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Making Every Therapy Practice Profitable: An Interview with Julie Herres

Curt and Katie interview Julie Herres of GreenOak Accounting about her new book, Profit First for Therapists. We explore what profit first is, the unique challenges that therapist face in implementing profit first, the core principles of profit first, mistakes therapists make in implementation, and the benefits of using this bookkeeping model.

Transcript

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An Interview with Julie Herres, Author of Profit First for Therapists

Photo ID: Julie HerresJulie Herres is the founder and CEO of GreenOak Accounting, a firm that exclusively serves therapists, psychologists, and counselors in private practice across the United States. Over the years, Julie and her team have worked with hundreds of private practice owners and developed serious knowledge about what makes a practice financially successful. GreenOak’s goal is to help practice owners feel comfortable with the financial side of their businesses and have profitable practices. Some of the firm’s biggest success stories were achieved through implementing Profit First. Julie is an accountant and an enrolled agent (EA). She is also a speaker and the host of the Therapy for Your Money podcast.

In this podcast episode, we talk about the profit first method specific to therapy practices

Therapists often struggle with their money, oftentimes forgetting to pull out profit or paying themselves. One accounting system that helps therapists to better manage their money is Profit First. Our friend, Julie Herres, has written a book about this system with specific information for how this accounting system applies to therapists.

What is Profit First?

“Profit First turns [the traditional accounting} equation upside down. And so that means income minus profit equals expenses. And when we carve out an amount for profit upfront, that means there’s less leftover and that is what we have left to run our business with.” – Julie Herres, Author, Profit First for Therapists

  • Focusing on profit as a given number in your accounting
  • You identify the profit you need FIRST to determine what you can spend on your expenses
  • An accounting system created by Mike Michalowicz

What are the unique challenges that therapists face in implementing profit first?

  • Therapist guilt and emotional processes that get in the way of therapists mastering the money in their businesses
  • The stages of change that go into realigning your budget to stabilize your finances in your business and personal life

The core principles of Profit First

  • “Use a smaller plate” so you spend less money. You add bank accounts, so each is smaller to divide out your profit, expenses, pay, and taxes.
  • “Serve sequentially” – to the different bank accounts
  • “Remove temptation” – the idea is that you won’t use money that is in a labeled account for something else.
  • “Enforce a rhythm” – moving money consistently, to help see the ebb and flow of money in the business.

Mistakes therapists often make in implementing Profit First

“Are all the accounts needed? I would say yes. It’s very interesting to me that that’s typically the barrier to entry. A lot of people are worried about like, ‘Oh, do I really need it? I don’t want to deal with going to the bank, opening them up.’ So often, that’s one of the reasons people drag their feet. And at the same time, on the other side of that, I don’t think I’ve ever heard a client say, ‘You know what, I wish I had not opened those bank accounts. That was unnecessary.’ What we hear on the other side is, it really wasn’t as hard as I thought, and I wish I had done it sooner, because it really is a game changer. Like if I had to pick one key to success, that would be it.” – Julie Herres, Author, Profit First for Therapists

  • Not changing spending habits
  • Changing too much too quickly
  • Not creating separate bank accounts (this is a key to success)

The benefits of using Profit First in your therapy practice

  • Understanding where your money is going
  • Planning for scaling into a group practice
  • Looking at finances in a structured and consistent way
  • Understanding the percentages for all the money in the business
  • Making sure that you are paying yourself and taking profit in your business

Thoughts about group practices

  • The different phases of growth
  • The benefits of using a more structured system to weather the emotional challenges of growth in your business
  • Reverse engineering your practice to support your life

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!

The Book: Profit First for Therapists by Julie Herres

https://www.profitfirstfortherapists.com/mtsg

@Julie.Herres on Instagram

GreenOak Accounting

Facebook Group: Profit First for Therapists

Relevant Episodes of MTSG Podcast:

Don’t Take Tax Advice From Therapists: An interview with Julie Herres

Financial Therapy: An interview with Lindsay Bryan-Podvin

Asking for Money

Who we are:

Picture of Curt Widhalm, LMFT, co-host of the Modern Therapist's Survival Guide podcast; a nice young man with a glorious beard.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

Picture of Katie Vernoy, LMFT, co-host of the Modern Therapist's Survival Guide podcastKatie 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.

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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 0:14
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 things that we do in our practice, the way this that we run our businesses and all of the things that just kind of come up in therapists lives. And this is getting back to ways that we conceive about running our businesses and some of the practical know house that we can do this. And I think we’ve mentioned a couple of times briefly, in our experience across our catalogue of episodes here about a concept called Profit First, and here to share her wonderful wisdom about Profit First, and the models around this is Julie Herres. She’s an accountant and author, and just overall very wonderful person from GreenOak Accounting, and thank you for spending some time with us and sharing your wisdom.

Julie Herres 1:04
Thank you for having me.

Katie Vernoy 1:06
It’s so good to have you back. It’s fun to chat with you. And I always enjoy our conversations. The first question we ask everyone is who are you? And what are you putting out into the world?

Julie Herres 1:17
Well, so I’m an accountant. And I truly believe that every practice deserves to be profitable. So that’s a big part of what I’m putting out into the world. I think therapists deserve to make good money doing their work. And I feel like my role in the world is to help the helpers, right? I can’t do what therapists do, I do not have that talent. But my superpower is money and numbers. And so that’s how I can help the helpers. I want to change the narrative that private practice owners should take a vow of poverty. I think they should be unapologetic about making good money doing what they do.

Curt Widhalm 1:51
So let’s start with exactly what is Profit First, like, okay, is this just making more money than you spend? And whatever’s left is profit? Or is it something else entirely different?

Julie Herres 2:05
Well, so you could start there. But basically, Profit First is a cash flow management system, right? So how do you manage your cash. So, it’s not an accounting software, but it is a management system. So the basic premise of Profit First is that you turn the accounting equation upside down. So if you look at a profit and loss, and hopefully, every business owner has looked at a profit and loss at some point, you see the the traditional accounting equation, right, where income is at the top that you know the expenses, and then what is left is profit, right income minus expenses equals profit. So Profit First turns that equation upside down. And so that means income minus profit equals expenses. And when we carve out an amount for profit upfront, that means there’s less leftover and that is what we have left to run our business with. So we’re taking our profit at the very beginning. And then what’s left is what we run our business with.

Katie Vernoy 2:57
So this concept was put out by Mike Michalowicz, right.

Julie Herres 3:01
Yes.

Katie Vernoy 3:01
And he was doing this for all small business owners and I grabbed the book, and I immediately fell asleep. And so and got overwhelmed. I understand it’s a great book, I’ve really worked hard to try to get through it. But it just did not seem to apply to me as a therapist, as much as I would have liked it to. I just was, it was intense. And so he approached you to do a version for mental health clinicians, right?

Julie Herres 3:27
Yes. So what’s happened since the original Profit First there are several derivatives for various different industries. Because what kept happening over and over in my accounting firm is we would have clients come to us and say, We know you work with Profit First. I read the book, I get the concept. I don’t know how to make this work in my practice, in mental health. The numbers don’t seem to work for me. And so we took that system and tailored it specifically to mental health. There are certain things that my clients were right, like did not really work. There’s additional accounts that we have. There’s just tweaks on the percentages, as well. And so we’ve customized it in a way that makes sense, but also that we’ve seen work over and over again, as a game changer for practice owners.

Katie Vernoy 4:12
I mean, this is sounding I think there’s details that we need to talk about, like what exactly is Profit First.

Julie Herres 4:17
Yeah.

Katie Vernoy 4:17
But you’re also in reading a little bit from the book, it seems like it’s also an emotional process. Yes, to be able to manage your money because I think a lot of therapists are really nervous about it and really feel very uncomfortable about it.

Julie Herres 4:31
Yeah, and I actually start right in chapter one, I talk about therapist guilt, because I just think it’s, it’s a good place to start right? There’s so much guilt around making money. One of the stories in the book is one of our clients, Leila who said like I had a chip on my shoulder about Profit First, because when she just heard the title, right without having read the book, she thought that, you know, Profit First was going to ask her to put profit over people. And that’s not at all the case. People are always going to be the most important thing. But there’s a point in a business where if there is no profit, if you’re not making money, you can no longer serve people, right? And so it’s just putting yourself in a situation where you can have a business that is sustainable, you can take care of your own household as well, that’s a really important piece of having a business, you have to be able to live, it’s definitely about giving and helping people. But you also have to be able to make a living to be the best helper that you could be.

Curt Widhalm 5:21
So what are some of these emotional processes? I know that, you know, in a lot of the people who are launching businesses, I hear people talking on a podcast or in you know, some of the Facebook groups about you know, I want to implement Profit First. I want to be a profitable therapist. I want to make money. Excitement isn’t the only feeling that goes along with this.

Julie Herres 5:41
Yeah. Excitement is usually the first one, right? That’s the good news, where you’re like, Yeah, I read the book, I want to go do this. This sounds like a really great idea. What we often see happen next is resistance, where like things have to change, right? There’s some change that needs to happen to get to the other side. When you’re saying I’m going to take out my profit first, there is usually a review of your expenses, maybe some things need to be cut, maybe you need to change your personal spending, like there are things that need to happen. And there’s an emotional reaction that comes without like, Oh, I don’t like this, this is uncomfortable.

Curt Widhalm 6:14
How dare you tell me that what I’m doing doesn’t fit with my aspirations?

Julie Herres 6:19
Yes. Sometimes that happens, right? Sometimes we look at what’s going on. And the owner is taking out way more money than their practice can actually afford, right. They need to sometimes look at their personal expenses. Sometimes it’s on the business side, like there’s a mix of different things that can happen. But there’s often this kind of digging in of the heels and like, Oh, I don’t know, this feels a little bit uncomfortable. Often after that, we see a little bit of overwhelm, right? And these phases aren’t necessarily linear, you can go back to a phase more than one time. And sometimes you can skip one altogether, depending on a specific situation. But then there’s an overwhelm like, Oh, what is happening, everything is changing. Like, right beyond that moment, is the kind of aha of everything is about to change. Like this is the good stuff where things start getting a lot easier. And then there’s acceptance after that, right? We’re like, these are the people who have reached acceptance that say, Hello, Profit First. It’s amazing, right? They’re the ones typing in the Facebook group saying like, This has changed my life, like because you’ve gotten to that other side. So yeah, it’s an emotional journey, but it’s worth it.

Katie Vernoy 7:20
So we still haven’t actually gotten into what it actually is. So functionally, what is Profit First look like? How does somebody implement Profit First in their practice?

Julie Herres 7:30
Okay, I’m going to start with the core principles, because this is going to give you most of the information. There’s four core principles in Profit First, and you’ll notice they are also nutrition principles, right? I’m not a nutrition expert, I am a financial expert. But there are a lot of similarities in the way that humans make decisions about money and about food, right? It’s not about the big sweeping decision of, I’m going to spend less than I make, it’s about the hundreds of micro decisions you make each day. And so the principle number one is use a smaller plate. And so I was born in the finish your plate generation. So for me, if I eat up from a big plate, I’m gonna finish my food. If I eat from a small plate, I will also finish my food, right? Like whatever’s on the plate is what I will consume. In the context of Profit First we look at a plate as a bank account. If you have one large bank account with all your cash just hanging out in there, as humans, we tend to want to consume all of that, right? It’s related to Parkinson’s Law where your demand will expand to meet the supply that you have. So if you look at your bank account, there’s a big ol pile of money there. A lot of people, most people I would say, are going to be tempted to spend that, right, without considering that payroll is next week, your liability insurance is due next month, tax payments are coming up soon, right. Like all those things are happening. When you eat from a smaller plate or in Profit First when you eat from a smaller bank account, you’re just naturally going to spend less. So the way that we implement that is that we have multiple bank accounts that are earmarked for very specific things. For example, all of your money comes into the income bank account. So for most therapists, your existing checking account, that becomes your income account, because we don’t want to mess with any kind of insurance payments, your existing checking account becomes your income account. Then we add accounts like your operating expense account, that’s where all of your your rent, your software dues and subscriptions comes out of, then we have in owners pay account, as the name implies, like that’s meant to pay the owner, we also have a tax account. That’s where there’s money earmarked to pay taxes on your behalf or on behalf of the business or you depending on legal entity and all that. And obviously we have a profit account. So there’s money earmarked for profit. And that’s intended to be not your day to day household money. That’s intended to be a reward for you being a shareholder of the business, because inherently there is risk in any kind of business, also in a private practice, and you should get rewarded for taking the risk of being a business owner. So there’s the profit account as well. And then for practices that have employees, we also add a payroll account. So that’s one of the differences with the original Profit First system is that we add a bank account for payroll because in most group practices payroll is the single largest expense. And I’m a firm believer that that expense can be controlled, right and managed. And so by adding a separate account for it, we can do that.

Katie Vernoy 10:16
So you separate owner from payroll or could owner’s pay be in the payroll account to.

Julie Herres 10:22
So that’s going to depend on the tax entity, right. So there are there are some variations there. There could be an owner could get funds from the owners payroll and the payroll accounts, both could exist, right, depending on the logistics. So principle number two is you serve sequentially. So as money comes into that income bank account, then you’re going to move money to the other accounts, right, to the ones that we just talked about: op ex, tax, profit, right, all of those. Principle number three is we remove temptation. Because you have accounts with earmarked names, you’re less likely to spend that money on something else. I like to tell the story of the Food Team at Google, you’re both in California, I’m sure you’ve heard of Google as an employer, like they have some pretty cool perks, including free micro kitchens, where you can just go and you grab all food and drink that you want. Lovely. What the food team realized is that most new employees were gaining on average, 10 pounds when they started because there’s just so much food available. So they wanted to make it easier for people who wanted to make healthy food decisions to do so. So at the time, their candy was in big, bulk clear containers. So the most popular candy at the time was m&ms. And so what they decided is to try something, let’s take these big bulk containers, and let’s put the candy in opaque containers and display fruit more prominently. We’re not going to take away options, we’re not going to remove quantity, everything is still available, we’re just going to do that and see what happens. And in seven weeks that reduced the m&m consumption by 3.1 million calories in just one office. Just one, this was their New York office. So I tell that story because it sounds obvious, right? We’re saying like, let’s put this tax money in this tax bank account. But it makes a really big difference behaviorally, when your tax money isn’t in your tax account, you’re not going to accidentally go buy something because it’s already in there earmark for tax. So that’s how the Profit First system removes temptation.

… 12:28
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Katie Vernoy 12:28
So one of the things that I think can happen is you’ve now earmarked money across all these different accounts. And insurance doesn’t pay for a month or there is a dip in your caseload for some reason, and there’s less to pay yourself less to pay your employees, there’s less profit available. How do you address that.

Julie Herres 12:52
So that is an unfortunate thing in private practice. So one of the ways, there’s multiple ways that we can address that. One is you’re going to transfer based on an allocation, which is a percentage, right, so we determine a percentage that goes into each account based on your specific situation. And all the tools are on the you know, Profit First for therapists website. But so every time you make a transfer, whether it’s been a really good week or a bad week, you’re transferring the same percentage. So sometimes it’s actually going to be more than you need. And then that is going to hopefully, that’s happening more often than it being less than you need. And so that’s creating naturally a buffer in each of those accounts. So that if you had a slow week, where maybe there’s a bank holiday in something or something happened, and you didn’t get paid, hopefully there’s enough of a buffer in your owners pay account, for example, that you can still take the amount that you need to live. But the reality is, if insurance isn’t going to pay, it’s kind of unrelated to Profit First, it’s going to happen one way or another. But we can also put other mechanisms in place to help for that, for example, some of our clients use an emergency account as well, right, in addition to all the other accounts, where if you have salaried employees, or if you know that insurance can be finicky the particular panels that you’re on, like we can create that emergency account to help offset some of the risk.

Katie Vernoy 14:14
And so then that would just be an additional percentage. And so a part of what you’re bringing in is going to that emergency fund.

Julie Herres 14:21
Exactly, exactly. Yeah. One of many ways that we can we can kind of address that. Yeah. And there are some situations of, you know, true emergency where you’re you may be taking a little bit from tax and a little bit from profit in reality that does happen, idealistically, that never happened. But in the reality of any business, like there are cases where that happens. But then at least there’s something there versus there being just, you know, a couple $100 in the bank account. It’s still better than having nothing. Yeah, principle number four, we enforce a rhythm. So you’re going to move money between your bank accounts on a very regular schedule and not kind of willy nilly, not every day. It’s usually every week every other week. You’re moving money. So that really also helps you see the ebb and flow of cash in the business. And I find that this is usually a pleasant surprise for most practice owners to be able to see, for example, like every Friday, you’re expecting $24,000 in your bank account. If all of a sudden one week there’s only $18,000, then you already know something is amiss, it’s so much easier to see that way than if it’s mixed into everything else that’s happening. If it’s mixed with payroll and tax payments, where you don’t really have as much of a sense of what is normal in your business.

Curt Widhalm 15:33
So as people are trying this out, as they’re moving into this, what are some of the mistakes that you see people make? If I’m guessing, some of it is tied to some of those emotional things that we talked about earlier?

Julie Herres 15:47
Yes, you would be guessing correctly, the digging in the heels phase, there. So a couple of mistakes, like off the top of my head, not changing your spending habits is probably one of them. Like if you are embarking on this Profit First journey, you have to be willing to make some changes, because ultimately, all of your percentages have to equal to 100%. Right, because that’s how math works. The money has to come from somewhere. So there are usually some changes that have to be made. I would also say one of the common mistakes that happen is trying to go too fast too soon. And you could equate that to like going to the gym or like if I try to run 10 miles on one day, like I’m probably not running for a couple of weeks, because like I am going to be dead on the pavement. But you know, if you make slow incremental changes, that has a better long term effect, and it’s more likely that you’re going to stick with it when you start where you are today and then make small changes, you’re going to be able to continue.

Katie Vernoy 16:47
It seems like it’s a lot to implement. I think one of the problems I ended up having with Profit First is all of these bank accounts and even having a bank account at another bank, so you can’t get to it at all. And like it just seemed very overwhelming to think about having all these different bank accounts. Do you really need them all?

Julie Herres 17:06
Sure. Short answer is yes. But I’m going to tell you a secret, Katie, I don’t have accounts at another bank. Actually, in the book, I don’t recommend the separate accounts at another bank. So and what Katie is referring to is the Mike Michalowicz wrote in his book that you have vault accounts, and he describes his drive of shame to that bank, because it has no technology, he cannot withdraw from an ATM like he has to physically drive there an hour and a half each way. So a three hour round trip to get money from that bank. So because I’m an accountant, because I see like the day to day I get the phone calls, right? If like, we can’t make payroll, what do we do having to drive three hours to go get that money? That’s not helpful. That’s my personal opinion. But here’s the other thing, therapists are compliance driven. Like if you have rules, you’re usually going to follow the rules. So I have never seen a therapist accidentally buy a boat from their tax account. Whereas a construction company, I have seen that happen, right?

Katie Vernoy 18:09
Ah.

Julie Herres 18:09
So but to say like, not all industries are created equal when it comes to like, compliance, right. And I know therapists usually are not going to borrow from themselves, in most cases, and you know yourself best, right? There are some cases where a vault account does make sense. But for the most part that doesn’t. To come back to your question, though, of are all the accounts needed? I would say yes. It’s very interesting to me that that’s typically the barrier to entry. A lot of people are worried about like, Oh, do I really need it? I don’t want to deal with going to the bank, opening them up. So often, that’s one of the reasons people drag their feet. And at the same time, on the other side of that, I don’t think I’ve ever heard a client say, You know what, I wish I had not opened those bank accounts. That was unnecessary. What we hear on the other side is, it really wasn’t as hard as I thought, and I wish I had done it sooner, because it really is a game changer. Like if I had to pick one key to success, that would be it.

Katie Vernoy 19:04
Okay, because I think for me, I’m a solo practice owner, and I don’t do Profit First. Maybe I should hold my head down and shame.

Julie Herres 19:13
No. Not at all.

Katie Vernoy 19:13
But the closest that I get to is I have my, my checking and my savings, and I transfer consistently over to savings, what’s going to be my tax payment. And so I do have a tax account. And then I have an income slash expenses account. And for me, it’s not as critical for me to know all the different details, you know, like I look at my money, I do all this stuff. But for folks that have either larger practices or group practices, it seems like it would be really, really important to be able to identify those things of what goes where. Am I wrong? Does every practice owner need all those accounts? Because like, to me, it’s like, I don’t have a lot of expenses. It’s money comes in, I pay myself, I put some over into taxes and I’m good.

Julie Herres 19:57
Yeah, and I think that’s perfectly fine. If you have a system that works for you, I think that’s amazing. I don’t think you need to change it. You can always make your tax payments like you have what you need. Awesome. I don’t think you need to change a thing. But we have worked with a lot of solo practice owners that are constantly chasing their money. Like, you know, my EHR says, I made this much money, where did it go? It’s all gone and I don’t know what happened. So someone in that situation, I think Profit First really can be a game changer of like just understanding how you are spending. If that is a problem in a practice of any size, I think Profit First can be helpful. In a larger practice, I think it can be helpful in scaling, it can be really helpful in giving access to key team members to just a slice of the puzzle, right? Maybe a clinical director has access to op ex and payroll so that they can see the pieces that they maybe are handling, maybe they are approving expenses, right, that’s super useful without necessarily seeing everything else in the practice. But as a practice grows, it can be really challenging to keep track of everything. Like payroll can just balloon out of control all the sudden, or we’re throwing money at problems and then op ex is out of control, a lot of things can just happen. And Profit First, I find makes it a lot easier to diagnose where the issue is.

… 21:17
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Curt Widhalm 21:17
It sounds like what works really well for the mental health industry is this actually makes practice owners look at their finances in a structured and predictable way. Is this just kind of the we’re making people actually look at at this stuff that gets through kind of some of that anxiety that makes it to where this is so particularly successful for the mental health industry?

Julie Herres 21:17
I think so. Because it’s a framework that works with your existing habits. It leverages them, it doesn’t ask you to every week, look at your profit and loss and your balance sheet in your statement of cash flow. All you have to do is look at your bank account balance. That’s it that gives you the data you need to make decisions. It tells you if you can afford something or not, it tells you if we have enough money for payroll or not, you don’t have to make a significant change to your behavior other than looking.

Katie Vernoy 22:11
And transferring lots of money different places.

Julie Herres 22:16
Honestly, after the initial setup, I think the instant assessment, right, figuring out where your practice stands now takes usually between 30 and 60 minutes upfront.

Katie Vernoy 22:24
And this, this instant assessment is what are the percentages that you currently have for all of these types of expenses or income?

Julie Herres 22:32
Exactly. So how much are you going to be transferring from your income account to your other accounts. So roughly 30 to 60 minutes upfront. And then as far as transferring money, right? Whether that’s every week, every other week, every month, that is usually five to 20 minutes and 20 minutes is on the really general generous side. I really think for most practice owners, it’s five to 10 minutes. So it’s not a huge lift of time, but like spending that time five to 10 minutes every two weeks looking at what is going on in this practice. I think that is time well spent in a not overwhelming way.

Katie Vernoy 23:07
Oh, for sure I was being I do think this is a great idea in that regard. Because to me, in talking with group practice owners, the biggest piece is figuring out how do I pay my clinicians? How do I make sure I pay myself? How do I take a profit? I mean, I think those three things are mysterious for a lot of folks when they first start group practices. Can you talk a little bit more about how people figure that out? And maybe even a little bit about kind of what the percentages should be for those?

Julie Herres 23:35
Yeah, well, so how you figure that out, you really are looking at where you are today. So our goal is always for a practice to start exactly where they are today. So when you’re doing the instant assessment, you’re looking at your profit and loss or your bank statements and seeing like, Where is money going right now? So how much money actually is coming into the practice? How much money is coming in? And where’s that going? So you’re looking at How much have I been transferring to my personal bank account? Or how much am I paying myself through payroll? You’re looking at how much is being paid to other people in my team, whether that’s admin leadership, clinicians, how much are other people getting paid? Like what actually are my operating expenses, and then you’re just tabulating that. So it’s easiest if you have already an accounting software and you’re running, you know, profit and loss in QuickBooks. If you don’t have that, though, you can just pull out your bank statements and go line by line like where does this fit? Just add those up and that’s going to tell you exactly where your practice stance.

Katie Vernoy 24:32
And so then the goal is to bit by bit, shift it to more of these recommended percentages, because I don’t know how many group practice owners I see in some of these Facebook groups that are either losing money or not paying themselves or paying themselves very, very little. And so this is a shift to actually putting profit first, making sure that the risk that they’re taking as being a group practice owner that they do get profit, and that they’re paying themselves. So what are the ideal percentages or range of ideal percentages for that?

Julie Herres 25:03
I think of practices in four sizes. So first a solo practice, which is self explanatory, right just single clinician, maybe an admin, but like one person doing the clinical work, where typically the owner is still seeing 50% or more of sessions. So there may be one or two part timers, maybe it’s a full timer, but the owner is still doing a significant lift as far as clinical work. A medium group practice, that is where that shift happens. Now more sessions are being seen by people other than the owner, and then a large group practice where leadership has been added, right. So typically around a million dollars, we see the addition of a leadership level, so either a site supervisor, clinical director, or something along those lines. So how much an owner can expect to pay themselves does shift from one to the other, right, because if you’re a solo practice, one person doing all the work like you can reasonably expect to be putting 30 to 60% in owner’s payroll. But if you have a team, you can’t put 60% of everything that’s coming in into, you know, into owner’s pay, like the math doesn’t work there, you have to pay the team. So it shifts over time. So for solo practice 30-60%, it’s about what we expect for owners payroll. For small group practice, somewhere in the 10 to 30% range, because we’re also allocating money to tax into profit. Then as we move into a medium and a large group practice that typically shifts to like 5 to 10%. And I know that sometimes surprising to folks who hear that like 5 to 10%. That’s why does it become so small, but it’s a smaller piece of a much bigger pie at that point, right. And like the owner is doing a much smaller percentage of the work at that point. So does make sense.

Curt Widhalm 26:40
What do you see as kind of some of the transitions as some of the practices go from solo to small group to medium group that the owners face in making some of these adjustments. Part of its, you know, what you just spoke to as far as, alright, it’s a smaller percentage, but it’s the same or hopefully even a bigger number when it comes out. But what are some of the other growth adjustments that you see people making in this?

Julie Herres 27:04
I personally think that transition to a small group is the hardest one. That is the hardest phase of private practice, in my opinion, in part because the owner is often working harder and not really seeing a whole lot of financial benefits yet, because it’s not uncommon when you’re hiring one or two, maybe part timers, the owner is still doing a lot of the intake, maybe the phone calls, some billing, a lot of the administrative work is still falling on the owner, because there’s not quite enough margin to maybe hire someone. So there’s more overhead work, and not necessarily a lot more money at that point. Because the funds are being brought into the practice by, for example, two people seeing 10 clients a week is not going to be a huge amount of profit margin, right. So as then we shift towards like more full timers, maybe with some metrics towards like how many sessions are going to be seen, things tend to shift and then there is more money available for adding an admin and maybe additional support there.

Curt Widhalm 28:04
Then it’s just kind of being able to sit with some of the feelings of like, okay, by looking at were these things I’m I’m not a prophet first, at least formally in my practice here, but then it’s being able to sit with some of those feelings of okay, I’m going to keep investing the work into this. Here’s where the payoff ends up coming up in continuing to scale up. This is kind of the safety pet behind it that without some of this intentionality that we see some of the group practices as they move into hiring some of those clinicians. This is what keeps them in check it seems like.

Julie Herres 28:41
Yeah, so knowing that I feel like sometimes just knowing that this phase is normal helps you get to be okay with it, right. Where the reasoning behind starting a group practice varies depending on the group practice owner. Sometimes a practice owner will say there’s a need for care in this community. So I can’t possibly see more people, I love doing this piece. So I’m going to hire more people. So we could just see more clients overall. Sometimes, the group practice is the owner to burnout, like I can’t possibly continue seeing this many clients every single day. So let me just create this group practice. So I can hopefully reduce my caseload. But often that caseload reduction doesn’t come on day one, right? Just because you hire someone to see 10 people a week doesn’t mean that you can stop seeing clients and keep paying yourself the same amount. And so there’s coming to terms with the math of this really big change, right, going from zero to three people, that’s a really big change, whereas going from 13 to 16, that’s not really a huge change at that point. Like you’ve kind of gotten used to the logistics there.

Katie Vernoy 29:40
It seems like the way that you’re framing this Julius that Profit First is a way to be able to weather some of these emotional challenges. It’s a way to have some structure behind what you do and feel more confident in the financial decisions that you’re making.

Julie Herres 29:57
Absolutely, yeah. And really a practice owner can have anything they want in life, right? It’s just math. And so when you kind of put it in that perspective, it’s not as scary. And in the book, I talk about reverse engineering your practice to your life. If you’re hiring one person and wanting to stop see clients completely right, the math, there doesn’t work. One person can’t do enough work to support two people with full time salaries. Like if you just kind of back into those numbers, then you can see like, this is what my practice needs to be able to support me in the way that I want. Like, it’s less scary, when you know what needs to be done.

Katie Vernoy 30:34
Yeah. When you talk about it, and the way you were talking about at the beginning of the episode, just really helping the helpers, it seems like it’s something where you’re really passionate about this, it’s something that you really care about. And this is a way that you can be of help to our community, which is amazing. But it also it sounds like it was a big process for you to write this book and really dig into this. Can you tell us a little bit about that? Because I think there’s some folks that have this thing they want to give out to the world. And they don’t get all the way through the book process. Maybe it just we don’t have a ton of time, but some discussion a little bit about how you were able to put this into something that’s really very practical and usable for folks that this is going to benefit.

Julie Herres 31:13
I started using Profit First in my own business before I implemented even with any clients. And so my mom was a serial entrepreneur, she loved starting new businesses. And she loved the beginning phase, like the picking out the location or the marketing or all this and that and then she she would get a little bit bored and then move on to something else. And so there’s always this like, kind of up and down, up and down in my childhood. And I remember like some of my very first memories were being in her sewing store and then helping her do this and that. And so my mother loved entrepreneurship. But what I remember as a child is the up and down to like, every time a business failed, we moved, there was a new school, new home, new friends, like new everything. And for me, that was really hard. And so I never thought I would be a business owner. I thought like if my mom can’t do this, I’m not going to do this. I can’t do it either. And so eventually, it became apparent that this was the path that I needed for myself and my family and likeand Profit First is what made this possible for me. I needed some structure, I did not want to put my family through that situation. And so that was that for me. So I have a very personal story of Profit First, and I wanted to share this message with the world. And the reality is my accounting firm, no matter how much I grow, I can never help every therapist out there, right. That’s just not possible. And so Profit First has done so much for me personally, I wanted to be able to share this message with the world. And so that’s kind of where this came from. Every step of the way has been exponentially more work than I thought it would be. But here we are. We’ve we made it somehow and we we are here.

Curt Widhalm 32:52
Where can people find out more about you and your book?

Julie Herres 32:57
Yes, you can go to profitfirstfortherapists.com/mtsg for Modern Therapist’s Survival Guide, and you can get one of our free workbooks there so you can see kind of what Profit First is all about. You can also order the book if you would like and you can also follow me on Instagram at Julie dot Harris.

Curt Widhalm 33:18
And we’ll include links to those in our show notes over at mtsgpodcast.com. And make sure that you join our Facebook group, the Modern Therapists group, as well as follow us on our social media. And until next time, I’m Curt Widhalm with Katie Vernoy and Julie Herres.

… 33:33
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