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14 | How to Handle Income from your Practice
Profit First: The book I didn't want to like.
Based on the title alone, this didn't seem like something I'd be interested in.
It's been recommended by so many people, though, and I'm feeling increasingly lost when it comes to business finances so I thought I'd check it out.
And yep. "People" were right. It was super helpful.
I've detailed the most important thing I learned from the book in this episode.
Although this seems like very basic information, it helped things click into place for me. I hope it's helpful for you, too.
You might be wondering if you really need to read this if you're just getting started with your practice.
YES. Please do.
Having this mindset/system set up in advance will help you! (In the first few months, you may be spending quite a bit more than you're bringing in as you get things set up. Once you're out of this phase, you can start implementing this system.)
I'd love to know what you think!
Resources- Profit First book
- You Need a Budget Software (aka YNAB)
- Here's a simple explanation of Profit First from Wave
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Transcript
(00:05)
Well, hello there, welcome to In the Clinic with Camille. My name is Camille Freeman. I am a licensed nutritionist and registered herbalist and I mentor other herbalists and nutritionists who are working on complicated cases or working on building and managing their practices. So I love to work with you. If you have anything you need help with, go to my website camillefreeman.com and I would be happy to hear more about it.
(00:31)
Today, I want to talk to you about a topic related to managing your practice, and it is one that I will admit is not a strength of mine, which is money, money stuff.
(00:43)
So what are my intentions for this year is to really get a better handle on finances as when it comes to my business, my practice, and to just to figure out what exactly is going on, how I should be using the money that is coming in, how much I need to be saving for taxes in this kind of thing.
(01:04)
Now, like I said, this is not my favorite topic and I'm certainly not an accountant or an expert. So please take anything I'm saying with a grain of salt. However, since I'm coming from the place of being a beginner here and I've learned a few things, maybe they would be helpful for you as well.
(01:20)
Over the years, many, many people have recommended that I read a book called "Profit First" and you know, I have resisted because I don't like the title, just the word profit makes me feel slightly ill.
(01:34)
I feel like I'm not in the business for profit.
(01:37)
It makes it sound like money is the center of everything I do.
(01:41)
And I don't like that, which is ridiculous because in order to have a successful practice, you do need to be making money and that is called having a profit.
(01:53)
So after enough, cool, down to earth, valued-centered people recommended this book and said it was helpful. I was like, OK, fine, I'm going to read it.
(02:05)
So last week I read the book, it is a fast read and I regret to inform you that it was helpful. I really wanted it to be right here, but it was helpful. I learned things.
(02:19)
It is written in sort of a white man tone, which I don't love, you have to overlook that, but the content in the book was was very helpful to me and I do wish that I had read it earlier.
(02:36)
So I'm going to go over just the most important thing that I learned from this book. And I encourage you to read the whole thing yourself, because I think you'll find that he does a better job of explaining it than I do.
(02:47)
But here is why I thought it was. So useful, I have never been totally clear on what to do with the money that is coming in from my practice, doesn't really matter how much. Sometimes I have slow months.
(02:59)
Sometimes I have really busy months. But even so, I'm kind of like, oh, how much do I need to set aside for taxes and how much can I just pay myself and so forth. So this book essentially breaks down what to do with your money.
(03:17)
Now they have a whole complicated bank account system which is supposed to create like six or seven different bank accounts and transfer money all around.
(03:24)
I'm not doing any of that.
(03:25)
I have an alternative, which I'll tell you about in a minute. But the concepts are very helpful. So let me share with you.
(03:33)
There is one chart on page sixty seven, I believe it is, that I found to be worth the whole process of reading the book.
(03:46)
So essentially what they say in this chart is that if your practice or your business is making less than two hundred and fifty thousand dollars a year, I imagine most of us are. If you're making less than that amount of money per year, you should be breaking down the money that comes in.
(04:03)
In this way, you should be setting aside five percent of what you're making not.
(04:10)
Not after expenses, but just the total income each month, five percent of that should be going into a bucket called profit. Then somewhere in the range of 50 percent of that should be going to pay you going right into your personal bank account, where you make, you know, transfer it from your business account to your personal account, which hopefully you have separated. So about 50 percent. Now, you may need to build up to that. So this is all sort of in an ideal world, but this is what they say.
(04:39)
About half of what's coming in should be going to your personal account where you can use it for paying the mortgage or the rent or buying groceries or getting new snow shoes or whatever it is that you need to do.
(04:52)
About 15 percent should be set aside for taxes and about 30 percent should be used for what they call operating expenses, which is paying for your business licenses and paying for your nutrition or your herbal certifications, paying for your website, paying for whatever your liability insurance, all those types of things.
(05:15)
You should be about 30 percent of what you're making.
(05:19)
Now, there are all kinds of things in the book, if you're not at this, if you're not in these ranges right now, of how to sort of slowly move in that direction, which I think are helpful.
(05:30)
But for me, it was really illuminating just to see just to have some target ranges to figure out, OK, this is about where I should be.
(05:39)
Now, obviously, if you think maybe I'm going to go a little bit more in taxes, you would want to go up to 20 percent in taxes. Or if you're if it's costing you a lot of money to run your practice, maybe you would need to go up to more like 40 percent.
(05:52)
So you might have to adjust these numbers.
(05:54)
And of course, if you have an accountant, you want to talk with them about it.
(06:00)
But just getting a sense for how much to put where I found to to really take a weight off my shoulders, I feel like, OK, at least I know what I'm aiming for.
(06:11)
I know generally what to do. So how does this work?
(06:14)
I am using a tool called You Need a Budget to help manage this. I also have a bookkeeper who's helping with this. But here's what's happening. You need a budget, it allows you to see what you've made for the month and then it allows you to create buckets within. You need a budget so you can have a bucket that says owners pay and at the end of the month or twice a month, however often you want to do it, then you take 30 percent, 40 percent, 50 percent, whatever you decided on and you put it in that bucket, you take 15 percent or 20 percent or whatever you need and put it in the tax bucket.
(06:53)
You take five percent and you put it in the profit bucket and then you take the rest and you put it in operating expenses, so however much is left over, so 30 percent, 40 percent, whatever it is, and put that in the.
(07:08)
Operating expenses. Now, the thing I like about you need a budget is that the operating expenses often for me are annual or even less often. So, for example, when I pay for my website registration or my business license or my liability insurance, those happene once a year, once every few years.
(07:28)
And you need a budget.
(07:30)
You can add little targets that say, OK, well, I know I'm going to spend two hundred and fifty dollars every so often on renewing my American Herbalist Guild professional membership.
(07:41)
So it'll say, OK, well, if that's coming up in December, then here's how much you need to put into that section every month.
(07:49)
So it's not just a big surprise when it gets there in December, but you're adding a little bit into that particular area from your compensation coming in every month, hopefully, that makes sense, I'm like I said, not an accountant, but it's really, really been helping me to keep track of everything and to get an idea of how much I want to be putting where you might be wondering this whole profit category.
(08:15)
What is that? So the idea is that you're going to be paying yourself. Part of what's coming into your practice every month, so 40 percent, 50 percent, something in that range, you're just going to be giving to yourself as a payment the profit.
(08:32)
Is that five percent and what they recommend in the book is that you take whatever is in your profit bucket, your profit bank account, if you want to set up a separate bank account where your profit section of you need a budget, whatever it is, you take half of what's in there at the end of each quarter and you give it to yourself as a reward, surprise, if you will, and that is supposed to be used for something fun.
(08:57)
So that's not for paying the groceries or, you know, getting your cat a vaccination or whatever.
(09:02)
That is for doing something that feels like a celebration to you. Maybe you're donating to a nonprofit that you really care about, or maybe you're ordering some fancy takeout or getting yourself a new journal or doing something fun with that money.
(09:18)
The other half you leave in there. And that serves as kind of a buffer for your practice in case.
(09:24)
Worst case scenario, you have dire needs and you need to dip into that sort of reserve budget if you have to do that, that tells you that your practice is in big trouble and you have to make changes, get some help and do something different.
(09:40)
But it is there so that you don't that you have a little bit of a buffer for anything that might go wrong.
(09:46)
All right.
(09:47)
So I hope that was helpful for you, for me, just having those numbers and being able to look at my own practice numbers and figure out what to do about. The money coming in has has really been a relief. So. Don't rely on me if you have questions, read the book.
(10:07)
If you already know a lot about accounting and I've gotten this all wrong or there's something else you'd like to chime in about, I love to hear from you.
(10:13)
Please contact me through my website camillefreeman.com, leave a comment. Let me know. And I'd love to hear what you think. All right. I hope you all have a great week. Take care.
Well, hello there, welcome to In the Clinic with Camille. My name is Camille Freeman. I am a licensed nutritionist and registered herbalist and I mentor other herbalists and nutritionists who are working on complicated cases or working on building and managing their practices. So I love to work with you. If you have anything you need help with, go to my website camillefreeman.com and I would be happy to hear more about it.
(00:31)
Today, I want to talk to you about a topic related to managing your practice, and it is one that I will admit is not a strength of mine, which is money, money stuff.
(00:43)
So what are my intentions for this year is to really get a better handle on finances as when it comes to my business, my practice, and to just to figure out what exactly is going on, how I should be using the money that is coming in, how much I need to be saving for taxes in this kind of thing.
(01:04)
Now, like I said, this is not my favorite topic and I'm certainly not an accountant or an expert. So please take anything I'm saying with a grain of salt. However, since I'm coming from the place of being a beginner here and I've learned a few things, maybe they would be helpful for you as well.
(01:20)
Over the years, many, many people have recommended that I read a book called "Profit First" and you know, I have resisted because I don't like the title, just the word profit makes me feel slightly ill.
(01:34)
I feel like I'm not in the business for profit.
(01:37)
It makes it sound like money is the center of everything I do.
(01:41)
And I don't like that, which is ridiculous because in order to have a successful practice, you do need to be making money and that is called having a profit.
(01:53)
So after enough, cool, down to earth, valued-centered people recommended this book and said it was helpful. I was like, OK, fine, I'm going to read it.
(02:05)
So last week I read the book, it is a fast read and I regret to inform you that it was helpful. I really wanted it to be right here, but it was helpful. I learned things.
(02:19)
It is written in sort of a white man tone, which I don't love, you have to overlook that, but the content in the book was was very helpful to me and I do wish that I had read it earlier.
(02:36)
So I'm going to go over just the most important thing that I learned from this book. And I encourage you to read the whole thing yourself, because I think you'll find that he does a better job of explaining it than I do.
(02:47)
But here is why I thought it was. So useful, I have never been totally clear on what to do with the money that is coming in from my practice, doesn't really matter how much. Sometimes I have slow months.
(02:59)
Sometimes I have really busy months. But even so, I'm kind of like, oh, how much do I need to set aside for taxes and how much can I just pay myself and so forth. So this book essentially breaks down what to do with your money.
(03:17)
Now they have a whole complicated bank account system which is supposed to create like six or seven different bank accounts and transfer money all around.
(03:24)
I'm not doing any of that.
(03:25)
I have an alternative, which I'll tell you about in a minute. But the concepts are very helpful. So let me share with you.
(03:33)
There is one chart on page sixty seven, I believe it is, that I found to be worth the whole process of reading the book.
(03:46)
So essentially what they say in this chart is that if your practice or your business is making less than two hundred and fifty thousand dollars a year, I imagine most of us are. If you're making less than that amount of money per year, you should be breaking down the money that comes in.
(04:03)
In this way, you should be setting aside five percent of what you're making not.
(04:10)
Not after expenses, but just the total income each month, five percent of that should be going into a bucket called profit. Then somewhere in the range of 50 percent of that should be going to pay you going right into your personal bank account, where you make, you know, transfer it from your business account to your personal account, which hopefully you have separated. So about 50 percent. Now, you may need to build up to that. So this is all sort of in an ideal world, but this is what they say.
(04:39)
About half of what's coming in should be going to your personal account where you can use it for paying the mortgage or the rent or buying groceries or getting new snow shoes or whatever it is that you need to do.
(04:52)
About 15 percent should be set aside for taxes and about 30 percent should be used for what they call operating expenses, which is paying for your business licenses and paying for your nutrition or your herbal certifications, paying for your website, paying for whatever your liability insurance, all those types of things.
(05:15)
You should be about 30 percent of what you're making.
(05:19)
Now, there are all kinds of things in the book, if you're not at this, if you're not in these ranges right now, of how to sort of slowly move in that direction, which I think are helpful.
(05:30)
But for me, it was really illuminating just to see just to have some target ranges to figure out, OK, this is about where I should be.
(05:39)
Now, obviously, if you think maybe I'm going to go a little bit more in taxes, you would want to go up to 20 percent in taxes. Or if you're if it's costing you a lot of money to run your practice, maybe you would need to go up to more like 40 percent.
(05:52)
So you might have to adjust these numbers.
(05:54)
And of course, if you have an accountant, you want to talk with them about it.
(06:00)
But just getting a sense for how much to put where I found to to really take a weight off my shoulders, I feel like, OK, at least I know what I'm aiming for.
(06:11)
I know generally what to do. So how does this work?
(06:14)
I am using a tool called You Need a Budget to help manage this. I also have a bookkeeper who's helping with this. But here's what's happening. You need a budget, it allows you to see what you've made for the month and then it allows you to create buckets within. You need a budget so you can have a bucket that says owners pay and at the end of the month or twice a month, however often you want to do it, then you take 30 percent, 40 percent, 50 percent, whatever you decided on and you put it in that bucket, you take 15 percent or 20 percent or whatever you need and put it in the tax bucket.
(06:53)
You take five percent and you put it in the profit bucket and then you take the rest and you put it in operating expenses, so however much is left over, so 30 percent, 40 percent, whatever it is, and put that in the.
(07:08)
Operating expenses. Now, the thing I like about you need a budget is that the operating expenses often for me are annual or even less often. So, for example, when I pay for my website registration or my business license or my liability insurance, those happene once a year, once every few years.
(07:28)
And you need a budget.
(07:30)
You can add little targets that say, OK, well, I know I'm going to spend two hundred and fifty dollars every so often on renewing my American Herbalist Guild professional membership.
(07:41)
So it'll say, OK, well, if that's coming up in December, then here's how much you need to put into that section every month.
(07:49)
So it's not just a big surprise when it gets there in December, but you're adding a little bit into that particular area from your compensation coming in every month, hopefully, that makes sense, I'm like I said, not an accountant, but it's really, really been helping me to keep track of everything and to get an idea of how much I want to be putting where you might be wondering this whole profit category.
(08:15)
What is that? So the idea is that you're going to be paying yourself. Part of what's coming into your practice every month, so 40 percent, 50 percent, something in that range, you're just going to be giving to yourself as a payment the profit.
(08:32)
Is that five percent and what they recommend in the book is that you take whatever is in your profit bucket, your profit bank account, if you want to set up a separate bank account where your profit section of you need a budget, whatever it is, you take half of what's in there at the end of each quarter and you give it to yourself as a reward, surprise, if you will, and that is supposed to be used for something fun.
(08:57)
So that's not for paying the groceries or, you know, getting your cat a vaccination or whatever.
(09:02)
That is for doing something that feels like a celebration to you. Maybe you're donating to a nonprofit that you really care about, or maybe you're ordering some fancy takeout or getting yourself a new journal or doing something fun with that money.
(09:18)
The other half you leave in there. And that serves as kind of a buffer for your practice in case.
(09:24)
Worst case scenario, you have dire needs and you need to dip into that sort of reserve budget if you have to do that, that tells you that your practice is in big trouble and you have to make changes, get some help and do something different.
(09:40)
But it is there so that you don't that you have a little bit of a buffer for anything that might go wrong.
(09:46)
All right.
(09:47)
So I hope that was helpful for you, for me, just having those numbers and being able to look at my own practice numbers and figure out what to do about. The money coming in has has really been a relief. So. Don't rely on me if you have questions, read the book.
(10:07)
If you already know a lot about accounting and I've gotten this all wrong or there's something else you'd like to chime in about, I love to hear from you.
(10:13)
Please contact me through my website camillefreeman.com, leave a comment. Let me know. And I'd love to hear what you think. All right. I hope you all have a great week. Take care.
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