You’re on the right track!
You are on the right track, but proceed with caution. There are some warning signs that your cash reserves are not quite strong enough for an expansion. Spend some time laying out your plan.
The reality is, your expansion project will almost always be more expensive than planned. Even the best-laid plans can have a wrench thrown into them. For example:
Building materials increase in price and the contractor springs a surprise bill on you.
The space is darker than you had anticipated, and you need to buy twenty additional lamps.
The sink in the break room isn’t connected to a water line, and you need to pay for that yourself. (This happened to one of my clients. What is the point of a sink that isn’t connected to a water line?)
There are delays in insurance reimbursement for your new hire, and you must wait over six weeks before their first payment comes through.
Here are some tips you can implement right now, to set your business up for successful future growth:
Make a budget, so you can be certain you have enough funds for upcoming operational expenses, and your tax liability.
Take a look at your current expenses to evaluate what can be cut. Pull out your bank and credit card statements and go line by line. Can you get a better deal on your phone plan? Are there software subscriptions that you no longer use but still pay for? Cut them.
Plan the specific dollar amount that you need to pay yourself during the time of expansion. Is it realistic for the business? Will it work for your current personal spending habits? Expansion cannot come at the cost of your personal life; if it means you’ll need to put groceries on credit cards for six months, you shouldn’t do it.
Consider starting Profit First (order the book here!) and in addition to the Profit First foundational accounts, open a bank account earmarked for expansion. Each time you transfer funds, you’ll allocate an amount to expansion. When you’re able to save up some money in the account, you’ll know you are ready to expand.
There are three major phases to expansion. Based on your answers to the quiz, you’re ready to start the Planning Phase, but you may not be quite ready for the Action Phase.
During this phase, you save for the expansion, consider options, interview potential employees, or even visit new office space. This phase can last for a few weeks to a few years.
This is the exhausting, expensive three- to twelve-month period of action and hard work, the growth spurt during which profit tends to be leaner. You might be tempted to second-guess your decision to scale during this action-packed phase.
The New Normal
During this phase, your financials start to stabilize and you find your footing as the owner of a larger business. You might still be hiring, advertising, and adjusting, but you’ve implemented processes and are measuring what matters. Your profit (finally) catches up. It can take up to one year after expansion for that to happen, so enjoy the fruits of your labor.
In planning expansion or growth, there is always a point that requires a leap of faith. You may never be completely prepared or ready for the new adventure that awaits you, but when the data supports your decision, the leap of faith will be easier.
When you use a Profit First Expansion account and allocate funds to it regularly, the numbers tell you if you’re ready to expand or not. Do you always have to borrow against the account to make payroll? You’re not ready. Is it challenging to allocate a few percentage points to the account? You’re not ready. Is the balance growing steadily, while you have a little more money than you need? You’re probably ready.
If the numbers are telling you that your plan won’t work, listen to them and then adjust your plan. That might mean giving yourself more time, looking for a cheaper space, or just getting creative. For example, if your revenue is not where it needs to be to support a new hire, you can still decide to take a leap of faith. After all, this is your business, and you are in the driver’s seat.
With the data in hand, you know that you’ll have to get creative to make sure there is enough money in the bank to pay your new team member. Will you (temporarily) reduce your take-home pay to make it work? Or get cracking on accounts receivable to quickly get cash in the door? Just because the potential new hire is amazing doesn’t mean that math no longer applies. By planning ahead, you can set yourself and your new hire up for success.
Once the expansion is underway in Phase 2, it’s not uncommon for you as the owner to take home a little less money than you have previously, which can be unnerving. Even though the situation is temporary, it can make you second-guess your decision to scale. Questions like Will it be worth it? or What have I done?! might be swirling around in your head, and that is a normal part of the process. It can be helpful to revisit the budget at this point, just to remind yourself that everything is on track.
Many therapists have misconceptions about "profit" being a dirty word, and we completely understand why. As a therapist, you work hard to help others, and it may seem counterintuitive to prioritize profit. However, Profit First for Therapists takes a different approach. Instead of putting profit first at the expense of your clients, Profit First helps you prioritize your own financial well-being while still serving your clients to the best of your ability.
The truth is, your clients need you to have a profitable practice. If your practice isn’t thriving, you aren’t thriving–which can negatively impact your mindset and client interactions. By implementing the Profit First system, you can gain financial stability and freedom, ultimately benefiting you and your clients.
The system involves transferring percentages of your income into various bank accounts to cover profit, taxes, operating expenses, payroll, and owner's compensation. This simple yet powerful system can help you stop worrying about money and focus on growing your practice and helping your clients.
Whether you've read the book Profit First by Mike Michalowicz or not, the principles outlined in Profit First for Therapists can help you.
Here are just a few of the things you’ll be walked through to set your practice up for success:
Step-by-step instructions to implement Profit First in your therapy practice
Ready to build a thriving therapy practice?
Strategies for managing clinician compensation, your group practice's largest expense
Tips for avoiding the most common mistakes practice owners make when implementing Profit First
Recommendations for successfully scaling your practice
Tools to reverse-engineer your practice to meet your personal lifestyle needs
Financial systems to keep your practice profitable
Best practices to implement Profit First with multiple businesses