5 Minute Financial Snapshot

We show a simple five-minute method to see where every dollar in your practice goes and how to judge if your margins are healthy. We explain which P&L to pull, how to adjust for distributions and debt, and why more revenue won’t fix broken expense habits.

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*Intro/outro song credit:
King Around Here by Alex Grohl

Chapters

• 0:00 Why Your Numbers Feel Confusing
• 1:47 The Five-Minute Snapshot Plan
• 3:26 Which P&L To Pull And When
• 5:34 Calculate Owner Pay And Taxes
• 8:03 Operating Expenses And True Profit
• 10:45 Healthy Benchmarks And Red Flags
• 12:35 Debt, Payroll, And Reality Checks
• 14:23 No P&L? Do This Instead
• 16:25 Why More Revenue Won’t Save You

Transcript

SPEAKER_00: 0:00

Are you curious about where all the money is going in your practice and you just don't really know where to start or how to figure it out? I'm going to teach you what I call the five-minute financial snapshot in your business, where you can get a really good grasp on where you stand financially. Are you in a financially healthy place or not with your business? And it only takes five minutes, and you're really just using documents that you already have on hand. 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. I know business finance can be overly complicated, and there's a million softwares out there that can show you forecasts and real detailed data on your finances. And truthfully, what I hear from most practice owners is it's kind of just like mumbo jumbo industry jargon. They don't fully get it. And I'll be honest, sometimes I look at these softwares and what they're spitting out, and it it feels like I'm having to go back through like calculus to figure out how to read these things. It can be really confusing. And what typically happens is we run these reports, or maybe we export something from our bookkeeping software or from simple practice or whatever it is, and it just overwhelms us that we just end up closing the tab and like uh I don't have time to try and figure this out, or whatever. We're still left confused in the same place we were before. So, how can we simply get a good snapshot on where our business stands? Well, I'm gonna talk you through how you can do this in a really simple, easy way. It's gonna give you a big bird's eye view of where your finances currently stand, and all you're gonna need is your PL, an income statement. Now, if you don't have one at the end of this episode, I'll walk through the alternative. So if you don't have bookkeeping software, first of all, you need something to be really tracking and monitoring your expenses so that you have PLs, they're really important to the business. But if you don't, that's okay, I'm not judging. At the end of this episode, I'm gonna walk through things you can use so that you can still do this exercise and get a good picture of where you stand financially. And then let's go ahead and add that bookkeeping software and maybe even hiring a bookkeeper, outsourcing somebody to help keep your books and your expenses organized and up to date. All right, so the five-minute snapshot, taking your profit and loss statement. So if you're somewhere where you can sit and follow along, I recommend pull up pausing the episode, pull up your PL so that you can do this alongside me. If you're at the gym in the car, that's okay. I'm not gonna go super complex. So you can still listen and get a good idea of what to do because the process really is pretty simple. The first thing we're gonna look at is your revenue generated. So at the very top, that is your income, all the money that you have generated this this year. It might be gross income at the very top. It's literally at the very top of your PL, the money you've brought in. If you're doing multiple offerings, you're gonna want to take the collective amount, how much have you brought in total across the board? Now, I do want to say on your PL, uh, this is I probably should have said this before I even got into the statement of what you're looking at. Is depending on when you are listening to this, determine it that'll determine what PL you should be pulling. And what I mean by that is I'm recording this here in October. And so I would say go ahead and just get a year-to-date PL. We have enough months this year that we can go ahead and just pull something from January to today. If you're listening to this and it's the beginning of the year, then you're gonna want to just go ahead and pull the previous year's profit loss statement. A good rule of thumb is if it's past the midway point of the year, a year-to-date one is gonna be okay. So that means if it's after June, so if it's July and beyond, go ahead. You could probably pull a year-to-date PL and use that info. Otherwise, if it's before July 1st, I would say pull your previous year's PL and use that information. So we're gonna look at the income at the top. That's our how much we've brought in as a business. The next thing we want to look at is I want to start with you. I always like to start with the owner. How much have you paid yourself? Now, if you're running through payroll, you might need to pull up a payroll document. Sometimes in your PL it'll have owner's compensation, it'll have something in there that'll outline what you've paid yourself through payroll. We want to calculate that. And then I also want you to figure out how much have you taken in distributions. So you might need to go back and follow that paper trail. Maybe depending on how you've done it, it might you have to look at bank statements. Maybe if you're pretty consistent about what you're paying yourself. So if you pay yourself$5,000 a month, then just multiply$5,000 times however many months we've been. I don't want you to get too stuck in the weeds of this. Obviously, the more accurate you are, the better snapshot we're gonna get. But ballpark numbers are fine, they're gonna get you pretty close to what you want. So I would say and if your income has fluctuated pretty drastically, meaning like maybe you've skipped pay periods, maybe sometimes you pay yourself two thousand, sometimes you pay yourself five thousand, then I would probably try and go back and look because again, what we perceive, what we think we paid ourselves may be really different than what we actually did. But again, if you pay yourself pretty consistently, if it's ranged from four to five thousand, then calculating it, just coming up with a ballpark should be fine. We want to figure out what you've paid yourself so far this year. So let's just say top line is a hundred thousand, then I've paid myself so far this year, let's say thirty thousand. Okay, so that will give us a good idea. 30,000 of that 100,000 got paid to you. So we're gonna get a percentage. So 30,000 divided by 100,000 means that so far year to date, if that those numbers were you, you've paid yourself 30% of what you've brought in. So that's an important thing to note. So we're gonna write that down. I'm being compensated. 30% of all sales that have come in have gone back to me as the business owner. The next thing we want to look at is our taxes. How much have we paid into taxes this year? So again, whether it's payroll. Now I want you to, if we're if you have employees, we are thinking solely on your taxes. How much have you personally taken? So, how much has been taken out of your paychecks? How much has the company paid for on your behalf in taxes? And then how much have you, if you've had to go in and make quarterly tax payments, any of those, how much have you paid into that so far? A lot of this will be on the PL. However, again, if you have a whole team, it's gonna be probably lumped in with payroll taxes, and so you'll want to go and look into your payroll software to pull that data and see. You can just pull your most recent pay stub, and it's gonna go ahead and tell you exactly what those numbers are. So we want to get a general idea. So let's say, again, my I took I paid myself 30,000. Um, and then on top of that, we paid an extra 10% in taxes. So another 10,000 in taxes. So I know 30 that 30% is going to me, 10% is going to taxes. Next, we want to look at our operating expenses. Now, this is gonna be the big one, and if you own a group practice, you're gonna have two big pieces of this. You're gonna have your payroll, and then you're gonna have your overhead expenses. This is simply taking our operating expenses, and on your PL, it will have a total operating expenses. Uh as they list out everything you're spending money on at the bottom of that section will be total operating expenses. We're gonna take that number. Now, if taxes were included in there, if your owner's compensation was included there, we're gonna want to pull that out because we don't want that to be part of the picture. So, again, let's say your operating expenses this year were$70,000, and we already know that$30,000 got paid to you and 10 got paid to taxes. So maybe$30,000 or sorry, yeah,$30,000 is what we actually paid in operating expenses once we take those things out. So again,$30,000 as compared to$100,000, that's 30% again. So we're getting a good idea of where do we stand percentage-wise financially across the board on all these areas. The last one we're wanting to we are gonna want to look at is profit, and that's at the bottom. That's why they call it the bottom line, your net profit. We want to see what is that number, we're gonna divide it by the top, the revenue number. So we're gonna take that, divide it by the 100,000. One thing we want to note is if you've been paying yourself distributions, not through payroll, they're likely not in the PL. So we're gonna want to take that into account. So again, if you've paid yourself 15,000 in distributions and your net profit at the bottom says it is 20,000, well, then we need to take away that 15 because of that profit you paid yourself, and all that's left is the five. And so that's five percent. This is a way to get a good clear picture percentage-wise of where your money is going. Now, we know healthy businesses can vary drastically in this realm. Uh, if you want to know where you stand payroll-wise, it's okay to stuff to take that as its own percentage and say, okay, out of those operating expenses, what is my payroll compared to my revenue? What is my operating expenses compared to my revenue? You don't need to get too deep into the weeds. The more detailed you are, like I said before, the more accurate your numbers are gonna be. But getting a general idea of profitability-wise, percentage-wise, where are we? What percentage of revenue is going to me? What percentage is going to taxes? What percentage is going to operating expenses? If you get stuck on the tax piece, for example. So maybe as I was saying, you might need to go back through pay stubs and pull those to get out. If it's overwhelming to you, then it's okay to just say, you know what, I'm gonna just figure out my operating expenses and my owners pay for now and profit, and just leave the tax piece to the side. What we want to know really in this snapshot is just where do we stand in general? Now, my example was a 30% operating expense number. Odds are that's gonna be a solo practice, a group practice is likely not gonna have 30% going to operating expenses. But right there, that is a really healthy number. 30% is a very healthy number for any size business. Honestly, if you're a large business and you're only spending 30%, uh, that's fantastic. You might even be able to allocate more funds to growth if you're struggling to get traction or struggling to grow. If you are a virtual therapist or you have a virtual only practice, it's likely that your numbers will be lower. Now, again, if you're a larger business, you might be looking at 50% going to operating expenses, 50 to 60%. And that's still okay. But what we want to see, if you run these numbers and you see 80% go into operating expenses, which let me tell you is incredibly normal. And that's what we largely see when people come to see us is they're sitting around 80% operating expenses, and they're we're going, no wonder you're stressed out. No wonder you're not paying yourself what you need to be paying yourself. Once you can identify that, then it's the next step of okay, I have I need to fix this problem. Why, why do what are we spending this money on? Why is it this way? Why are we stuck? What do we need to change? Is it something in our pay structure for our team? Are we overcompensating them? Are we wasting a lot of money on the overhead side? Is our rent way too expensive? What are the pieces that are hurting us? And then we can also look and say, okay, well, if I bring in if I doubled my revenue, would the problem still persist? And kind of playing around with those numbers and saying, how can we systematically bring those numbers down? Do you have debt? Are you servicing debt? Could that be why? When you're looking at a PL, and that's something to note is your debt payments are not included on there. So your monthly minimum payments toward debt will not be included on a PL. And so we want to take that into account. So if you're paying monthly debts, we want to add that on top of your operating expense percentage that we calculated earlier, so that way we get a real good idea of where the money's actually going. So take all those pieces into account, and then from there, it's moving forward and making the necessary tweaks, adjustments. We have a whole episode uh on the percentage splits. I will put a link in the description below so that way you can find it that talks about the healthy balance of what you should be paying yourself, what percentage of profit you should be aiming for, depending on your size, the size of your business. So I recommend listening to that if you're saying, okay, I've got my snapshot. Now what do I do with it? Go find that episode. Now, as promised, for those of you who don't have a PL handy, maybe you don't have bookkeeping software, maybe you haven't and you haven't touched it all year, and so it is just a mess. And but you want a snapshot today. Here's how you can do that. So we want to get your gross sales. So that's just like I said at the top of the PL, that's where you're gonna get that. We can go back and you can look in if it's through simple practice, through Stripe, however, you're collecting payments, you can pull the data for year to date. How much have you brought in? How much revenue have you brought in as a business? Then you can pull bank statements. You can do year to date, you can go monthly. What have we spent in our bank? What outgoing debits have we charged? If you have a credit card, you can pull credit card statements, and we're gonna collect all of that. You don't need to go through and line item everything. It's okay to take the lump sum. What is the amount we've spent? If you have a team, you're gonna want to log into your payroll software and you can pull a payroll report that's gonna show exactly what you've paid year to date on payroll on all of those pieces. And then we're gonna do the exact same process. We're gonna take what you've paid yourself and divide it by that gross revenue that you found. We're gonna take your bank statements and credit card statements, take that total you've spent, divide it by the gross revenue, take your payroll, divide it by the gross revenue. All of those elements are gonna come into play and we're gonna figure out what we are actually spending, getting those percentages. Again, this is not gonna be perfect. And if you don't have a PL, I recommend getting something working so that you have more accurate numbers because it is really important. While we are believers in the being able to manage your money in a way that you don't have to lean on accounting documents, we think on the day-to-day, you should have a system in place where you're actually utilizing it and you're leveraging it and you're be able to be proactive. While I think that is key, I also think having data is essential, if nothing else, for filing your taxes. You have to have really accurate numbers and really accurate data. And that's where having clean books is going to be super important. If you're really small, then you might benefit from trying to manage it yourself or learning. But again, if you're busy, if that's just I honestly think that everybody should have a bookkeeping support of some kind, then I would really recommend reaching out to you, even if it's a lower cost uh VA or a service that offers low-cost bookkeeping. It's really important to your business that it's done and it's done right. All right, there's your five-minute snapshot. So give it a shot. Let me know how your numbers turn out. If they turn out in a way that you are unhappy with or are scary to you, or you start this process and you're even just the quick five-minute snapshot is overwhelming. Reach out for help. It's really important that you fix this problem before it gets bigger and bigger. I'm gonna tell you right now, earning more money is not a solution to the problem. Businesses, a lot of times we get in this, oh, I just need to hit this revenue goal, this revenue goal, this revenue mark. And then all of a sudden things will be better and they won't be. Problems will just continue to expand with us. The more we make, the more our expenses go up, the more people we need to hire, the higher payroll goes up. And you can see that this pipe dream that when I hit a million, when I hit two million, when I hit whatever that that mile marker is, once I hit that, everything will be great. I'll be able to pay myself. You'll find that it's you're still going to be dealing with the same issues just on a larger scale, and it becomes harder and harder to undo. So reach out for help in the description below is always a link to meet with one of our coaches to see how we can best help you grow your practice in a financially healthy way. 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 the finances or just growing your practice, head to therapybusinesspod dot com to learn how we can help.