Solid clinical skills are essential to owning a practice, but they are not enough on their own.
Additionally, you must also know things that have little to do with clinical care, such as billing, marketing, staffing, compliance, basic technology, etc., none of which were part of your NP education.
But there’s another skill that, while underappreciated, deserves just as much attention…becoming smarter with your money as a business owner.
The goal is to understand your money better so you know what is happening, can ask better questions, and make more informed decisions.
So Why Does It Matter?
It matters because there is a big difference between operating a practice and building a financially successful business.
Some practice owners are in business to pay the bills…
The money-smart business owner considers how the business affects their personal finances and contributes to their long-term financial security.
And this is what we want to explore more closely in this series…
Money-Smart Doesn’t Mean Knowing Everything
Many people feel intimidated by financial topics…
Terms like cash flow, revenue, profit, taxes, contributions, depreciation, retirement accounts, and financial statements can be confusing and lead to avoidance behavior.
But it doesn’t have to be this way…
Because you don’t have to master the topics, only understand them enough to make informed financial decisions.
Developing money-smarts starts with asking basic questions like:
- How much money is coming into my practice?
- How much does it cost per month to operate it?
- How much money do I personally need each month?
- How much should stay in the business?
- Am I setting aside enough for taxes?
- Am I saving enough for my retirement?
Don’t have the answer to every question?
That’s ok…
Developing awareness and becoming money-smart starts with recognizing which questions to ask… the next step is knowing how to find the answers.
Your Two Financial Lives
Once you become a practice owner, you’re responsible not only for your personal finances, but also for your business finances.
While the two are related, they are distinctly separate.
Your personal finances include things like:
- household expenses
- rent or mortgage
- personal debt
- emergency savings
- insurance (car, health, life, etc.)
- retirement savings
- investments
- long-term financial goals
- and more
Your business financial life includes:
- practice revenue
- operating expenses
- payroll
- taxes
- debt
- owner compensation
- business reserves
- equipment purchases
- and more
From an accounting, operational, and legal standpoint, the best practice is to keep your two financial lives separate even though they are connected.
Ultimately, one reason for owning a successful business is for it to support you financially.
However, if you don’t know how much money you need in your personal life, it becomes much harder to determine how much revenue your practice needs to generate.
Revenue Is Not the Same as Personal Wealth
While it’s exciting to generate more revenue in your practice, it’s easy to forget that more money doesn’t mean it’s available for personal consumption.
Even if your practice collects $20,000, $40,000, or more in a month, that revenue may need to cover rent, payroll, insurance, supplies, billing costs, marketing, taxes, debt payments, and other expenses.
And even if money is left over after expenses are paid, it may be earmarked for other things.
A portion may need to stay in the practice as a financial cushion, to buy new equipment, pay next month’s tax bill, or go toward hiring expenses.
That’s why a practice can appear super successful even though the owner may still stress about money.
Give Your Money a Job
One of the simplest ways to become smarter with your money and deploy it with intention is to stop viewing it as one large pool.
Think of different dollars having different jobs.
Money that belongs to your practice must:
- keep the practice running
- pay owner and employees on time
- pay taxes
- build an emergency reserve
- repay debt
- keep enough in reserve for future expenses
Your personal money needs to:
- cover all household expenses
- pay down debt
- fund retirement
- build investments
- contribute to savings and an emergency fund
The goal is to become more deliberate about what your money is supposed to accomplish, but without a plan, it’s easy to spend whatever is available.
Personal Finances Influence Business Decisions
Even though personal and business finances are separate, personal finances often shape how a practice operates.
Let’s assume that your household expenses are high, and your savings are dwindling.
Consequently, you may have to take more money out of the practice than is reasonable.
Alternatively, you may feel pressure to grow too quickly, add services the practice can’t deliver consistently, hire too many employees, or increase patient volume before the practice is financially ready.
Compare that to the practice owner who has saved several months of personal expenses and has lower household obligations.
That owner probably has far more flexibility: they can leave money in the practice for longer, make slower hiring decisions, or wait for a marketing strategy to produce results before abandoning it.
While your personal financial situation alone doesn’t eliminate business risk, it does give you choices.
Is Your Practice Your Entire Financial Future?
This is not a trick question…
Almost all business owners invest and reinvest heavily in their businesses, especially during the startup and growth years.
And that makes sense.
But over time, you also need to build financial security outside your business, your practice.
That may mean building up:
- retirement accounts
- personal savings
- investment accounts
- real estate holdings
- other business opportunities
- and other financial assets
While your practice may become one of your most valuable assets, ideally it shouldn’t be your only one.
Building wealth outside the practice gives you greater financial flexibility and reduces dependence on the practice’s continued success, its future value, or its eventual sale.
And we’ll explore these ideas later in this series.
For now, though, the important principle to remember is this:
Your practice should contribute to your financial future, but not be your entire financial future.
Start With Awareness
To increase your level of awareness, start by asking yourself a few simple questions…
- Do I know my monthly household expenses?
- Do I know what my monthly practice expenses are?
- What are my emergency savings?
- What are the financial reserves of my practice?
- Am I consistently setting aside money for taxes?
- Am I saving for retirement?
- Am I building financial assets outside my practice?
- Do I have clear financial goals for myself and my practice?
Consider your answers as feedback on where your financial education needs to start…
Becoming a Stronger Business Owner
Running your practice as best as you can is important, no doubt.
However, owning a practice involves more than keeping the doors open, seeing patients, managing employees, and paying the bills.
It also means learning how to manage best the money your practice generates, including:
- understanding how to protect the practice
- compensating yourself appropriately
- preparing for unexpected expenses
- saving for your and your employees’ retirement
- building up your investments
None of these skills develop overnight; you acquire them one concept and one decision at a time.
And that’s the intention behind the “Get Money-Smart About Your Practice” article series.
My goal is to start with the basics and gradually explore personal finances, business finances, saving, investing, retirement planning, and employee financial benefits.
Because ultimately, it’s not simply about building a successful practice, but about building a practice that contributes to your long-term financial success and security.
Tell us what you think… leave your comment below!
By Johanna Hofmann, MBA, MAc., regular contributor to the NPBusiness blog.”
I think this is a great idea. I have a pretty solid personal finance base. I am in the planning stages of starting my own practice. Interested in learning more about how to use personal assets to help fund startup and then growth in the coming years. Also curious about eventually funding employee benefits (planning ahead, budgeting for, etc) once we get to a point where we have one or more full time employees – hard to imagine that all.