Greetings fellow behavioral health practitioners! As dedicated professionals, our primary focus is on providing exceptional care to our clients. However, it’s essential to recognize the significance of maintaining a healthy financial foundation for our private practices. In this article, I’ll introduce you to the “Profit First” accounting model—a transformative approach to managing your practice’s finances. Join me as we explore what this model entails and how you can apply it to nurture financial well-being in your practice.
Understanding the “Profit First” Accounting Model
The “Profit First” accounting model is a revolutionary approach to managing your practice’s finances. It flips the traditional formula of revenue – expenses = profit on its head. Instead, it prioritizes allocating profits first, ensuring that your practice remains financially stable and profitable from the start.
Key Principles of the “Profit First” Model
- Profit Comes First: With the “Profit First” model, you prioritize setting aside a percentage of your revenue as profit before allocating funds for expenses. This ensures that your practice remains profitable from the outset.
- Envelope System: The model operates on a series of separate bank accounts, or “envelopes,” each designated for specific purposes—profit, owner’s pay, taxes, and operating expenses.
- Reverse Budgeting: Instead of determining your expenses first and then seeing what’s left for profit, you allocate a predetermined percentage of your revenue to profit and other financial needs. Your expenses adjust accordingly.
- Behavioral Change: By designating funds for profit and other essentials, the “Profit First” model encourages responsible financial behavior and decision-making.
Profit First Book
- Mike Michalowicz: Meet the author of “Profit First” model, Micke Micalowicz. This book was written for all small businesses. If you want to read one specific for therapists, see the other affiliate link below.
Applying the “Profit First” Model in Your Private Practice
- Assess Your Current Financial Status: Begin by evaluating your current financial situation. Understand your practice’s revenue, expenses, and any existing debt.
- Determine Your Profit Percentage: Calculate a realistic percentage of your revenue that you’ll allocate as profit. This percentage can vary depending on your practice’s stage and goals.
- Set Up Separate Bank Accounts: Create separate bank accounts for profit, owner’s pay, taxes, and operating expenses. Each account serves a distinct purpose and helps you manage funds effectively.
- Allocate Profit First: As soon as revenue is deposited into your main account, immediately transfer the predetermined profit percentage to your profit account.
- Owner’s Pay and Tax Accounts: Allocate funds for your owner’s pay and estimated tax obligations in a similar manner. These accounts ensure you receive consistent compensation and are prepared for tax payments.
- Operating Expenses: The remaining funds in your main account are for operating expenses. These should be managed carefully and reflect the available resources after accounting for profit, owner’s pay, and taxes.
- Regular Allocations: Set a schedule for regular transfers to each account, aligning with your revenue cycles and financial responsibilities.
- Adjust as Needed: Regularly review your allocations and adjust percentages as your practice evolves. If revenue increases, you can allocate a higher percentage to profit.
- Behavioral Shift: Embrace the shift in mindset that the “Profit First” model brings. By prioritizing profit, you’ll naturally become more mindful of expenses and make financially sound decisions.
- Professional Guidance: Consider seeking advice from financial experts or accountants familiar with the “Profit First” model to ensure accurate implementation.
Benefits of the “Profit First” Model for Behavioral Health Practices
- Financial Clarity: The model provides a clear view of your practice’s financial health by separating and allocating funds according to their purpose.
- Consistent Owner’s Pay: Designated owner’s pay accounts ensure that you receive a consistent income, promoting financial stability.
- Tax Preparedness: Allocating funds for taxes as you earn revenue prevents surprises during tax season.
- Profit Focus: Prioritizing profit encourages you to make strategic decisions that enhance the financial well-being of your practice.
- Sustainable Growth: A focus on profitability allows your practice to grow sustainably and invest in its expansion.
- Behavioral Change: The “Profit First” model cultivates responsible financial habits that support long-term success.
Profit First For Therapists
- Julie Herres: Meet the author of “Profit First for Therapists,” Julie Herres. This book was written by a CPA who works with many therapists in private practice.
As behavioral health practitioners, our dedication to our clients often takes center stage. However, tending to the financial health of our private practices is equally crucial for sustained success and the ability to provide exceptional care. The “Profit First” accounting model offers a transformative approach to managing your practice’s finances, fostering profitability, stability, and a healthier relationship with money.
By prioritizing profit, setting up separate bank accounts, and adhering to the principles of the model, you can navigate the financial aspects of your practice with confidence and clarity. Remember that embracing the “Profit First” model is a journey that requires commitment and adjustment. Seek guidance from financial professionals if needed, and allow this model to empower you as you cultivate both financial wellness and professional excellence. With the “Profit First” model as your compass, you’re on a path toward financial abundance and a thriving private practice.
Written by ChatGPT & Reviewed by Clinical Psychologist: Yoendry Torres, Psy.D.
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