Don’t Forget to Pay Yourself and Other Money Planning Strategies: An interview with Carla Titus
Curt and Katie interview Carla Titus, Fractional CFO about what therapists get wrong when budgeting for their private practice. We explore financial strategies to maintain a viable business as well as how you can grow your business responsibly. We talk about making sure to pay yourself first, then set up a rainy day fund, and follow that with saving additional extra funds for hiring or new services before you scale.
Click here to scroll to the podcast transcript.Transcript
An Interview with Carla Titus, Founder and CEO of Wealth and Worth Within
Carla Titus, Founder/CEO of Wealth & Worth Within, is a fractional CFO who provides financial consulting and advisory services to business owners. Finance expert with over 15 years of combined corporate financial planning, analysis, strategy, and established businesses consulting experience. Her priorities for their clients range from growing profits, having cash in the bank, and paying themselves well so they can build personal wealth.
In this podcast episode, we explore what therapists need to know about financial planning for their business
Curt and Katie talk with Carla Titus about financially planning for your business. We look at common mistakes as well as how you can grow while still paying yourself.
What does financial planning look like for a therapy practice?
“I think what happens often is we have an idea, we make a decision, and then we run out of money before we can execute fully on that idea. And we don’t want that to happen to you. So we want you to plan proactively to avoid that happening and being in that situation.” – Carla Titus, Founder and CEO of Wealth and Worth Within
- Managing cash flow
- Understanding the Return on Investment for new ventures
- Running the numbers on costs and revenue, the gross margin
- Calculating the profitability of adding clinicians or trying new programs
- Working to get a total profit margin of 10-20%
- Creating a reserve fund and saving profit to reinvest, when needed
Common Mistakes therapists make when financially planning for their practice
“Cash flow doesn’t equal profit.” – Carla Titus, Founder and CEO of Wealth and Worth Within
- Not paying attention to their expenses
- Not tracking cash flow (i.e., not getting billables timely and having expenses that are due before you have the money on hand)
- Therapists often avoid looking at numbers
- Scaling before you have another reserve of money to fund it (2-3 payroll runs for a new employee for example)
What should therapists do before hiring a clinician into their private practice?
“ So,[if] you’re already thinking about hiring, I say put a pause on that thought and really rethink what is your priority. And it should be to pay yourself first.” – Carla Titus, Founder and CEO of Wealth and Worth Within
- Save money from profit to reinvest into the business
- Making sure you have your rainy-day fund prior to adding additional funds to float a new person as they get up to speed
- Make sure you’re able to pay yourself while bringing on the new hire
- Order of priority: pay yourself, save for a rainy-day, then save for scaling
How can a therapist manage their “money,” even when they are just starting out?
- If you’re taking out a business loan or grant, have a plan for how you’re going to use that money
- Focus on revenue generating ideas to be able to get money and/or pay back loans
- Expenses should also have a high return on investment for the business longevity and the bottom line
- Try to avoid shiny object syndrome
- Know the expectation of the outcome for the money you are spending (for example on marketing)
- Evaluate outcomes and course correct when needed
- Beware the sunk cost fallacy
Resources for Modern Therapists mentioned in this Podcast Episode:
We’ve pulled together resources mentioned in this episode and put together some handy-dandy links. Please note that some of the links below may be affiliate links, so if you purchase after clicking below, we may get a little bit of cash in our pockets. We thank you in advance!
Carla’s website: www.wealthworthwithin.com
Wealth & Worth Within: LinkedIn Instagram Facebook
Relevant Episodes of MTSG Podcast:
Understanding Your Money in Private Practice: An Interview with Jennie Schottmiller
Making Every Therapy Practice Profitable: An Interview with Julie Herres
Financial Therapy, An Interview with Lindsay Bryan-Podvin, LMSW
Who we are:
Curt Widhalm, LMFT
Curt Widhalm is in private practice in the Los Angeles area. He is the cofounder of the Therapy Reimagined conference, an Adjunct Professor at Pepperdine University and CSUN, a former Subject Matter Expert for the California Board of Behavioral Sciences, former CFO of the California Association of Marriage and Family Therapists, and a loving husband and father. He is 1/2 great person, 1/2 provocateur, and 1/2 geek, in that order. He dabbles in the dark art of making “dad jokes” and usually has a half-empty cup of coffee somewhere nearby. Learn more at: http://www.curtwidhalm.com
Katie Vernoy, LMFT
Katie Vernoy is a Licensed Marriage and Family Therapist, coach, and consultant supporting leaders, visionaries, executives, and helping professionals to create sustainable careers. Katie, with Curt, has developed workshops and a conference, Therapy Reimagined, to support therapists navigating through the modern challenges of this profession. Katie is also a former President of the California Association of Marriage and Family Therapists. In her spare time, Katie is secretly siphoning off Curt’s youthful energy, so that she can take over the world. Learn more at: http://www.katievernoy.com
A Quick Note:
Our opinions are our own. We are only speaking for ourselves – except when we speak for each other, or over each other. We’re working on it.
Our guests are also only speaking for themselves and have their own opinions. We aren’t trying to take their voice, and no one speaks for us either. Mostly because they don’t want to, but hey.
Stay in Touch with Curt, Katie, and the whole Therapy Reimagined #TherapyMovement:
Consultation services with Curt Widhalm or Katie Vernoy:
Connect with the Modern Therapist Community:
Our Facebook Group – The Modern Therapists Group
Modern Therapist’s Survival Guide Creative Credits:
Voice Over by DW McCann https://www.facebook.com/McCannDW/
Music by Crystal Grooms Mangano https://groomsymusic.com/
Transcript for this episode of the Modern Therapist’s Survival Guide podcast (Autogenerated):
Transcripts do not include advertisements just a reference to the advertising break (as such timing does not account for advertisements).
… 0:00
(Opening Advertisement)
Announcer 0:00
You’re listening to the Modern Therapist’s Survival Guide, where therapists live, breathe, and practice as human beings. To support you as a whole person and a therapist, here are your hosts, Curt Widhalm, and Katie Vernoy.
Curt Widhalm 0:15
Welcome back modern therapists, this is the Modern Therapist’s Survival Guide. I’m Curt Widhalm, with Katie Vernoy. And this is the podcast for therapists about the things that go on in our practices, how we show up as business owners, and this is an episode where we’re diving a little bit more into some of the nuts and bolts of managing a practice and just being able to kind of look at the things that I hear a lot from our community as far as: they never taught us this kind of stuff in grad school. Or people who are like, I shouldn’t go and get an MBA so that way, I know how to run a practice. I’m always like, it’s a big commitment to be able to do something that helps us to be able to run the practice. But we are joined today by Carla Titus, Fractional CFO from wealthworthwithin.com. And here to talk about money and looking at money and being comfortable with it and all of that kind of fun stuff. So thank you very much for joining us.
Carla Titus 1:15
Yeah, thank you for having me. I’m excited to talk about money. Teach everyone that MBA that they want to get, but we can just do it in the next, you know, 20 or 30 minutes.
Katie Vernoy 1:24
Perfect, perfect.
Carla Titus 1:25
For you the years of learning.
Katie Vernoy 1:26
Yes, yes, yes, distill it all down, so we can eat it right up. But before we do that, let’s jump in with our first question, which is, who are you? And what are you putting out into the world?
Carla Titus 1:37
Yeah, so I am an ex corporate finance manager that decided that my gifts were best used for small businesses, and to bring the knowledge and education that was a gap. Nobody ever taught you how to manage money, not even in your personal life, let alone in your business. So, there’s this educational gap that we’re trying to close so that we can empower business owners to really, you know, manage and control their finances. Because at the end of the day, it’s what gets you out of business fastest. It’s what lets you not sleep at night, if it’s not managed well. But it’s also the thing that will help you feel all the impact that you want to have. And make sure that you’re able to put the work to support people out there by keeping a healthy standing in your business. So, I started this consulting out of the need for helping small businesses thrive for on the money side of things, but also, again, bring that educational aspect so that they feel that they can do it themselves with a little help.
Curt Widhalm 2:34
So when I asked at the beginning, or before we started recording, how to introduce you, and you said, I’m a fractional CFO. And for our audience, and anybody else who may be on the podcast, who doesn’t know, what is a fractional CFO?
Carla Titus 2:50
Great question. We get this a lot, because a lot of people have not been introduced to the role of finance. And the way that I like to explain it is: think about your current team, you most likely have some kind of bookkeeper in your team that’s handling the day to day transaction categorization in your accounting software. You might have an accountant that’s handling your taxes, for you know, we’re coming up on tax season, so they’re working really hard to get that done. And your books is what gets given to your accountant to get your taxes done. And then if you think a little bit farther from that, what are you doing to proactively financially plan your business outcomes and goals and desires? And how do you achieve those goals and stay on track, that is the function of a CFO, and in this case, fractional because you don’t need a full time person yet in your company. But you need access to the level of leadership and expertise in order to be able to draft those goals and achieve those goals and also monitor your performance financially throughout. And you know, nothing is perfect in business. So, you’re gonna have obstacles, things will go sideways, and you need someone who can partner with you to help brainstorm solutions and also get you back on track.
Katie Vernoy 3:58
Another question that we typically ask folks at the beginning of the episode for learning is what do therapists get wrong? And in this situation, you’re saying things are gonna go wrong anyways. When we’re looking at, you know, psychotherapist, those businesses, what do therapists usually get wrong when managing their financial or business aspects of that business.
Carla Titus 4:20
Yeah, they think planning is hard. They don’t want to do it, because like, well, what’s the point if everything’s gonna go wrong anyways? And what I say is, what is important is not being 100% accurate. What’s important is setting the direction on what you’re trying to achieve for your company, being very intentional about that. And then following through with an action plan, step 1 through 10 to get you there. Because what happens is when we don’t do the work, we will not achieve any of those goals and then we’ll be frustrated and back to where we were, we haven’t grown. We haven’t seen profit in the business and we’re wondering why we’re doing this if we’re not paying ourselves a good salary? And we don’t want you questioning that. We want you to have a plan that leads the way towards achieving those goals. I mean, we have a lot of therapists who have gone through so many years of education, they’re really good at what they do, I think is only fair that they get compensated well for what they do. And then also get to have that impact that they want to have. And that doesn’t happen if you don’t have the funds to be able to cash flow your way to having that impact and results for your clients and be able to support them hire more therapists, and be able to kind of stay on track financially so that you can continue to be in business long term. Proactive planning is setting that intention, is having the goals, knowing where you’re going. And then yes, you will have to correct along the way. You will have to take detours. But then the goal is still forefront and making sure that you’re tracking and monitoring how you’re performing towards that is going to be key in achieving those.
Curt Widhalm 5:49
So, what does that conversation look like if somebody is coming to you, and they’re saying, I want to take on a new employee, I’ve been you know, getting more referrals than I can handle myself. Or I want to start a new branch of my business that offers something that requires something like neurofeedback, that requires, you know, a lot of equipment or something like that. They come to you and they say, I have been super successful so far. And this is just an extension of my success. And what do you kind of help to add to that conversation to help make it to where okay, this is a thoughtful cashflow thing, rather than just kind of a reactionary. Oh, maybe this isn’t just as easy as bringing somebody else into the office.
Carla Titus 6:32
Yeah, we start having conversations around return on investment. So, what are you expecting to get out of investing in this equipment or out of bringing the new hire? And then we follow that with: Can you afford to do so? And that’s where it gets really tricky, because I think we sometimes make decisions without thinking about: can we afford to do this? And are we in a good cashflow standing to be able to have someone that comes on takes maybe two to three months to get a full caseload under their belt, where they’re bringing you back that ROI you expected. But in the meantime, you’re still having to make payroll for the first two through three months without any maybe benefit just yet. And having done the math on that is really what helps that decision making because you know, you have enough cash that will get you through that period. Also, if they’re not full in three months, what are you do? What are, you know, the plans and actions that you will take if things are not going according to plan? And that’s where it starts with the decision making. But it continues with the monitoring on: what are we achieving? How quickly are we getting there? And if things go sideways, can we spare another three months for this clinician to get up to full capacity? Maybe the answer is yes. Maybe the answer’s no. We might need to do something different. And so we start to outline some of those risks and opportunities on what you expect the return on investment to be for this new hire, this equipment, whatever the new venture that you’re trying to do, and then make sure that you have the cash flow to invest in that effort and then be able to see it through. Because I think what happens often is we have an idea, we make a decision, and then we run out of money before we can execute fully on that idea. And we don’t want that to happen to you. So we want you to plan proactively to avoid that happening and being in that situation.
Katie Vernoy 8:15
What do the numbers look like on that as far as like hiring a new employee, you know, as far as a clinician who’s the ROI will be that they’re seeing a full caseload and you’ve managed the compensation properly. So, when they’re doing that you’re making money. Like how do you know when you’re at a spot to actually be able to hire?
Carla Titus 8:35
Yeah, so it comes back to your financial plan. So, if you haven’t sat down and looked at what are your existing expenses? What are you bringing currently into the company as far as revenue, clinical billable hours? You know, reimbursement rates, if your insurance, you know, you’re not going to get the full amount you bill for so taking all those numbers into account and then mapping out what is adding a new person looked like cost wise, as well as the benefit: the billable hours, that extra revenue you’ll be bringing on. And thinking through what that could be worst case scenario, best case scenario. So that way, you’re not sad when you know, they’re not bringing their full caseload up to speed right away. And you can play with numbers, you can see maybe it’s a 15 hour clinical workload to start and then you get to 25, eventually, two months later. And so you start do the math between that the billable rate, you know, you take into account the insurance write off if you have an insurance based clinic, and then you look at the math. And the math will tell you what is what we call a gross margin. Essentially, the money you bring in minus the cost divided by the money that you expect to bring into the practice and that will give you a percentage. And normally we tried to be between 40 and 50% after paying the therapist on margin so that you know you can support the operations of the business and you have room left over for profit as well. And that is where owners compensation comes out of as well.
… 9:58
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Curt Widhalm 9:59
What do you hear as kind of kind of the deer in the headlights kinds of questions when people are first making the step. I think, you know, for people who’ve run group practices for a while, you’re already speaking a language that a lot of them already adopt. But what kind of questions do you hear back from people that are like, Oh, I’d never thought of this or like, what, let’s normalize this a little bit for some people who, okay, I have a bank account, and there’s money in it. And I’ve never put thought of this stuff before.
Carla Titus 10:30
Yeah, and that’s a really good perspective because I think a lot of what happens is this terminology just gets really complex or feels like it can be complex. And we’re trying to really simplify things for, you know, the people we work with. When I hear, Well, I have money in the bank account, so I’m just gonna go ahead and make decisions out of that. What that is missing is the aspect on all the commitments and things you’ve already agreed to pay for that are coming due in the next two weeks, three weeks, a month out. And you’ve neglected to account for that in your decision making, because all you’re doing is looking at just the bank account balance. And so what we want you to look at is really the profit of the business. And yes, cash flow as well. Of course, we want to make sure money’s coming in and stay in with you. But practically planning both sides of it, and cash flow doesn’t equal profit. And I think that’s where people get, you know, this misconception of, well, I made money at the end of the month, but where’s all the money going? My bank account doesn’t show it. What happened, who stole money from me? Like no one, you actually spend it. And they’re, like, wait, what? Just because you profit doesn’t mean you have cash. And that’s because you haven’t properly manage your cash flow, and plan for how you’re going to deploy funds. Maybe you didn’t get paid, like people forget that you have to collect on receivables. And maybe someone is withholding payment not on purpose, maybe they forgot to pay you or maybe they have taken a little longer to pay, but the bills are still due. So, you might have paid for, you know, an office space or rent that was due on the first but you didn’t receive the funds that you expected to be able to cover that expense. Rent doesn’t stop just because you don’t get paid. So now you’re out that money, but now nothing came in to offset it. So making sure you understand that timing of the cash flow and reconciling that with what were your results for the month on what money is left, after you pay all expenses is gonna really help you start getting some more clarity on where your money is going and what’s happening. Because we get that question a lot. I’m like, why is my bank account not looking happy, but my profit says I should be happy.
Katie Vernoy 12:35
And it’s interesting. So, there’s the stereotype, and some people might say this feels very true. And I feel like it’s not totally true, but that therapists are notoriously bad at math, and just are afraid of it. And so, you know, to simplify this even further, it seems like there’s an element of this where what you bring in and what goes out, that’s simple math, right? Like, you know, revenue minus expenses equals profit, right? And we have other episodes where it talks about how to play around with that, that equation to, to support you in different ways. But to me, you know, if we’re, if we’re looking at that cash flow, that requires a lot of math, that that I think a lot of clinicians might shy away from. But you’re also talking potentially just about having enough money to be able to cover the costs of the first two months of whatever this scaling is. So, whether you’re hiring, or you’re buying equipment, and so there’s maybe another number to look at, too, which is how much is kind of in the in a reserve and potentially a special reserve that’s that’s put in place to be able to manage some of these things. Is there a magic number there of how much in reserve you should have, or how much special what special pot of money you should have in order to jump forward with one of these things. Because to me, there’s, there’s a couple of different pieces here; that’s managing your day to day, you know, kind of profit and loss and all of that kind of stuff. But then there’s also this, like, I’m going to make a jump that’s going to mean that for a couple of months, I’m negative, and I have to be able to cover it. So, what what does that look like? How does somebody figure out that number of like, I need to have this much in reserve or this much that I’m willing to invest in order to make this jump?
Carla Titus 14:27
Yeah, and I say I hear a lot that therapists are not good with math. But then when we boil it down to simple terms, and kind of walk them through the numbers, they’re like, Ah, I get it and you know, it sounds magical. We can do a lot of math for you. So just..
Katie Vernoy 14:42
Sure.
Carla Titus 14:43
That other sometimes I think we use that as a way to avoid looking at the numbers because maybe we don’t love them or we have money mindset. This is big, right? It happens we understand, and we’re gentle about our approach towards Hey, let me walk you through the numbers help you understand that because once you do you’ll feel more in control or willing to even, you know, address what’s happening. And it also gives you a lot of insight on where you’re at as the starting point and then making progress from there. So, side note on that. To your question on scaling and affordability. So you’re right, when we’re starting to scaling, it’s a different pot of money, we want to be saving for outside of your current run rate of expenses, what you’re used to spending every single month towards covering your costs of the business. Now you’re going to go to the next level, it’s going to be more expensive. So we want you to prepare ahead of time with two to three payroll runs for this new employee costs. So that way, you’re not caught off guard if things are not going well. Now, we want to make this decision before you make a hiring decision, you have this money set aside, not after the fact. Because I see that a lot. They’re like, Oh, I hired yay, oops, I need to save money right now. That might be a little too late. So you want to go back. And think two, three months before making the hiring decision that you will intentionally set aside some money, that you’ll start to put it in a separate bank account, if needed out of sight out of mind. And then ideally, you maybe you don’t end up using no money at all. And then it ends up being more profit for you or more distributions as an owner. But the idea is that it’s there in case you need it. So that way, you’re not stressing out, you’re not pushing that timeline, you’re not, you know, demanding of the therapists work harder, work faster, I need to make my money back. You’re just saying, it’s okay to have a ramp up period. Because we all know, when you’re new to a company, and you’re starting your workload, or your caseload picking up, it takes a little bit of time before you see it fully at capacity. So just keep that in mind, I know that this hire might cost you first. But ultimately, they will re returning their, you know benefit to the company once they’re at that full caseload. And you don’t have to stress about it, which is the best part about having saved for this ahead of time. It’s not a surprise, you plan for it, you have the money. And you can just let it and see it through obviously monitor performance every month, we’re not saying just wash your hands off and like be like, I have the money. So it’s fine, whatever they can fail. But really, you know, keep working towards making progress on that full caseload, when you bring in a new hire. And then you will feel a lot more at ease with that ramp up period. Because we’ve seen times where that hasn’t been the case. And it’s very, very stressful for both the hire and the company that employ them.
Curt Widhalm 17:18
I want to go back to something that you mentioned earlier that, I think will loop back into what you’re just saying here. But you had mentioned about that 40 to 50% margin as far as profits on what people are bringing in. First, where does that 40 to 50% number come in. A lot of the clinicians that I’ve talked to have repeated this. But I think a lot of their reasoning for it as well. I just heard this from somebody else who runs a successful group practice. So from kind of the finance side, rather than just kind of copying and pasting what everybody else does. Can you get into that a little bit, then my follow up question is going to be: How do you look at that margin when it comes to saving for what you just described as being part of kind of the the bigger equation here?
Carla Titus 18:07
Yeah, so great question. So to clarify, the margin piece comes from benchmarking, you know, successful businesses. And if you go look at some of the bigger companies, they have, you know, financial statements up available, they have to report them per SEC, and you can see kind of what margins they operate at, and that we could always strive to benchmark, you know, with big companies that are doing great work. But for a small business, what we find is that, that 40 to 50% is very achievable with the right mix of experience, and maybe more junior clinicians or even interns. And, you know, we couldn’t get into the weeds on like, what is the right mix and all that. But the point of the day where we want to allocate a certain a certain salary amount that we are trying to hit and then hire within that where we can afford to hire so that we can try to keep control of the margins. And why that 40 to 50% margin is important is because you still need to have money left over to pay for admin staff, to pay for your rent office space, you need to be able to pay utilities, you need to be able to pay any, you know, consultants or anyone else that’s helping the business. And if there’s not enough room for that, then there won’t be enough money leftover for profit. And we’re trying to hit a 10 to 20% profit at the end of the day, ideally, no less than 5% because that’s a little dangerous. And you know, the practice of scaling and growing will be around 10 to 15% profitability as long as their margins are healthy at the 40 to 50% mark. So that’s kind of where that comes from. Because there’s allocation now leftover for expenses and also for clinical wages for delivering the services that you need in order to generate a revenue. So it’s not just a made up number, it’s a balanced approach to you know, driving profitability percentage for the company.
Curt Widhalm 19:59
So when you’re encouraging people to kind of save for a an investment in something like this, then it’s just like, Okay, we’re gonna adjust that 10% profitability down for 8% for a couple of months, so that way you’ve got it kind of stowed away in a new account. Is that kind of how you end up walking people through this?
Carla Titus 20:17
Great clarifying question. And actually, we want you to still hit that 10% profit minimum. What we’re going to do is take some of that profit every month and set it aside. So instead of you just be cashing it all out and be like, Oh, I’m gonna live it up and take all the money I have left for the bank account and move it to my personal. You say, Wait, the business is an investment, and we need to scale, we choose to scale at this point we want to grow. So we want to reinvest some of that profit back. And the way that we do that is, we don’t just deploy right away by hiring someone, we just set it aside for a minute, give ourselves a two, three months to save it, then when we have the right amount, like we mentioned, you know, two, three payroll cycles, essentially of the new hire, then you can go make the decision to hire with the money you set aside from profits. And you know, that’s a decision you get to make as an owner, because you could take it as an owner’s draw, you could pull the money out for your own personal benefit, but you choosing to reinvest it back for that growth.
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Katie Vernoy 21:13
When you’re talking about setting an aside, are you talking about setting an aside, you know, and letting it sit? Or are you talking about actually investing it and trying to earn some money on the money? I was trying to hear where you were going there.
Carla Titus 21:23
Good question, yeah, no, actually, literally let it sit in on a savings bank account, like doing nothing. Like maybe you get a money market, and it gives you 5% at this point, you know, because there’s some of those happening. So that will be great, because at least your money is producing some kind of outcome. But realistically speaking, those will not be here forever. So it might just be sitting on a checking or savings account, earning 0.001%. And you gotta be okay with that. Because this is the safety net we are creating in order to be successful, and again, be able to see through this hire getting to the point where they’re returning on that investment. And no, we don’t want to do anything fancy with a market or put the money long term, because we need that money in the next two, three months. If you’re talking about investing for the next 5 to 10 years for your company, then maybe go ahead and, you know, put in the stock market, because that’s long term investing versus short term, we just want to keep it nice and safe and tight, because we will need it really soon.
Katie Vernoy 22:21
With, with this planning, there’s like I’m going to set aside a pot of money for this new hire that I’m gonna have. It also seems like we need something for a rainy day and we there’s there’s a lot of different places. And so this this, the the margin seems to get smaller and smaller. If I’m putting aside a whole bunch of money for growth and for catastrophe. Can you can you kind of dig into that a little bit more, because I feel like sure, you know, I can put all this money away and just not pay myself very much and like store this profit. And maybe I’ll take it at the end of the year because the 10% profit will be there by the time this new hire gets up to speed. But to me, it just it feels like there’s a lot of places people can kind of squirrel away money kind of protectively that may make it harder for them to, you know, kind of create the life they want even.
Carla Titus 23:18
Yeah, that’s a great point. And it’s something that we very much emphasize with all of our clients. And that is that we need your business to provide for you whatever lifestyle that you chose. Because you know you’re doing a lot of hard work here. So, we are saying that priority should be that you pay yourself, right. So, before you scale, before you do all the crazy things, try to grow and do all the profitability savings squirrel away, I need you to be a line item in your p&l. So you should be on the expenses getting a salary. That’s number one. So, if you’re not even there, and you’re already thinking about hiring, I say put a pause on that thought and really rethink what is your priority. And it should be to pay yourself first, okay, because I’ve seen too many businesses that pay everyone else but the owner and then like one day, one day I’ll sell I’ll one day I’ll have buffet and one day doesn’t really come on. So like just, you know, we want to balance that with reality, right. And the reality is we created a business that needs to provide for us first and then for everyone else, as well as we grow and scale. So make sure that you address that from the beginning. It’s a habit and it doesn’t come easy down the road one day doesn’t just happen you need to be intentional about prioritizing your your pay and your needs. Once you’ve covered that, now you’re talking about an extra, you know, 10% of profit left after you pay yourself. Now you’re going to use that to either save for a rainy day because rainy days do happen. And at the same time if you want to scale maybe save for scaling and you need to get your priorities right. Rainy Day savings punch first. Saving for scaling comes next. And the reason why that is is because you don’t want to be in a situation where you’re down clinical hours. Something happened or the slow season hit and then you don’t have money to cover your expenses. That’s what the rainy day fund for you to three months of expenses, just have it set aside so that you know, I am good, even if things don’t go well, this month, I will be okay. And then I can take that time, but what we’re doing is buying yourself some time to react to make any changes necessary so that you can change the direction of what’s happening. And creativity doesn’t flow when you gotta make rent tomorrow, okay, so let’s get, make sure we give ourselves the luxury of time to respond to what’s happening, come up with some ideas and also execute them and see them through. Then when you’re looking to scale. Now that you have your little cushion runway fund for all expenses and things that might go sideways, then you start to save for scaling. And so to be realistic, this doesn’t just happen overnight, it’s not going to happen in one month, you need to be saving ahead of time in a disciplined manner. And maybe it’s just put away 2% of your profit, and the other eight, maybe you get to take some ownership, or maybe you put half of it away, and you start to build it up. And before you know it because you’ve been disciplined and you know, every month you’re putting some away, you’d be surprised how much you actually ended up saving in the company. Assuming you know, you didn’t have any catastrophe or things that went wrong that, you know, it’s gonna happen, unfortunately, in business, but that is just part of, you know, being I think a business owner, we get to deal with that. And we get to be on the other side of it once we solve the problem. But yeah, that is my priority list is: pay yourself, save for a runway fund cushion fund, and then you can start saving for scaling next.
Curt Widhalm 26:40
Everything that you’ve been talking about so far has involved people already having money or already having cash flow. I know some people who explore or take out business loans in order to be able to expand on their practices or take on some of this kind of stuff. And how did those fit into the equation that you’re talking about here?
Carla Titus 26:59
Great question. So when we are looking for financing options, what you need to understand and know is that you’re not going to get a loan if your business is not performing financially. If you’re just getting started, you might be able to make a case with a solid business plan that there is an upside for this, and you most likely will have to personally guarantee some of those loans in order to get them. So, just to be clear, financing will happen. But you will end up having to be involved in some way personally. What we try to do when you’re getting loans or getting grants to get started is just make sure that you have a plan for that money before you get it. Because once it hits a bank account, you can find so many things to spend it on, and nothing that moves the needle or makes you money back. So you know, if you’re gonna invest in marketing, make sure it’s the right type of marketing, that’s getting your results. If you’re gonna, you know, invest in some visibility, like make sure that they’re the right type of things that will yield paying customers in the door, not just you know what everyone else is doing that maybe it’s not gonna work for your business. So make sure you have a plan on how you’re going to pay those loans back. A lot of what I see, when business owners take out those loans is like, well, we’ll just deal with it later. And the payment is due next month, just so you know, and we need to have to put it in the budget so that we know we can afford to pay that back at the same time that we’re producing the results from a revenue perspective. So your priority should be to go lay in the clients you need to make sure that you’re you know, listed in the right places, and that you’re bringing the right leads and converting in order for you to then be able to afford to pay that loan back over time. And no matter if you’re established business or a new business, you need to have a plan to pay that back and off over time and maybe in an accelerated manner if you end up having more success than you expected. But the debt payoff plan is just as key as taking some of the financing in whatever way it comes. If it’s grant money, you know, there’s restrictions with that. So just kind of be mindful of what type of money you’re getting them from who and what are the terms to pay that back.
Katie Vernoy 29:01
We need to understand the cash flow in our business, we need to be able to prioritize the right things. And so far, we’ve got, pay yourself, get a rainy day fund. And then you can start thinking about saving to scale. To me, there’s this other thing that you started talking about that I think is really, really important. And I don’t know if we can nutshell it, but I think I just want to add it on if we have a couple of minutes left.
Carla Titus 29:25
We’re going to try.
Katie Vernoy 29:25
We’re gonna try. But but it’s it’s how do you spend the money that you’ve saved, right? Or that you for this scaling? And I’m hearing and so I want to clarify with you: prioritize the stuff that’s going to make you money. And so, you know, I know that there’s a lot of therapists that will worry about their office or their furniture or a fancy application that’s going to change the way they practice or training or those types of things. And yes, all of those things potentially could have impact on bottom line, but, but they may not. And so how does someone identify like a quick assessment of is this investment worth, what the potential ROI is?
Carla Titus 30:12
And I’ll tell you, I’ve heard so many shiny object destructions people want to invest money on it. I’m just cringing over here. Like, what’s the point of business for us to make money? Just saying, right? Like, let’s clarify, right? There’s a lot of nice things we can buy, have, invest for in our business, and everything has its time, right? When things are going well go invest in that shiny thing, like the new software, the new, you upgrade your office furniture, guess what you can start with cheaper furniture, right, or the minimum and then upgrade when things are better. So, there’s just I think these are just delay strategies to go do the hard work. And the hard work is getting paying clients or getting patients in the door, going and drum up, you know, some business. And when you’re looking at investment opportunities, what I want you to think about is what is your expectation of the outcome, you want to see from putting this money out there, or paying this person for XYZ? And if you don’t have clarity on what that is, because people are just making your promises. And you know, you’re not seeing results a month in, two months in, you need to start asking questions. We see this a lot with you know, some marketing strategies that maybe are not working anymore, or, you know, you rather do organic than paid. And there’s so many conflicting advice out there. And then at the end of the day, I think you need to focus on what are the results that you expect to drive with this investment? Is there going to be a 2x your investment back? Is it a 3x? Is it 10 new leads? Is it 100 new leads? What are you expecting? And then you need to measure along the way as you’re making that investment, what are the outcomes, you’re actually seeing? Meaning if you can’t track them, this might be a harder investment to you know, like, get behind. Because you’re like, Well, I pay for this, but I did I get clients? Like, can you like, can we see that? Where’s the deal that like they we give them a code? Like how do we track this? And I think that’s because the challenge is a lot of people are not thinking about what are your expectations going into this investment before you make it? Again, always keep before you make it? And then to measuring: Are we getting those results? And if not asking, why are we not? What can we change? And how do we make sure that this ends up being worth it? Are there ways do we need to cut it short? And I know people just get so caught up on Well, I made a six month commitment. So I kind of have to see it through and it’s like nope, if you’re not seeing results in month or two, I would reassess whether or not you need to exit left and try something else. Because we could always have new things we can try at a small scale than an we see they work. I’m gonna put my money 10 times over on that one, because I know I got results. And that’s where you start to see things that move the needle in your business.
Katie Vernoy 32:52
Yeah.
Curt Widhalm 32:53
Do you have a part of your website that’s just like sunk cost fallacy that when you talk with people about this, you just you’re like, Here, go go to my blog on this. And…
Carla Titus 33:03
It sounds like we are going to be writing that up. A lot about some calls with our clients, because I think there’s a lot of times where we go into investments that we think are gonna be good. And then we, you know, we’re like, aware of the numbers, we obviously work the math and say, Hey, this is the level of investment. Are you okay if we walk away with nothing, because, you know, things just didn’t work out? They’re like, Yes, I am, actually. But they go in with eyes wide open. So then it’s not a surprise, when we have to exit that investment that that is sunk costs. Unfortunately, it really sucks. And that we knew the math ahead of time, though. So we were okay making a decision intentionally. And we’re not just surprised and shocked that it didn’t work and Oh, my God, what are we going to do? And that we have the cash to also afford that sunk cost. And it is part of you know, doing this, and I think a lot of us have experienced things that just we tried and didn’t work out. And that’s okay. But there’s things that we try and they’re amazing. So, again, set that expectation upfront so that you know what you’re getting into.
Curt Widhalm 34:05
Where can people find your website and all of the other stuff that you’re putting out into the world?
Carla Titus 34:11
Yeah, they’re welcome to sign up for our newsletter or book a call if they’re ready to hire fractional CFO on our website wealthworthwithin.com. We also put a lot of free educational content on social media, you can follow us on Instagram, on LinkedIn, we’re very active on Facebook as well. And we just want to make sure that, you know, people get the education that they’re missing. They don’t have to go to school to get an MBA for it, they can just, you know, follow us implementing some of the actionable small nuggets of wisdom that we share about managing your finances and your practice, because we want you all to be successful and profitable and paying yourself and building your own personal wealth, while helping others that need your support.
Curt Widhalm 34:50
And we will include links to that in our show notes over at mtsgpodcast.com. Follow us on our social media, join our Facebook group, the Modern Therapist Group to continue on with this conversation, and until next time, I’m Curt Widhalm with Katie Vernoy and Carla Titus.
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