The First Number You Have to Know to Run a Successful Practice

The feeling came out of nowhere.

One minute, I was having a perfectly reasonable and practical conversation with my awesome bookkeeper about perfectly reasonable and practical things.

The next, I felt some eery, icky feeling rising out of my core. I had no idea what it was, but suddenly found myself fighting back tears, and completely unable to think. I could barely even speak.

“BREATHE,” she said. “Breathe..!”

Goodness – what WAS that?

It was fear. And for just a moment – it felt like panic. It was that primitive kind of fear that kicks in from our lizard brain, that part of us that rears it’s head whenever our basic security feels threatened.

We’d been brainstorming about where things could go in my business. We were talking about restructuring a few things, re-imagining how some ideas could work.

And she was being the voice of reason; helping me think through the numbers in exactly the way that I need her to do. There was no obvious logical reason for that fear. Business was going great and there was nothing but good news to talk about.

And yet – that happened…

Has something like that ever happened to you?
 

If it has, don’t worry.

You may have a TON of awesome and amazing talent in many areas of your life and work. But numbers – and more specifically, budgets – may not be your thing. And that’s okay!

In fact, if you’re like most helpers and healers, you’d rather visit the dentist than think about income, expenses and budgets.

Yuck.

You may even get so overwhelmed by the whole thing that you avoid it completely. Besides – who actually uses a budget? You just pay the dang bills when you can, right?

Perhaps.

But here’s the thing.

Part of your growth as a responsible and successful business owner, means that you have to find a way to work with this part of your business.

And the first number you have to know is what it takes just to keep the lights on: your foundation number.

In other words, can you tell me right now exactly how much you have to bring in each month to meet your minimum financial obligations?

If not, then you’ll also find it hard to get an accurate read on how you’re doing over all. Not only will you be in the fog about what you really need, but there’s no way you’ll know it when you’re doing really well either!

So you’ve got to get a handle on this. And I encourage you to start with the basics.

First, make a simple list of your business expenses.

Go back and look at your business spending for the past several months; a full year is even better. Be sure to capture the bills you pay monthly, quarterly and annually.

For example, I pay office rent and utilities monthly, but I pay certain insurances quarterly. And I have software subscriptions and web hosting that I pay annually.

Work your way through to a reasonable amount you’ll need each month to meet those expenses. For those you pay on a quarterly or annual basis, divide by 3 or 12 to get a ‘monthly’ number.

Next, add in the money you’ll need for taxes.

This will vary by where you live and the income bracket you’re in. If you have a state income tax, for example, you’ll need to include that. If you pay LLC fees or sales tax, you’ll need to include that.

In general, I’ve found that adding between 15 and 25 percent of gross revenues works well. In other words, if you brought in an average of $5,000 a month, you’d need another $750 to $1250 set aside each month for taxes.

If you’re in a practice where you share a percentage of your income to help cover costs, then add that percentage here as well.

Finally, add in your salary.

What? You don’t have a salary? :)

Well now you do. Come up with a minimum amount you need to pay yourself each month, and add that to your total.

Add all that up for your number.

This is the foundation of your business.

Monthly expenses + taxes + salary = The monthly minimum you have to bring in.

Your foundation number is what it takes to keep the lights on.

Although this process can seem a little daunting, I think you’ll be surprised at how you feel afterwards. Haven’t you found in your work that when your clients face whatever it is that they’ve been avoiding, they feel better, not worse?

That’s certainly been the case in my practice – and it’s been my experience personally, as well.

When you know your foundation number, you’ll know where you stand and where to build. Now, you can look at other things like your pricing, packages, and even the hours that you work. You’ll be able to evaluate much more clearly how those aspects fit into your larger financial goals.

And doesn’t that feel better?

And now, over to you.

Do you already have a process like this in your own business? If not, why not? And if so, what works best for you?