Purposeful . Profitable

What is Profit First

for Chiropractors?

Sabrina Pelech

Chief Profiteer

9 MIN READ

We see a lot of practice owners at Profit First Chiro who haven’t yet mastered their cash flow. They can go all year before figuring out if they made or lost money. Even worse is by time they realized they lost money, it’s too late to correct and that is a stressful place to be.

Which is why we have made it our mission to bring awareness to the value of having control of your practice’s finances. Drawing attention to the major impact profitability can have on your practice.

If you are like most practice owners who struggle to understand your current financial situation. Figuring out what to do next can be a real chore. I mean after all you probably didn’t start a practice to be an accountant.

You’re probably thinking, why is managing finances so difficult? Why hasn’t someone created a way for business owners to run their business without an accounting degree.

Well, we were wondering the same thing. Which is how we found Profit First; a book written by Mike Michalowicz. It didn’t take long for us to realize this is a great resource for any business owner.

It’s well-written and teaches business owners how to “transform any business from a cash-eating monster to a money-making machine.”

By focusing on a cash flow management system Profit First ensures you’ll make a profit and get paid, no matter how small your income might be.

After reading this book we were excited about this idea and saw the potential this method has for any business. It didn’t take long for us to realize we need to bring this to Chiropractors.

So, we created Profit First Chiro. By taking our years of business and accounting experience, combined with our passion and extensive background working with chiropractic practices. We were able to adapt the tried and true methods of Profit First to be a customized, and easy to implement, solution for chiropractic practice owners.

So, are you ready find out how you can to transform your practice from a cash-eating monster to a money-making machine?

Below we will explain the core principals of Profit First for Chiropractors.

“Putting your nose to the grindstone is a really easy way to cover up an unhealthy business. We think that if we can just work harder, longer, better—if we can just hold out—something good will happen one day.”

Swapping the Formula

For so long we have heard the same old GAAP (Generally Accepted Accounting Principles) formula for determining if a practice is profitable. You are probably familiar with “Sales – Expenses = Profit”.

Sounds simple, right? Its logical and clear. Unfortunately, it’s a lie. That’s right, while it is logically accurate the old formula does not account for human behavior.

In the GAAP formula profit is what’s leftover. Which causes you to think about profitability last and you end up hoping to be profitable. Under this formula profitability is just a nice surprise at the end of the year.

The issue is you are not planning to be profitable, and you can’t measure what you don’ plan. So, what happens when you get to the end of the year? The profit is rarely there so you hope “maybe next year” while the business continues its check to check survival.

Now, you’re probably wondering if this old formula is not the answer, then what is? Well the answer is simple just flip the formula around

Sales – Expenses = Profit

Sales – Profits = Expenses

Logically the math is the same, but from the standpoint of your behavior it is radically different. With Profit First, you take a predetermined percentage of profit from every sale first, and only the remainder is available for expenses.

Which means you are now planning to be profitable while controlling your expenses. When you plan for something you can create measurable goals that you can hold yourself accountable too.

Having goals lets you track your progress and make course corrections early on while avoiding large problems later. Crazy right. Who would have thought that the answer to profitability would be so easy?

Let’s continue breaking down the core principles of Profit First for Chiropractors, shall we.

PARKINSON’S LAW

Author and historian C. Northcote Parkinson theorized that our demand for a resource increases to meet the supply of it. That is why when we are given two weeks to do a project it takes two weeks, and when we are given eight weeks to do the same project it takes eight weeks.

the same is true with money, if you budget $1,000 to complete a project you will get it done with the $1,000 but if you are given $10,000 to complete the same work, you will spend the $10,000.

Profit First makes Parkinson’s Law an asset. By taking your Profit First the money available for expenses lessens. Therefore, we are forced to find ways to get the same things done for less money.

Simple right? We thought so to.

BANK BALANCE ACCOUNTING

Like we said before, you probably didn’t start a practice to be an accountant. Like many practice owners, you don’t have the time or gumption to read the different accounting statements necessary to manage the financial aspect of your business.

Theoretically you should review and correlate your Income Statement, Balance Sheet and Cash Flow Statement monthly (or more frequently), but few practice owners do. Most resort to “bank balance accounting,” where you check our bank balance every day and make financial decisions based upon what we see.

However, if we refer to Parkinson’s Law, we consume what we see, so suddenly the money in the bank account becomes spendable. Profit First encourages you to continue “bank balance accounting” by first allocating money to your profit account, and then allocating the reset to various other expense accounts, we will discuss later.

This allows you to see the actual portion of deposits that are available for expenses without tapping into your profits so you can automatically adjust your spending accordingly.

DON’T CHANGE HABITS, LEVERAGE THEM

Many practice owners try to force themselves to become better at accounting and to become more disciplined in their fiscal management by pure willpower. But just like a muscle, willpower can be drained.

In a moment of financial stress or bigger than expected expenses you will likely break your own fiscal rules. Where you spend what you need, regardless the amount, to elevate the stress.

The Profit First principle does not try to change your habits (that is nearly impossible to do), Profit First works with your existing habits. By first allocating money to different accounts, and then removing the temptation to “borrow” from yourself. By doing this, your business will become fiscally strong and you will benefit from regular profit distributions.

SEEMS SIMPLE ENOUGH BUT WHERE TO START?

After reading this you are most likely thinking, wow this sounds so easy, I want to be profitable. I’m going to grab this book and get started. While the book is a great place to start, and I highly recommend you grab a copy.

Remember earlier when I said we adapted Profit First for Chiropractors? Since Profit First has you make changes slowly over time by adjusting your Target Allocation Percentages based on your current income. Keeping up with what your allocations should be and determining if you are on track can be pretty time consuming.

Which is why you should check out the Profit First for Chiropractors Roadmap to Financial Growth. Which makes implementing this process in your practice as easy as possible.

This Assessment automatically calculates your business’s Target Allocation Percentages based on your unique financial situation. While generating a unique and custom Implementation Roadmap. As a result, you will know exactly how much money to allocate to each of your accounts every month. Together with the detailed startup guide, creating your accounts and setting up an allocation rhythm in your business has never been easier.

Together with the included Progress assessment, taken every 12 weeks, lets you track your advancement toward reaching your profit goals. While creating a Progress Road Map designed to get you back on track toward your Target Allocation Percentages, from your Initial Assessment.

Not only can you use the Profit First for Chiropractors Roadmap to Financial Growth to determine your best course of action right now. You can quickly create projections based on possible future income levels in order to prepare for various future outcomes.