just happy doing the work, seeing patients, seeing clients, and this is where I am, and so that's again boils back to maybe your percentage is always going to be heavier on the owner's pay side because you're not trying to scale, you don't want money for marketing. You're seeing as many clients as you want. You got enough clients coming in to support that, and so you may be happy with taking more home, and that might be the best route for you. Again, in general, we're aiming for 50% take-home pay. Now, on the other side of this, it's what we call the 55 split. So 50% for take-home pay and then 5% going into profit. We recommend having an account nicknamed Profit and 5% of everything you make goes into that account. Now, this goes across the board for all of these, but at the end of the quarter you can take what's in that account. We usually say take about half of it home as a bonus, as a reward to you for being the business owner, and the other half can stay for savings, retained earnings, giving you a emergency fund cash reserve in the business.
Speaker 1:Once you hit that $250,000 mark, your needs are gonna change. So if they haven't already, if you haven't already started hiring a few team members, you're gonna be at that place where you are, you're going to start hiring people. They're going to start taking work off your plate. They're going to start taking over some of the day-to-day work that you've been doing from your plate. We're going to start decreasing your salary percentage, your owner's pay percentage, and increasing your profit percentage. We want you to shift more into that business owner role slowly and be compensated as a business owner, and less for the day-to-day work you're doing. So as we move into that $250,000 range, this next range is from $250,000 to $500,000. So when you're in that $250,000 to $500,000 range, we recommend a 35-10 split. This is 35% of what you're making going home to you in salary and 10% going into that profit account.
Speaker 1:Now, same thing as I said earlier, where I don't expect you tomorrow to start paying yourself 50% as you approach $250,000, it's not, you're paying yourself half of 250 and the day you hit $250,001, now you're like, okay, we're cutting our pay down to 35%. It's gradual. We never want you to suddenly take a pay cut in your business. It's just like what I was saying earlier when I was taking it from 70% down to 50. As revenue grows, when you hit 250, usually as you're going up from 250 to 300, you're just slowly bringing that percentage down. You're slowly you're going to take home the same amount, but if you're taking home 100,000, that 100,000 compared to 250 and then compared to 300 is a smaller percentage. If you kind of get what I'm saying. As your revenue is going up, your percentage is naturally going to go down and we're going to start allocating more to profit. So, from $250,000 to $500,000, 35% owner's pay, 10% profit is what we recommend.
Speaker 1:Now, as you move on and going back to this, so you may notice, 55, 50 and 5 is 55% total, 35 and 10 is only 45% total. So why are we taking homes less, 10% less between profit and owner's pay? That goes back to as you're scaling, you're going to need team members, which means you're going to need more money for operating expenses. As you grow, you're going to need more for overhead, for team, for payroll, and so we want to be mindful of that and allocate more percentage points to that and that will show up as we reach this next bucket. So this is the $500,000 to a million dollar business. So if you pass that $500,000 threshold up to a million dollars, we recommend a 2015 split. So 20% coming home to you as the business owner, 15% going into profit. Once again, you'll notice that's 35% total, which means we have an extra 10% going toward operating expenses, giving you more money to grow your team, to do all the things you need to do Now.
Speaker 1:At this point, you may be funneling money into paid advertising. There may be a lot of different things that you are doing financially in order to scale and grow. Usually, when you're in that first tier that 55, it's slow growth, right, it's a lot more organic. It's less cash being funneled into ads and into different growth mechanisms. It's you kind of boots to the ground, hitting the pavement, getting clients doing what you can. Now, as we scale and grow, we have more cash and your time is probably more valuable at this point, and so this is usually where we see businesses starting to turn around and reinvest up some of their expenses into advertising, into marketing and into scaling.
Speaker 1:So a 2015 split is 20% going home to you as the business owner, 15% going home or going into that profit account. So you can see the shift here happening 20%. So when you hit that 500K mark, 20% is going to be about $100,000, right? So that means we're keeping you around 100. And then when you get closer to that million dollar mark, that's about 200k coming home to you in salary. So just keep it in mind usually in those first three buckets we're trying to keep you around 100k coming home. And then once you hit the scaling part, that's where the real money gets to come home. That is salary talk, right? So I'm not even talking about the 5%, 10%, 15% that you're taking into profit. So bear that in mind that we may say and when you get to the 2015, you're taking home 100K in salary, but also 15% of it is going into profit and you're taking that home as well. So that's gonna probably be. I don't have a calculator in front of me, but let's just say another 25, 30,000 coming home to you on top of that in bonuses, all right.
Speaker 1:Lastly, a million dollars, 1 million to 5 million. Usually we recommend a 10 10 split. That's 10% salary, 10% profit. Once again, we're not saying cut your salary when you hit that million dollar mark. I was just saying 20% of a million is 200K and then all of a sudden you pass a million. All right, now we're cutting it down to 10%. So I'm cutting my salary in half. It's gradual. So as you pass that million dollar mark we're gonna slowly just bring that percentage down, not cutting your pay. So a 10-10 split, this is the least we cut down what you're taking home. So we don't go below this overall 20%. We are not going to funnel more into operating expenses at this point because as you scale we want to try and keep it at this healthy balance.
Speaker 1:We do have a free quiz on our website that's going to tell you exactly what bucket you belong and it's going to go through exactly what bucket you belong and it's going to go through some detail on what these look like, how you can kind of keep track and keep a pulse on it, and then also what percentage should be going into operating expenses depending on your tier. We didn't get into that today. I really wanted to focus on owner's pay and profit on today's episode. But if you go to quizcraigdaceycom, I'll also link it in the show notes below. You could take a free quiz.
Speaker 1:It's just going to ask you a handful of questions to get to know your industry, your business size, a few other key pieces that can let us send you a custom report that's going to outline everything we just talked about. Here's what split, what bucket you fall into, and and again, not just the owner's paying profit, but also what the other percentages we would recommend would be. And then beyond that, if you want that customized, because, like I said, these are general targets. It's rare that we talk to a practice who. This is exactly what they need. So if you want somebody to get to know you, get to know what you're looking for, get to know your personal, get to know what you're looking for, get to know your personal goals, your business goals, and help craft and create that game plan, that target. We have a link in the show notes always to schedule a free call with one of our coaches. They'll get to know you and learn about what you're trying to do and then share how our coaching program can help you put this money system into place and build a business financially supporting you and what you're trying to do.
Speaker 1:All right, take a look, go, take the quiz. Go back to episode two. If you don't know much about Profit First, I promise you this is going to be a revolutionary for your business and I can't wait to hear about how much you're taking home. Let me know. Shoot us an email, go to therapybizpodcom and let us know what are you taking home. Has this been helpful to you to craft your game plan in order to pay yourself more as the business owner? Thanks for joining us on the Therapy Business Podcast. Be sure to subscribe, leave a review and share it with a practice owner that you may know If your practice needs help getting organized with its finances or just growing your practice, head to therapybusinesspodcom to learn how we can help.
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