Strategically Managing Your Practice Finances
Are you struggling with how to plan your cash flow and how to make accurate financial decisions for your practice and personal life? As a chiropractic practice owner, these decisions can be difficult, whether cash flow is tight or if you are handsomely profitable each month.
I often ask chiropractors if they can afford to spend money on Google Ads, hire a team member, or take a vacation, and the answer is frequently, “I am not sure.”
There is also the chiropractor who has a vision and goals but not sure how to attain them financially and is not preparing financially for that vision and future.
The other predicament a small business owner has is whether to use any “extra” money on business development or in their personal life. The decision making can be difficult, and especially when you factor in your significant other and children. As much as we’d like to have a strict separation of business and personal finances, as a small business, they are undoubtedly intertwined.
I distinctly remember asking this question a couple of years ago in my Strategic Coach meeting in Atlanta. I asked the group of 40 entrepreneurs how they decided where to spend, save, or invest their profits.
That is when a seasoned financial advisor stood up and described the 4 Buckets he uses to make that determination. He explained the 4 Buckets as:
1. Personal expenses/discretionary spending
2. Debt
3. Retirement Savings/Investing
4. Business Growth/Professional Development
Some common examples of each bucket would be as follows:
Personal Expenses/Discretionary Spending
o Saving for a new house
o A Vacation
o A new kitchen
o A new car
o Kids private school
o A second home
Debt
o Consumer Debt
o Student Loans
o Business Loans
o Equipment Loans
o Mortgages
Retirement Savings/Investing
o 401k/IRA/SEP
o Cash
o Stocks/Index Fund
o College Plans
Business Growth/Professional Development
o Start funding $500-$1000 per month in marketing spending
o Buying Office Space
o Purchasing Equipment for office
o Hiring a team member/associate
o Large marketing, practice growth strategies
o Outsourcing to contractors such as coaches, marketing agencies, etc.
As you can see, there can be many options to put your money, and we will get to that in more detail in a moment. First, I want to discuss what you need to put in place before you start tending to most of those options in the 4 Buckets.
With the consistent help of Christine Odle as my de-facto CFO, we have put this in place first before tackling anything else. I highly recommend you read her book “Rockin Your Business Finances” and get a complete understanding of the Financial 4 Walls of your business. You can also check a podcast interview I did on this subject with her.
Here is a great step-by-step approach to take before you dive into tackling other financial and growth goals you have.
Step 1: Cash flow confidence
You need to make sure you have consistent cash flow that spins off a profit before you make any significant financial decisions. Once you have that confidence in your operating account cash flow, I want you to set an operating account minimum.
Step 2: Operating Account Minimum
In my practice, I use $10,000 as my effective Zero balance. I do not want my business checking to get below that. That might sound low, but Step 3 and 4 allow me to do that with confidence.
Step 3: Emergency Fund
Christine Odle recommends that your goal should be to have at least two months of your business expenses (including what you pay yourself) in a separate Emergency Savings account. If you cannot get that right away, her recommendation is to start with getting $5,000 in there, then one month’s expenses, and then ultimately at least two months. You can do more than two months if you choose. This money is for a TRUE emergency, like oh, maybe a global pandemic.
Step 4 Sinking Fund
The sinking fund is a third account for your business and should be a savings account. This is where you put any money for considerable one-off expenses that you are saving for, such as revamping your website, buying a piece of equipment, money towards buying your office space, etc. You can fund this little by little each month, or if you come into a nice sum of money, you can place it all in there and earmark it for that big-ticket item.
You can even put money in there for a new hire you are preparing for in the coming months. I placed $10,000 in a Sinking Fund before I hired my last associate to cover a couple of months of pay so that I had some cash flow buffer heading into the slower summer months of South Florida.
You should have these three types of accounts for your practice and your personal life.
Let us now fast forward into the future when you now have a fully stocked Emergency Savings and Sinking Fund, your operating account is got its minimum in there, and you have cash flow confidence.
Now, at the end of the month, if there is $5,000 leftover in your operating account, you can decide to put that money towards some of the things you and your significant other have deemed to be “Bucket Worthy.”
I highly recommend you, and your significant other communicate extensively on your priorities in life because it is not all about you and your business. It is okay to enjoy your life and invest in that enjoyment for your family.
Sit down over a nice bottle of wine one night and start to prioritize your 4 Bucket desires. I can tell you this, consumer debt is probably something you want to tackle aggressively and early-on.
So maybe your priorities look something like this from the bucket list above.
1. Pay off all credit card debt.
2. Start funding retirement with 15-20% of your net personal income or run a retirement program through your business. You can dive into what is best for you with your advisor.
3. Saving for a new house.
4. Start spending $500-$1000 on marketing for your practice.
5. Sinking fund for a new piece of equipment.
6. Aggressively pay down student loans.
7. Renovate the kitchen.
You can put some of what is leftover in the biz each month into diff buckets as you go along. Now you can have a plan as a family and start to execute it. That is the key to making accurate business decisions and improving your personal financial situation.
I also highly recommend that you communicate all medium to large business decisions with your significant other, even if he/she does not work for the practice. The decisions you make in your business will impact your personal life; there is no getting around it.
No longer are the days of being paralyzed by financial and business decisions. You can now be confident in your finances and the direction you are heading. It will not happen overnight, but at least you will know you have a path, and you are following that intentionally.
Kevin Christie D.C.