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Profit First for Therapists with Julie Herres

Profit First For Therapists With Julie Herres

“I don’t want business owners to live on leftovers because business ownership is a lot of work! It is so much work, and you deserve more than leftovers.

~Julie Herres

Meet Julie Herres

Julie Herres is an expert in Profit First who has helped hundreds of private practice owners gain financial freedom. Founder of GreenOak Accounting, the country’s largest firm serving the mental health industry, Julie is an accountant, consultant, speaker, author of Profit First for Therapists and host of the Therapy for Your Money podcast.

In this Episode...

How can Profit First help therapists in private practice? In today’s episode, Julie Herres talks with Linzy about Profit First, and she shares about how Profit First works and why it is a powerful tool that can help therapists have more control over finances.  Julie shares about the core principles, tips for understanding taxes, and times when it might not be wise to immediately implement Profit First.

Linzy and Julie talk about how a system like Profit First can lead to financial peace of mind for therapists who are struggling with finances. Julie’s book, Profit First for Therapists: A Simple Framework for Financial Freedom, comes out on May 2nd.

Connect with Julie

Listeners can go to profitfirstfortherapists.com/linzy to get a FREE calculator to reverse engineer your practice. You can also pre-order Julie’s new book, Profit First for Therapists, now! It comes out on May 2nd!

Check out Julie’s website: www.greenoakaccounting.com

Find Julie on Instagram: @julie.herres

Want to work with Linzy?

FREE Money Momentum Challenge 

Are you avoiding your private practice finances, because you feel completely overwhelmed by them, and you have no idea where to even begin?

I’m hosting a FREE, live, 4-day Money Momentum Challenge from June 18th to the 21st, where you’ll get my support and guidance to step out of avoidance, take real action, and create ease and flow around your private practice finances.

In just 5-10 minutes each day, you’ll complete one small task that will help you move from money avoidance to financial clarity. And as a bonus for participating and completing the simple daily tasks, you’ll be entered into a draw to win daily prizes. Plus, one lucky therapist or health practitioner who completes the challenge will have a chance to win the grand prize of $500 cash!  

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I can’t wait to see you inside! Sign up for the FREE Money Momentum Challenge HERE.

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Episode Transcript

Julie [00:00:02] I don’t want business owners to live on leftovers because business ownership is a lot of work. It is so much work. And you deserve more than than leftovers. 

 

Linzy [00:00:13] Welcome to the Money Skills For Therapists podcast, where we answer this question How can therapists and health practitioners go from money, shame and confusion to feeling calm and confident about their finances and get money really working for them in both their private practice and their lives? I’m your host Linzy Bonham therapist turned money coach and creator of the course Money Skills For Therapists. Hello and welcome back to the podcast. So today I have a returning guest, but she’s returning with a book under her belt. Julie Herres has written the book Profit First for Therapists, and she’s here to talk to us about it today. She is an expert in profit. First as an accountant, she uses it with her clients who are, I think, exclusively, if not mostly therapists. She’s the founder of Green Oak Accounting, which is the country’s largest firm serving the mental health industry. She’s an accountant, she’s a consultant, she’s a speaker and now an author of Profit First for Therapists. And she’s also the host of the Therapy for Your Money podcast. So today, Julia and I got into profit first. So if you’ve heard about profit first but have been like, what is that? Or if you’re already doing profit first. Either way, there’s lots here for you. Julian I get into taxes and profit first and how that can be confusing. She goes over the basic principles of profit first, which, like really do connect to human behavior and what tends to drive us and make us tick and how we tend to respond to certain situations. She really explains why profit first works with people as they are, and we get into what to do if your numbers are not where you want them to be, where can you start to actually start to get your numbers in your business? The amount that’s going towards your paycheck and operating expenses and you’re pretty aside for taxes. How do you get from where you are now, which is maybe a place that is not working to the numbers that are actually going to work for your business? Here’s my conversation with Julie Herres. So, Julie, welcome back to the podcast. 

 

Julie [00:02:22] Hey, how are you? 

 

Linzy [00:02:23] I’m good. How are you? 

 

Julie [00:02:24] Good, good. 

 

Linzy [00:02:25] So since we spoke last, you have been a little bit busy. 

 

Julie [00:02:31] A lot of a lot of fun things in the work. 

 

Linzy [00:02:34] A lot of fun things. And one of those things is that you’ve written the book, I would say the profit first book for therapists, a profit first for therapists is coming out May 2nd. Do I have that right? 

 

Julie [00:02:46] Yeah, May 2nd it will be out. It is available for pre-sale today, but it it will be out in the world, what I call affectionately my fourth child. Profit first for for therapists. The book. 

 

Linzy [00:02:58] Yes, a very cute name for that fourth child, I have to say. Very sweet. So I’m really excited about this book because you and I are both profit first fans. We both like use it and teach it and teach therapists how to use it. And now you’ve actually put your knowledge and expertise like into a book that folks will just be able to buy and read and absorb it all, even if they never, you know, work with either of us. Yeah. Which is a beautiful gift to the world. 

 

Julie [00:03:25] I’m so excited to get this out into the world. This book was for sure a labor of love. But I. I kept going back before I started writing to Why me? Why should we want to write this book? Like, why would I? And then. But the answer was like, It has to be me. That was my answer to myself. Like I have so much knowledge from implementing over and over again. Like I want to get this information out into the world because it’s so transformational for so many practices. It gave me changing completely. 

 

Linzy [00:03:56] So, yes, yes, I love that because you as an accountant, you really like get the rules and the system. But you specialize in working with therapists. So you also really see how this applies to like our business model and who therapists tend to be as people. 

 

Julie [00:04:10] Yeah, definitely. And obviously I’m an accountant based in the US, but I, I also knew, you know, this book is so important. I need to put all the basics of profit first. I need you to put like the very therapy-specific items in there. But I also knew that most practitioners needed other stuff too. Yeah. So I talk about scaling, I talk about hiring admin team member, clinical team members, leadership. I talk about the emotional side of profit first and kind of that journey that people go through. But I also included some tax basics because these are the things that I feel like people need. Yeah, So whether they’re ready for them right now or later, like you kind of have everything you need for the financial side of your practice within that one book. 

 

Linzy [00:04:49] So exciting. Okay, so which I take two steps back because we’re nerding it about something we’re excited about, but what is profit first for folks who are listening, who are not familiar with it? 

 

Julie [00:04:59] Yes, so profit first. The original book was written in 2016/17 by Mike Michalowitz. It’s the the premise of profit first that the whole system. Right. It’s ultimately a financial system for cash management. What profit first does is it turns the accounting equation upside down. So if anyone has ever looked at a profit and loss or an income statement, which hopefully listener if you own a business, you have you have hopefully looked at the accounting equation on the profit and losses. Income minus expenses equals profit, right? That is the basic accounting equation. What profit first does is it turns that equation upside down where we look at income minus profit equals your expenses. And so that one shift right there, carving out the profit first, as the name implies, means that then instead of taking the profit at the end, as the left over whatever’s left, that’s going to be the profit. You’re being intentional about allocating funds to profit and then whatever’s left, that’s where you have to run your business. And so for most practitioners, if you can run your business on $1,000, you probably can run your business on $950, right? If we carve it out at the front. But if you just wait for that to be left, that’s not always the case. 

 

Linzy [00:06:17] Yes. Yeah. And I love that the flipping of the equation, you know, and this is Mike’s kind of this is the idea he introduced into accounting because I have I’ve noticed as a business owner and maybe even experience this to Julie like it is so easy to spend money in your business. So there’s just something about our business. It’s like something about, well, you’re spending to make money. Like I will think about buying things in my business that I would really pause or never buy out of my personal household. There is something just very easy about spending money in a business, which means if we don’t have boundaries around it, we can end up spending so much that we end up taking very little home like the profit we end up getting like the crumbs. Yes. 

 

Julie [00:07:00] Yeah. And that’s why I like the term leftovers where it’s kind of because it’s not intent. The flipped over is not intentional. It just happens to be there. Right? Right. It’s kind of an accident. Like, oh, we made too much soup today. Now we have leftovers. Like, it’s not that. That’s not- I don’t want business owners to live on leftovers because this ownership is a lot of work. It is all it is so much work. And you deserve more than than leftovers. I like to tell the story of my my mother was a serial entrepreneur, loved just the starting of a business. And so what I know now as an adult is when she would say like, Oh, you know, Julie, you’ve got to spend money to make money. She was about to buy something she could not afford. That typically was kind of the the Q in our household. So whenever I find myself like, oh saying that where you got to spend money to make money, I kind of go back and think to myself, Am I just saying that to justify this expense or is this actually going to have an ROI, a return on investment? Like, does this actually make sense? Because I agree it’s easy. It’s easy in the business to justify like you do have to make investments, but not every investment is worth your money. 

 

Linzy [00:08:05] Absolutely. Yes. So okay, so profit first, then flips that equation. 

 

Julie [00:08:10] Right? 

 

Linzy [00:08:10] We’re no longer profits, no longer the leftover. Now, expenses are the thing that is more boundary metered. I don’t know how to describe that. 

 

Julie [00:08:18] Boundary does- is a good is a good way to put it so that there are four core principles within profit first and I think if I go over those that then the leftover piece will make a little bit more sense. But core principle number one is you use a small plate. And so I will be the first to say I’m not a nutrition expert, I’m a financial. But there are a lot of similarities in the way that humans make decisions about money and about food, Right? Because it’s not about like the big sweeping decision of, you know, I’m going to spend less than I make. Right. That’s easy to say. But the proof is in the pudding. Of all the hundreds of micro-decisions that you make every single day. So that’s ultimately how people make decisions about money. And so I know for me, I was born in the generation of finish your plate. So whether I eat from a large play or a small plate, I’m most likely going to finish my plate unless I spend a whole lot of mental energy thinking about it, right? Deciding like, am I finishing the vegetable or that or the protein or What am I leaving? How much do they have? One more bite that takes a lot of mental energy for me. And so I just know when I eat from a smaller plate, I’m naturally going to eat less. And so within profit, first those smaller plates are bank accounts. We use multiple bank accounts to create smaller plates for ourselves. Yeah. So those bank accounts are going to be, for example, an income account where all the money comes into the business, coming into the business, goes into that income account, then we have a profit account, as you can imagine, right? That where there’s money earmarked for profit, then we have an account for operating expenses. That’s all the things like liability insurance, dues and subscriptions, software. Then we have an account earmarked for owner’s pay. That’s how much the owner pays themselves, right? That’s super important. Then we have an account earmarked for tax as well, where the business is able to pay taxes on your behalf. And then last but not least, an account for payroll as well. So I’m a firm believer if you have a team, that you should have a separate payroll account. So whether that’s contractors or employees, admin, clinical, whatever, a payroll account can be really helpful. So by separating that money onto those smaller plates, that really helps us see the how much is actually available for you to spend. So you’re not accidentally spending next quarter’s tax payment or you’re spending the money that’s actually earmarked for payroll next week. Right. So you know what actually is available to you. 

 

Linzy [00:10:46] Yes. Yeah. And the word for me for profit first, always with those separate accounts is clarifying. Yes. It’s just so clarifying. And even if you don’t like what you see, at first, it’s just very clear what money is actually for what. And even if you want to steal from yourself or do it differently, you’re it’s very clear that that is what you are doing when you do have your money actually separated like this. 

 

Julie [00:11:08] Absolutely. Like you can- because most humans will will look at their bank app on their phone right. Like or log in on the computer. That’s how most people do things, including me. Right? I’m an accountant and I don’t look at the profit and loss of balance sheet, the statement of cash flow, before I decide if I can spend something right. So you’re taking a natural human behavior and you’re just leveraging that instead of trying to change it. 

 

Linzy [00:11:29] Yes. 

 

Julie [00:11:29] So principle number two is you serve sequentially, right? So you have all of those bank accounts on a regular basis. You’re going to move money from that income account to the other bank accounts. And you’re doing that in a way that is sequential. We tend to attribute importance to things that happen first. So. The profit allocation comes first when you’re making transfers to those accounts without necessarily looking at your bills or what is due. So that because your bank is going to your bank accounts are going to tell you something, they’re going to give you information when you go to pay those bills. Principle number three. So we remove temptation. And this one, I feel like is really important. They’re all important. But this one, this one is. I can’t tell you as as an accountant, like, how many times I’ve encountered a client who cannot pay their tax bill. Right. Where they- we get to April. And it’s just not it’s just not doable. They maybe someone that just started their business just came to us like maybe in February or March, like the year is already over and we’re doing their tax prop 8, and they owe, you know, sometimes tens of thousands of dollars, sometimes hundreds of thousands of dollars, depending on the size of a business. Yeah. And it is always I always have a pit in my stomach when I see someone who just is blindsided by that because it just doesn’t have to be that way. Right. And and so by moving that money over, by having allocation, by having a separate bank account, it’s really, really hard to accidentally spend that money. Right. It’s there. It’s allocated. I know some of our clients will call that bank account, like Uncle Sam’s money or, you know, something just funny. But you clearly know when you’re looking at your bank. Yeah, there’s money in there that is not yours, that is already someone else’s who you cannot and should not spend it. And it’s such an anchoring thought, but there’s also so much relief when you get to that time of the year and you already have enough money to pay everything like that. That’s the the opposite end of that, where we remove the temptation to accidentally spend that money accidentally or on purpose. But and it’s there to take care of you. And I love that piece of, of profit first as well. 

 

Linzy [00:13:46] Yeah. 

 

Julie [00:13:47] And then last but not least, principle number four is you enforce a rhythm, right? So kind of like going back to nutrition. You do have to eat on a regular basis or you’re going to be starving. You might not make the best food choices, or at least that that’s how I operate. Yes. And so on a regular basis. Right. Your money, your business needs money to survive. It’s like the nutrition for your business. And so on a regular basis, you have to feed it and give it money. And so on a regular basis, you’re moving money from your income account to your other accounts. And for a lot of our clients, we recommend starting with a weekly transfer. And that’s not part of the core profit first principles, right? That that in the in the original book that was twice a month on the 10th and the 25th and I think that can work really well. But what I kept seeing over and over again in implementation is unless you have enough money to really fund those accounts upfront, it’s really hard to make it to four weeks without making a transfer. It’s already hard to do one week sometimes when you’re starting from a tight cash flow. So I find that that weekly allocation is really helpful from a… Ease of implementation, right? Really, it’s just a little easier to implement. I also think there’s something really amazing about making transfers on a weekly basis, because if you do it, for example, every Friday, you get a really good sense of the ebb and flow of money in your business, right? You know, every Friday I’m expecting to see this dollar amount. Yeah. If that’s not there, you can start troubleshooting right away instead of if it’s buried in, you know, your credit card payment and your rent and this and that. Like, it could take weeks longer for you to figure out that there is a problem. Whereas if you’re making a transfer every week, you really get to see that. And then after a while, like once you really have a sense of the ebb and flow, then you can sometimes move to every other week or twice a month, right? Like that is a natural progression where you don’t need to be looking quite as closely, but by doing it weekly, I feel like it really gives practitioners a true sense of comfort with their money. And it’s really not a time-consuming process. It usually takes ten, 10 to 15 minutes is generous. Like, yeah, I think five for most people in. 

 

Linzy [00:15:53] Mine is five, five for sure. 

 

Julie [00:15:55] I would say mine is five also. I see 15 just to give like, oh yeah, yeah. 

 

Linzy [00:15:58] Let’s just, you know, give a buffer. 

 

Julie [00:16:00] But I would agree five, five of the time. 

 

Linzy [00:16:03] I’m right with you in the weekly. I also like first is one of the options we give in Money Skills For Therapists in terms of budgeting systems and I find most therapists do choose it because it is so powerful but also simple at the same time. But I also recommend weekly and for additional reasons to what you’re saying. What I also find is if folks have a very kind of unbalanced relationship with money where they either avoid it or they want to touch it all the time, a week is like a nice middle ground amount. Like it’s it’s close enough together that like if you did your- because you know, I also suggested folks like preference allocations might go with general money time too of just like looking at your numbers getting in touch if you do it every week it’s like recent enough that you remember what happened last week. If you’re building new skills, they’re available enough that you can make to build your confidence. But it’s not so long that you start to build up like avoidance or fear. Because what I do find is sometimes when folks are like, Oh, I just do it like once a month, then that can build up into this big phobia and it’s like, you can’t remember how to do it. It’s like, Wait, do I pull from this bank or do I get this in for. And here like I just saw and there’s something in about once a week that’s a really nice rhythm to just keep you in touch with your money. Just enough on top of all those other great reasons that you just gave for weekly disbursements. 

 

Julie [00:17:17] And weekly is often enough that you shouldn’t have to move money in between with monthly. Like if something comes up, you have a bigger than usual credit card bill or something. You might have to go in and then off cycle. And that that kind of has a trickle down effect too. Yeah. 

 

Linzy [00:17:33] Yes. Yeah. Great. So principles do we. Let’s summarize them.  

 

Julie [00:17:37] We covered all four. Yeah. So use a small plate- principle number one. Serve sequentially is number two. Number three is remove temptation. Yes. And then number four, enforce a rhythm. 

 

Linzy [00:17:48] Yes. Beautiful. Okay. So you know something that I see Julie, with profit first and you probably see this with your clients, too, is taxes can be a really confusing part of profit first for multiple reasons. So what are your thoughts on taxes and profit first for folks who are listening? 

 

Julie [00:18:07] Yeah, so that’s probably where we get the most questions, like in an open Q&A type of forum. So taxes within, you know, within the book, profit first for therapist. We do have tax applications for various stages of private practice. And I want to be super clear that taxes do change as the practice grows. So I go over four stages or four sizes of private practice, and that’s based on just the data that we’ve accumulated over the years. So we have different ratios for solo practices where it’s just obviously just a single clinician. Yeah, then a small group practice and that’s where there is perhaps a very small team, but the owner is typically doing 50% or more of the clinical work in that small group. Okay. That’s right. That’s kind of the that’s a defining. That’s a defining period. Okay. Yeah. So usually maybe one full-timer, two or three part-timers. Right. Something along those lines that we go to, medium group practice where that’s that happens right around that switch rate of more than 50% of the work is being done by other people to raise the ratios shift at that point. And then for a large group practice, which usually happens around $1,000,000 or more, the main defining piece at that point is the addition of leadership. Mm hmm. Usually by the time you get there, there’s 8 to 10 clinicians. Getting just too much for one single owner to manage. So there’s addition of leadership role. So those are kind of the that’s the 10,000 foot view of of the size of private practice. And so as the practice grows naturally, the profit margin gets smaller, right? And sometimes I see that people are like, Wait, that doesn’t make sense. Why? 

 

Linzy [00:19:42] That’s not what I want. 

 

Julie [00:19:43] That’s not- yeah, I wanted to get a bigger. Dollar amount gets bigger, but the profit margin gets smaller because more and more people other than you, the owner, are doing the work in the business. So as a solo practice owner, for example, you’re the only one doing the work we can reasonably expect. Your owners pay to be 30 to 60% of everything you bring in, right? That’s reasonable. So then there’s tax, then there’s profit operating expenses. But as you get to, let’s say, large group practice, over million dollars in revenue, we usually assign between five and 10% to owners pay. So much, much lower because there’s probably ten clinicians. You have to pay those ten clinicians to do the work, right, andn the piece of the- so it’s just a bigger pie, it’s a smaller piece of a bigger pie is how that happens. So for a solo practice, for example, we usually look for a tax allocation somewhere between five and 35%. It’s a really big range. 

 

Linzy [00:20:38] A big range. 

 

Julie [00:20:39] That’s a really big range because people have very different tax situations. We often see someone starting a solo practice as a side gig where they also already have, for example, full time job and then they’re starting as a side gig. So they may not be making a whole lot of money. Their profit margin may not be huge. So sometimes 5% can be can be enough. There are other cases where you do need a full 35% because you’re the only breadwinner in the household. You have to account for federal tax, state tax, self-employment tax in the U.S.. Right. All three of those. So that’s kind of why we see that that range. There are some fringe cases where you might even need more if you’re in a high income household, for example, where you know, you have a spouse already bringing up the household into a high tax bracket that could create a need for more. So so the ratios I’m talking about are kind of what most people will fall under. Then as you move to a small group that might move to 5 to 25% rates already, that got lower because the- you’re again you’re paying clinicians, right. You’re doing 50% of the work but like there’s clinicians to pay and then as we move to a medium and a large group, usually we see allocation tax allocations between five and 15%. For both of those, that typically is going to be enough. And again, because you’re getting just a smaller piece of that bigger pie, right? In a large group practice, usually at least 50% of the money that comes in is going right back out to clinician wages and sometimes even more. So once we allocate for all of those items, there’s just a lot less left. Right. 

 

Linzy [00:22:14] And because in this case, like when you’re talking about taxes here, you’re talking about just the owners taxes. Is that correct? Yes. 

 

Julie [00:22:23] Yes, that’s correct. So we’re talking we’re not talking about like employee payroll taxes. Right. So when I talk about employee the payroll allocation in that, for me, I include wages, payroll tax and benefits in. Yes. Yes. Right. So wages, payroll tax and benefits. So when we talk about tax in the U.S., again, like most private practices are pass through entities. And so that means that the the business itself does not pay tax at the federal level, rather, the profit flows through to the personal tax return where it is then taxed. Right. So so technically, the business does not pay tax, but it pays tax on behalf of the owner. And so then there’s always federal tax depending on the situation and the tax entity, self-employment tax as well. And then depending on the state again, state tax. Right. So just like you in Canada have provincial tax, I think all provinces have tax rate. 

 

Linzy [00:23:16] I believe so, yes. 

 

Julie [00:23:17] Yeah. So most states in the United States have have a state tax as well with some, some do not. And so that you know, in that case, there’s no tax. 

 

Linzy [00:23:24] It’s a wide range. 

 

Julie [00:23:25] It’s a very wide range. Yes. 

 

Linzy [00:23:27] And something with the with taxes and profit first. And this is a mistake that I see folks make. And I wonder if you see people making this like with profit first, you’re getting your tax percentage based on all the money coming in the door. Yes. Right. Not just what you’re getting paid in terms of what you said in your like your allocation percentages. Could you speak to that a little more? Because I think folks can get really confused of like what number are they’re getting? Are they applying their tax number to or where does their tax number come from? 

 

Julie [00:23:53] Yeah, that’s a really good point. So when you implement profit first, all the money coming into the business goes into that income account. Right. So that is ultimately your your gross income or close to it. All right. GROSS income is that income before you take out expenses. So then on your profit and loss or your tax return, your net income – your profit – that is ultimately what gets taxed, right? So you’re going to pay a percentage of that. So when we do a profit first allocation, we look at all the dollars coming in and then we’re going to allocate some to each category, each bank account, basically. Right? So of all the dollars coming in for solo practice, 5 to 35% of that is going to get allocated to tax. Some of that is going to get allocated to owners pay. Some of it is going to be allocated to operating expenses. And so just because you’re you’re saving, for example, 20% of your gross income for taxes doesn’t mean that your tax bracket is 20% rate is probably higher than that. But you have deductions that are legally allowed. You’re not taxed on your gross income, you’re taxed on your profit. And so that’s where it gets a little bit. That’s where it gets a little bit confusing. So we’re saving based on the gross income, and that’s why that number might be a lower than your actual tax bracket. 

 

Linzy [00:25:12] And that like when I first read Profit First years ago, that was the equation that for some reason took so long to get into my head. Like whenever I went to do it, I was like, Wait, what is that equation again? Like to turn your tax rate, like your effective tax rate, Like, let’s say I talk to my accountant, they’re like, okay, well, you know, because of what you make, you should be saving 28% for taxes. You don’t put 28% though, into your profit first calculator or allocations. Right. It’s a lower number. And I know for me that equation, which now I have in the course as a lesson, took a long time to like click into place. But this is where I see folks like sometimes on therapist Facebook groups and stuff, Julie, like this is a mistake that I see them making sometimes where they’re like, Well, my tax rate is 30%, and so I save 30% of everything coming in the door. Can you just clarify and speak to like why that is? Yeah, what what doesn’t work about that? 

 

Julie [00:26:02] If I mean, if that’s the case, then great. Right. You’re probably saving too much. And I think that’s a better problem than the opposite of saving not enough. 

 

Linzy [00:26:09] True story. 

 

Julie [00:26:10] But like, okay, let’s just use round number. So if $100,000 is coming in and you’re saving 30%, that means you’ll have $30,000 saved for taxes, right? Yes. But let’s say you have 25,000 in operating expenses, which is very doable. Right? Very reasonable to expect. So that means your actual your taxable income is not a hundred thousand. It’s hundred -$25,000 of expenses. 75,000. Yeah. So now you’ve saved almost 50% of your actual taxable income. So good problem to have. But that’s why I can feel like this is really hard. Yeah, it’s hard because it’s so. It’s more than you actually need. Yeah. 

 

Linzy [00:26:45] Yeah, it’s hard because you’re over saving. 

 

Julie [00:26:47] You’re over saving. Yeah. When someone asks about tax, that is our client that we’re we’re working directly in their books, I would say number one, like, obviously your accountant was always going to have the most accurate answer. Right. Because they can look at your whole tax situation. They can look at your tax return, your credits, you have rental income. We like all the all the pieces that come through and take that into account. So that’s number one. But if you’re not able to do that in the U.S., we have a form called the 1040 ES that’s for estimate. So you can use that form to estimate your quarterly estimate in terms of the seven-page form. Most people look at it in like, oh, no or no, no, I might not be doing that. So that is kind of your next best option. Then after that, if you’re not willing to quote, go, go down that road. You can also take your pull out your tax return to the 1040. Look at the first two pages. Look at the total tax that’s usually on the second page. And divide that by your gross income adjusted – AGI, adjusted gross income. And that’s going to say like, okay, this is your ultimately your tax rate. You can also. So that’s going to give you a piece of information, right, That if you saved that of your gross income, that’s going to be too much like we just talked about. But it still gives you a data point. Yeah. Or you can also look at your total tax if you’re making a very similar amount this year. Like, you can that can be the number that you plug in to your profit first instant assessment, right? Like that’s the dollar amount that you need ultimately to pay in taxes. And so you can look at that. Then your total tax as a percentage of all the income that you bring in and calculate it that way. Great. 

 

Linzy [00:28:22] Yeah. Yeah. So so helpful tips there. If folks, if you’re feeling unsure about your tax bracket, Julie just gave us some good information there. Seven-page form, if you like forms, that form is out there for you. Which form is that again? Julie,  1040ES. Okay. Yes. Or you can look at your tax return. Calculate those numbers. Look at how much you paid in tax. Divide that by your annual gross income, AGI. 

 

Julie [00:28:45] Adjusted gross income. 

 

Linzy [00:28:46] Adjusted gross income. There you go. Or talk to your accountant. Yeah, because accountants, you know, they love us. And especially we were talking about this a little bit before we start recording. Like in Canada, you don’t file based on your spouse’s income, like you pay taxes separately. So that’s not in the picture. But in the U.S., if you are married and if you’re filing jointly, like your spouse’s income is also in the picture, you and your accountant would be able to like actually look at all of that context and give you probably the most accurate number, I would guess. 

 

Julie [00:29:13] Yeah, they’ll they’ll get you pretty pretty darn close. 

 

Linzy [00:29:16] Usually I’m pretty darn close is all you need to be. 

 

Julie [00:29:18] Yeah, it doesn’t have to be. Done is better than perfect in this case, right? When you’re paying or saving for taxes, I’d rather you have a little bit of money left over in your tax account if possible. Than nothing. But close is better than nothing. Yeah. Yeah. 

 

Linzy [00:29:32] So when would you say is the best time to start using profit versus like, if folks are listening? People listening are going to be at different stages of business. Some of them maybe haven’t even started yet, but they’re thinking about starting or some have started, but maybe they’re making like a few hundred bucks, you know, a week with their first few clients, whereas other folks are more established. Like, what do you think is the right time to actually roll out profit first in your business? 

 

Julie [00:29:52] So I would say May 2nd is a good time because the book will be available to you. 

 

Linzy [00:30:01] That’s the moment. 

 

Julie [00:30:02] So I joke about that, but there’s a Chinese proverb that says the best time to plant a tree was 20 years ago. The next best time is today. So I think starting where you are today is always a good idea. I get asked all the time like, can I start profit first as I start my business? And the answer is absolutely yes, right after your initial investment. You can you can start profit first. So let’s say you’re starting your practice and saying like I have a $2500 budget, right? Like I’m contributing personal funds to start this practice that you would not put your profit first with because that’s not income. You just put all of that in your operating expenses account. But then as dollars as the first dollar starts coming into the practice, you absolutely can start allocating to all of those. And then as an established business, in most cases you can you can start it at any point. It doesn’t have to be the end of the year or the end of the quarter. Like there’s it’s always a good time to take control of your money, in my opinion. There’s actually a handful of times that I think you should not start profit first. And I think I may be a little controversial there, but I think if you are not ready to actually spend some time looking at your money, you should not start it because having five accounts is not going to help. Five or six accounts. If money is so tight in your business that you’re regularly bouncing payments. Yeah, I personally think this is not the time to start splitting your money into five. Yeah, it’s just going to make that harder. I still think there’s a lot to be benefited from the book because we do talk about paying down debt, for example, and then getting your expenses under control. But I think that needs to happen before you actually start implementing right before you start moving 1% to profit. Yeah, you need to get that under control where you’re not bouncing payments, Right. So something structurally needs to change there. Yeah. 

 

Linzy [00:31:50] Okay. And so and for folks who do feel ready to tackle and they’re like, yeah, no, I do want to actually try to apply this, but things have been really tight in their practice or, you know, they they’re maybe their numbers they’re going to find that they’re out of. Islands that they’re like paying themselves too much or not saving enough for taxes. What about those cases where you go to look at people first and you’re like, Oh, no, these numbers that I’m supposed to be is like not even close to where I am. What do you suggest to folks in those situations? 

 

Julie [00:32:18] Yeah, well, so I think one of the beauties of profit first is that it actually encourages you to start where you are today. Right. So when you do the instant assessment and anyone who’s either pre-ordering the book or ordering it will have access to that on, you know, on our website at the instant assessment. You actually start your first quarter, you start implementing profit first at your current locations exactly where you are today, because just the act of moving your money from one big account to five or six bank accounts, that’s enough. Change now is going to just allow you to see the ebb and flow of the money and start making changes, right. To say, Oh, well, maybe I don’t need this anymore, let’s cut that piece. So that actually is encouraged to not make huge amounts of change right away, because if you try to go from 0% profit to 10% profit overnight, I think you basically need to change everything in your business. That’s really, really hard. Yeah, yeah, yeah. And so even if you’re not where you want to be, that’s okay, because profit first will give you the kind of the map to get there. 

 

Linzy [00:33:17] And I like that. And I think, you know, that spirit is in the original profit first book and I love that you carry that and I’m sure that’s that’s in your book as well, because I think that something that therapists experience often is, you know, it’s like you’ll talk to a financial person or go listen to a finance podcast. They’re like, Just do it this way. This is the right way. So you just need to do this. Like I saw a financial advisor once and she was just like, You just need to spend a lot less money. I’m like, Okay, Oh, like, how can you figure out how to make this work better? But it’s like, there’s no how do I say this? Like it’s such a hard way to approach money. And like, often people end up doing it just like throw their hands up in the air and be like, okay, well, apparently I just suck at this and I can’t do it. Whereas like that softness of being like, okay, start where you are now and then start to slowly move towards where you want to be is so much more human and so much more compassionate and also just is much more likely to actually give you success. Right. Because as you say, like in your business, if you find your numbers aren’t where they want them to be, you’re going to need to change a lot of things. And you can’t change those things overnight. But if you let it be a gradual process of moving your numbers towards where you want them to be, you know, then you’re moving at a pace of actually being able to like make changes that make sense, integrate those changes, feel out what’s right, and then, you know, you’ll still get there. But you’re maybe moving things like what do you suggest like 1% of the time, 2% of the time each month? Yeah. What’s the piece that you find works for people? 

 

Julie [00:34:43] So I recommend either a four-quarter or eight-quarter rollout. So depending on how far you have to go, once in a blue moon, we have a client who just really wants to kick it into high gear and they instead of four quarters, they do four months. But still you have a clear sense of like this is this is, what I- the change I need to make this month. So usually based on that, it’s plus 1%/ -1%, right. Because they all your allocations ultimately have to equal 100%. Yes. Because because math you know so you’re making small one, one and a half percent change each quarter ultimately, because that gives you it’s kind of a, you know, a little stepping stool where you get to like, okay, this is our new place. Like, so now we have to tighten our belts a little bit more. Where does that come from? Right, right. I want to pay myself more. So something has to come right down here. Right? 

 

Linzy [00:35:31] So it’s like operating expenses go down 1%, your paycheck goes up 1%. And like, there’s that that dance that happens. 

 

Julie [00:35:38] Yeah. And really profit is is not an event. It’s a habit. It’s not just something that happens on paper at the end of the year. And so this is a little bit like, going back to nutrition, it’s like you’re trying to change everything all at once. It’s like a crash diet. Yes. You’re just trying it. You’re so far off from where you are in a way that’s sustainable long term that it doesn’t often doesn’t last. But if you’re just making those small incremental changes like walking 20 minutes or eating a little bit less. Right. Like those are the changes that long term can be sustained. So that is the goal with profit first, like you’re not trying to change everything all at once. It’s really hard. It’s not doable in many businesses. So you’re just making small incremental changes and they become habits. 

 

Linzy [00:36:22] Yeah, I love that. That’s a very a very human, very human way. I’m approaching these numbers. Julie, thank you so much for joining me today. I am so excited about this book. I’m so excited that you wrote this book that you have your fourth child coming out in the world. So if folks are wanting to preorder the book and just wanting to be able to follow along and be more in your world, tell it. Tell them where to find you. 

 

Julie [00:36:48] Absolutely. Well, and we do have a special giveaway for your listeners if they go to profit first for therapist dot com slash linzy, they will be able to find our calculator to reverse engineer your practice. Your. So this is a we haven’t really we didn’t talk about this today. But when you want your practice to give you a certain amount, like how how do you get there so you can get that calculator there. You can also preorder the book depending on when you’re you’re listening. I’ll get access to the tools as well. And if you’re listening, after May 2nd, you can just order it and you’ll get it within a couple of days. 

 

Linzy [00:37:27] Wonderful. And as a fan of tools and calculators, I’m very excited to see that tool. So thank you. So. And so it’s profit versus for therapist dot com slash linzy. And Linzy – for folks listening – is L I N Z Y. Because my name often confuses people’s brains like just a little bit. Julie thank you. Thank you. And congratulations. I’m so, so happy to have had you here today. 

 

Julie [00:37:52] Thanks for having me. 

 

Linzy [00:38:07] I so appreciate Julie coming on the podcast today and it was really nice to to get like that refresher in private first in the principles that make it work. You know, like there’s just so much human nature that I think a system like profit first and you don’t have to follow it to the tee by any means. But there’s so much human nature that having a system like that addresses. I’m a big fan of this idea of build systems that are smarter than you are. And that’s not to say that we’re dum dums because we are definitely not. But as humans we have natural vulnerabilities and then as people we have our own additional vulnerabilities or behaviors that we need to set up systems that are going to stop us from doing the things that ultimately hurt us. So, for instance, if you’re someone who tends to steal from yourself, you tend to look at money and be like, That’s probably fine. I’m just going to take this and buy the shiny thing or sign up for this course when I’m already in five other courses and have no bandwidth. But this is exciting looking, you know, if you have that tendency to overspend, then the principle of profit first, where it’s like you have those smaller plates, you can actually see what money there is to use for operating expenses. When you’re going to make those kinds of decisions tends to make us just more thoughtful in how we spend. And I like that plate analogy, but I also like the analogy that’s in the original profit first book of tube of toothpaste. Like when we first get a tube of toothpaste, we’re like, we go nuts with toothpaste and you can put like an inch of toothpaste on your brush because you have so much toothpaste. And we tend to be very liberal. But when you get to the bottom of that tube of toothpaste, you’re like squeezing super hard to get out just like the smallest little, you know, pea sized drop of toothpaste and like, that’s enough. And you make it work and you still brush your teeth and everything still works, but you’re using much less. And that is natural human nature. So when we create those natural boundaries around our money, we tend to use it better, use it smarter because we’re giving ourselves boundaries. People do well with boundaries. So I loved going over that with Julie today, so excited about her book. If you do want to pre buy her book or buy her book, depending on when you’re listing and also get that great freebie, that reverse engineering tool for our listeners. It’s profit first for therapist dot com slash linzy. Linzy is L I N Z Y. You can follow me on Instagram @moneynutsandbolts. And if you’re enjoying the podcast, please jump over to Apple Podcasts and leave me a review. It is the best way for people to find the podcast and be part of these conversations. Thanks for listening today. 

Picture of Hi, I'm Linzy

Hi, I'm Linzy

I’m a therapist in private practice, and a the creator of Money Skills for Therapists. I help therapists and health practitioners in private practice feel calm and in control of their finances.

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