13 MIN READ
Putting Profit First in your Business
Profit is essential to any business; it is what keeps it going. However, many business owners don’t focus on profits. Instead, they focus on other aspects of the company. This leads to problems regarding bookkeeping and figuring out where the business stands financially.
Business owners must remember that profits are crucial and should be their top priority. When you know where your business stands financially, you can make better decisions about where it needs to go in the future.
The real reason we’re not making a profit is simpler than you think – it has nothing to do with our ability to run a business. Instead, it’s because we followed the conventional bookkeeping model, which is:
Sales – Expenses = Profit
This formula may seem logical, but it’s not accurate. Our revenue minus our expenses doesn’t give us an accurate picture of how well our business is doing. But as we have discussed regarding Parkinson’s Law, this formula does not consider our human behavior; what we put last gets the least attention. So, by putting our profits at the end of this formula, we are not planning for them or expecting them. Instead, we hope they are there when we are running our business; because of that, we don’t put much emphasis on our expenses.
You can increase your profits by making them a priority in your business. Start by flipping this formula around so that it prioritizes profits:
Revenue – Profits = Expenses. This way, you’re planning for your profits and expecting them to be a part of your business.
How Does Profit First work in Small Business?
You must change your money mindset to make more money as a chiropractor. Profit First for Chiropractors helps you do just that. Take the small plate principle, for example, which states that the less of something you have, the less of it you will consume. We can relate this to the analogy of eating healthy.
We commonly accept that portion control is one of the most effective weight loss programs. Eat enough to be healthy and satisfied, but don’t overeat. Well, the easiest way to do this is to control how much food you put on your plate, the small plate principle. Since it’s not uncommon for us to want to eat what’s in front of us, an easy way to not overeat is by putting less on our plate. For example, would you notice the difference of 8 vs. 6 ounces? Probably not.
Profit First for chiropractors utilizes that same mentality. Only this time, we are applying it to your finances. Essentially, if we reduce the amount of money your practice can spend on expenses. Then the less money your practice will spend on those expenses.
Engraining why the Profit First for chiropractors system advocates taking a pre-determined percentage of your revenue and immediately diving it into four foundational bank accounts; Profit, tax, Owners compensation, and operating expenses.
Take note of the order of these accounts. Your money is being sent to a profit account first, hence the name Profit FIRST for Chiropractors. This small but vital change helps ensure your practice turns a profit. Afterward, you will allocate funds to your remaining accounts. Next, funding your tax account will ensure the government is satisfied. Then we make sure you get paid, obviously a critical account. Lastly, what’s left over is allocated to your operating expenses.
Enforce a Rhythm with Monthly Allocations
Human nature draws us to patterns and repetition; it’s easy, predictable, and memorable. So why not set up a rhythm when managing our finances? Utilizing the Profit First For Chiropractors teachings, we will allocate funds to your foundational accounts monthly. Ideally, you will use your bank’s automation features automatically each month. However, you still have operating expenses that need to get paid. Since all your operating expenses are now getting paid out of your pre-funded OpEx account, it’s essential to ensure you are adequately funded by regularly reviewing your finances.
Typically, most practice owners will pool all their money into a single account and then pay all their bills from that account at the end of the month. Sounds excellent. You are flush with cash, and you got time on your hands. Let’s just start writing checks. Right?
Not so fast. with all your money in a single account, you have not accounted for profits, taxes, or owners’ compensation. Exactly what Profit First for Chiropractors is trying to avoid. Rather than stealing from yourself, it would be best if you were controlling your practice expenses.
Paying bills systematically and regularly, like on the 10th and 25th of the month, is the best way to Enforce a habit and set a rhythm.
Remove the temptation
The Profit First for chiropractors system advocates separating your Profit and Tax accounts from your day-to-day bank account, eliminating the temptation to steal from yourself to cover bills. A foundational point of Profit First For Chiropractors is to allow your practice to spend within its means. By reviewing your finances twice monthly, you will quickly see which of your accounts are underfunded. This early warning system will alert you to make the needed changes. Your practice is telling you that it cannot survive your current spending habits. So, rather than raid your Profit, tax, and owner’s compensation accounts to pay bills. Profit first for chiropractors would have you reevaluate your expenses so your practice can stay within its means.
For some great information on evaluating your operating expenses effectively, be sure to read this article.
Theory of Parkinson’s law
Parkinson’s law is the theory developed in 1955 by a modern philosopher called C Northcote Parkinson, which states that by having a limited supply of something, you are more innovative in utilizing that resource to get the most out of it. The profit first book uses the analogy of a tube of toothpaste. When your toothpaste tube is brand new, you have no issue using whatever amount comes out onto the brush, but as the tube gets less and less, you start to find inventive ways to squeeze every last drop out of that tube.
Running your practice with less cash available doesn’t mean you have to stop or slow down. You can still achieve the same results by being smarter about how you spend your money. You’ll need to figure out how to do more with less.
Swapping the Formula
When you limit the funds available for your business expenses, you’re not limited in what you can do; you’re just forced to be more effective and efficient. In other words, by taking your Profit first, you’ll start to use the powerful human behavior; Out of Sight, Out of Mind. You will set aside a portion for Profit and tax out of immediate accessibility as you generate revenue. Then, whatever’s left is what you can use to manage your expenses. So, the old formula becomes the new formula;
Revenue – Profits = Expenses
When you focus on Profit rather than revenue, you can use your existing revenue stream to start generating a profit. A crucial distinction because it means you don’t have to wait for your practice to grow to start making money. You can start seeing results immediately by taking a smarter, more strategic approach to your practice.
Small Plates through Multiple Accounts
If you want your practice to thrive, you need to operate under the Profit First for chiropractors model. Meaning that you have several bank accounts to help manage your finances. With this system, you make sure that you always have enough money to cover your expenses and grow your practice. Below you will find a quick breakdown of your foundational accounts:
Income Account – This is your starting point. You will deposit all of your practice revenue into this account. This account and use it to fund your other foundational accounts.
Profit Account – You will deposit your Profit Account’s Target Allocation Percentage from your Income Account. Your profit account is how you reward and protect your practice. Your profits are separate from your salary. Remember Profit FIRST. So you want to fund this account before the others.
Owner’s Compensation Account – This account covers your salary. It’s how you get paid for the work you do within your business. Be sure not to confuse this with your profit account, which rewards your business. You fund this account by taking your owner’s compensation target allocation percentage from your Income Account.
Tax Account – Everyone’s least favorite account but arguably one of the most important, as the government always finds a way to collect what’s theirs. This account sets aside your Tax Allocation Percentage from your income account to pay your taxes.
Operating Expense account – This essentially funds your practice’s operating expenses, including your staff salary. To help ensure your practice spends within its means, you will want to fund this account last.
Profit First Chiro Roadmap
The Profit First Chiro Roadmap can help you get your practice on the right track by setting the correct Target Allocation Percentages. Before starting Profit First for Chiropractors, take the assessment to find the proper percentages for your practice. This roadmap will help you safely shift money between accounts over time while regularly analyzing progress.
When setting up your business, it is essential to keep in mind that you should open your Profit and Tax accounts at separate banks from your Income, Owners’ Compensation, and Operating Expense account. To help to reduce the temptation to steal from your Profit or Tax account.
Tip: check out our blog on finding a profit first, friendly bank
Why Does the Profit First Model Work?
This is a very common question, why does profit first work. well the short answer is because its simple. It’s simple to implement, simple to understand, and works with your natural human behavior to achieve a profitable business.
How to implement the Profit First for chiropractors into your practice?
Buy the Profit First For Chiropractors Book. It’s available on amazon as an E-book or in print as a paperback. This book will walk you through the entire process of implementing this system into your practice.
Take advantage of the Profit First Chiro Roadmap. This tool has been developed explicitly for chiropractic practices. Using this tool, you can rest assured that we designed your recommended Target Allocation Percentages specifically for a chiropractic practice. The roadmap will be the easiest way to fund your foundation accounts.
If you’re looking to increase profits, it’s essential to focus on ways to cut expenses and improve operations. Deep dive analysis can help uncover where your business can be more efficient and effective. Decreasing costs can help increase profits without having to increase revenue. This analysis can help you plan to improve your practice’s bottom line.
It’s time to open your accounts with your bank. You will want to use a bank that offers automated money transfer features, as well as one that will allow you to open multiple accounts since you will be moving money from your income account to your foundational account twice per month based on your Target allocation percentages determined by the Profit First Chiro Roadmap.
Create a rhythm that works best for you. The Profit First for Chiropractors book recommends reviewing your finances on the 10th and 25th of every month. Pick two days that work best for your schedule. Remember sticking to a routine is more important than the days you choose.
If your Quarterly review and bonus meeting falls on a day you have patients, make sure to reschedule it for a day you don’t. This is an important meeting, and you don’t want to miss it! At your Quarterly review and bonus meeting, look at your progress over the last quarter. How did you do on your Profit First Chiro Roadmap? Did you hit your targets? If not, what needs to change? This is also an excellent time to review your TAPs and CAPs. Make sure they’re still effective in helping you reach your goals. Finally, take 50% of your profits as a bonus for a job well done! After all, your Profit is your reward for owning a successful business.
Profit First Chiro Roadmap
Is it one of your goals to have a financial system that is simple, easy, and allows you to make the best decisions to increase your practice's profitability?
With the Profit First Chiro Roadmap, you'll learn the five key numbers every chiropractor needs to know to make informed decisions about their practice. You'll also get a personalized roadmap that shows you exactly how to achieve profitability.
Stop struggling and start making a profit with the Profit First Chiro Roadmap. Get started today and see the results for yourself!