[00:00:00] Linzy: Hello and welcome back to another Feelings and Finances episode of the Money Skills for Therapists podcast. These are our short and sweet Friday episodes where we answer your questions, the lovely listeners of the podcast. I’d like to think of these as a little financial treat coming into your weekend.
[00:00:17] You may not think of them as a financial treat, but I hope that eventually as you spend more time being with money, and listening to this podcast, and engaging with your relationship with money, these will also feel like a little treat for you. So today’s question is from Liz. Here’s Liz’s question.
[00:00:32] Liz: Hi, Linzy. My name is Liz. Thank you for taking these questions. My question today is about overhead and expenses. So I’m a sole proprietorship private practice. My overhead every month is very low. I’ve been tracking and keeping track of my consistent monthly expenses. And I know there’s also variable costs that aren’t month to month, but I’m still trying to factor that in and have an idea of what I spend each month.
[00:01:10] But my question is, is there a guideline of how much the percentage of your gross should be going towards business expenses? I want to be mindful of keeping my overhead low, but I also want to make sure I’m giving myself room to spend money in order to grow my business. So I would love to hear your input about how can, in private practice, we sort of judge how much we should be spending on all of those expenses, like just all of the technology that we need to use, and marketing, as well as like our, our own professional development.
[00:01:53] So I would love to hear your feedback. Thank you so much.
[00:01:57] Linzy: Thank you so much for your question, Liz. and yes, there are clear numbers that can guide us on this. So I am a fan of Profit First. I’ve been teaching profit first for five years now, and Profit First is a great starting place to give us a sense of what healthy numbers in any kind of business look like.
[00:02:17] So the starting percentages that are suggested by Mike Michalowicz in Profit First, the original book, is that your operating expenses should be around 30%. So, of your revenue, of all the money coming in the door, let’s just say for super easy numbers, if you’re bringing 10, 000 a month into the business, that’s what you’re billing, then your operating expenses should be no more than 3000.
[00:02:39] So that is a starting guideline to give you a sense ofhow do my numbers compare to that 30%? Now I will say, as I’ve been teaching over the last few years, and because of COVID, with more folks going online… You know, before COVID almost nobody was doing virtual therapy and now most people are doing virtual therapy.
[00:02:57] So I have noticed that that has significantly changed what I see as a very typical number in private practice for operating expenses. And now I tend to see more folks who are down around the 15 or 20 percent mark. Depending on their practice size, you know, that especially is going to apply for folks who are either seeing a lot of clients, so they’re bringing in more around the 8, 000, 10, 000 mark, or folks who are out of pocket, maybe charging a higher fee. For them,
[00:03:25] if you don’t have an office that you’re renting, that does significantly reduce your operating expenses, because usually rent is our biggest operating expense by quite a bit. So if you’re just working from home, then probably somewhere more like 15 to 20 percent is a healthy guide for your operating expenses.
[00:03:42] Now, you bring up a great point around, you know, you want to be responsible, you want to make sure that things are in check, but you also want to make sure that you are not, stopping yourself from reinvesting in the practice. So that’s where these percentages can also be helpful. Because sometimes I see when we have more of a scarcity mindset around money, or we’re afraid to take a risk on ourself, then we can actually underspend on OPEX, right?
[00:04:06] So lower is not always better. You know, obviously we want to have our spending in check, but if you notice that you’re sitting more around the 15 percent mark, and there are training opportunities out there, business courses, clinical courses that are calling you, then I would encourage you to think about how much do you want to be spending on reinvesting in the business?
[00:04:29] Maybe it’s through that education. Maybe it’s through getting your website renewed. Maybe it’s through working with a coach one on one, refreshing your office. You know, there’s so many things that we can do to improve the quality of our practice, grow our practice, attract the right people, retain our clients, and I would definitely encourage you to make sure that you have a budget for that so that you’re making sure that you are investing in yourself, right?
[00:04:52] And so often I see the opposite, Liz. I see folks who spend so much on their professional development. The term course junkie has been thrown around a lot, over the years and money skills for therapists, people self describing as course junkies or education junkies, where they’re really overspending
[00:05:09] on that professional development piece. But if you’re underspending on professional development, if you know that there’s opportunities that you’re not taking because you’re trying to keep your operating expenses low, then I would encourage you to set a budget specifically for that, right? Whether that’s professional development, or other kinds of reinvesting you want to do, to make sure that you are putting money back into the business to help you meet your business goals.
[00:05:29] So that might be something like, 3, 000 a year, right? Or 5 percent of the money you earn. Now that’s probably a little high. Let’s say 3 percent of what you earn goes back into reinvesting in the business through one of those ways. That can be helpful to give yourself a guideline for a pot of money that is about reinvesting and taking care of the business to make sure that you are giving the business the care, and attention, and
[00:05:54] personal growth, reinvestment that it needs to continue to be healthy, right? If we get too restrictive sometimes around spending, we’re actually doing our business a disservice because the return that you can get on investing in yourself, investing in your business, if you manage to grow your business revenue by 10 percent a year, you know, sometimes I see people even grow their, their business by
[00:06:15] 20 or 50 percent a year, that’s a way better return on investment than you could get in the stock market, in real estate, in pretty much anywhere else, right? So your business is actually a really great place to invest. So if you know that there’s growth opportunities, I would definitely make sure, Liz, that you are budgeting some money for those, so that you can grow the practice that you want, get more money coming in the door, get more money to spend in your life, save for retirement, those kinds of things.
[00:06:44] So I would encourage you to look at yourself as a good investment. If you trust yourself to follow through and be able to get results with whatever money you spend, you’re probably one of the best investments that you can make. So definitely make sure that some money is going there. So I hope that’s helpful, Liz, a helpful guideline.
[00:06:59] You can sit down now and look at your numbers from those frames, and see how they compare, and decide if you want to be spending a little bit more, a little bit less, but definitely making sure that your money is going to the places that it’s going to have the impact that you want is a very, very good use of your time.
[00:07:14] Thanks so much for your question today, Liz. If you, like Liz, have a question for me, you are welcome to submit it. I would be happy to hear from you. All you need to do is click on the link in the show notes. It’s going to take you to our podcast page on my website where you’re going to see a simple little record button where, just like Liz, you can share your name.
[00:07:31] You can share a little bit of context if you want, and then share your question. I would be happy to answer your question in a future episode of Feelings and Finances. Thanks so much for joining me today.
