Tiffany Note: I’m stoked to bring you this article by the one and only Linzy Bonham, founder of Money Nuts & Bolts. Linzy and I also recorded a series of Ask Tiffany episodes where we dive into the nuts and bolts of how to set up and then rock the nuts off your business finances. Stay tuned for the release of those episodes. If you want to get the best out of those – start by reading this article.
I started my private practice after working for an agency. I loved (and still do) working one on one with clients, but I was growing restless and felt that I was ready for the next stage in my career. I was ready to be my own boss and get all the awesome perks that come with it. I’d be able to set my own hours, have a beautiful office, choose my clients, go to trainings whenever I wanted, and provide my clients with a luxurious selection of teas. It was gonna be amazing!
I soon found that that it’s very, very easy to treat yourself really badly when you are your own boss. Many of us left agency work because of the poor work conditions, and yet, once we’re out on our own we’re so very good at exploiting ourselves. We work long hours, charge low fees, don’t save for taxes and often put business expenses before our own paycheque. (Perfect example: my office is beautiful. I paid a ton for great furniture and art, and now it’s way way nicer than my own home!) It’s easy to put your business’s needs ahead of your own.
But there are easy ways to be a good boss to yourself. Managing your business like a good boss, and treating yourself like the great employee you are is a good place to start. Here are some ways to be a good boss to yourself:
Good Bosses Make Strategic Decisions by Taking Care of the Money
If you don’t know what’s happening with your money, then you can’t change it.
Agencies have administrators who are watching the numbers and set budgets so everyone gets paid and the lights stay on. As your own boss, you’re in charge of that now.
Understanding what money is coming in and going out is key to running a healthy business that will keep paying you for years to come. And you need to put your financial info together at the end of the year anyways, so you might as well do it each week as you go along!
An easy way to set you up to successfully track your money is to have a separate business bank account and credit card. It makes a huge difference. That means you can look at your business bank account and credit card statement and see your expenses and income for the month all together. Seriously, if you take no other advice away from this blog, take this: set up a separate business bank account and credit card.
Then, to start to make sense of the comings and goings of your money, you have a few options. You can use a paper ledger (any old notebooks will work for this,) a spreadsheet or software. I suggest sitting down to check in with your finances and update your tracking weekly – that way you only have to do a bit at a time and it doesn’t turn into a mountain of angst (key ominous thunder in the distance). If you’ve been there – having a big pile up of receipts that makes you queasy to look at, or not having any receipts at all so you need to look through all your personal bank and credit card statement to put your taxes together – then you know what I’m talking about.
For tracking all you really need to know is: what money came in, what money went out (your paycheques business expenses, credit card fees), and what was the difference between those numbers.
Good bosses make sure the business is financially healthy. Once you start tracking regularly, you can look at your real financial information and stop putting all your trust in your emotional sense of how your business is doing (which is way less reliable!).
Here is a good guideline for a healthy small business: spend 30% of the money coming in on your business expenses, and then pay the other 70% to yourself. By having current and and reliable financial information, you can see if this is happening, or if your business actually is eating all your money.
It may be stressful to see what’s really going on, but it’s still happening even if you don’t look at it! It would be awesome if avoidance actually made problems go away, wouldn’t it? But then we’d all need to find a new line of work.
Good Bosses Don’t Work You into the Ground
Tracking and understanding how much you actually need to make means you don’t need to overwork yourself. When we don’t know how much money we need to bring in, we tend to just work MORE. “Another client? Great. Eight sessions in a day? Bring it.” But you’re working with your emotional energy, which is finite. It’s just not sustainable to work yourself to the ground now so you can enjoy your life someday.
Knowing exactly how much you need to earn means you don’t have to overwork yourself. As an example, let’s say that by looking at your business finances you see that to pay rent and to cover your regular business expenses, you need about $1200 per month. And you’ve decided that to live your life well, you want to be paid $4000 a month before taxes. That means you know that once you make $5200 a month, those minimum requirements are covered.
Of course, you can also choose to work more, to have money for vacation and sick time and to build a buffer in your bank account. As that buffer builds you can use it in the future to attend a great training, or maybe up your monthly paycheque, but you also know that as long as you’re averaging that target number each month in income then you’re okay. If you’re feeling tired, seeing that you’re on track for that goal means you can relax. Maybe even take a day or two off near the end of the month! Now, getting extra vacation days after a hard month’s work is sounding more like what I imagined it’d be like to be my own boss.
What I’m saying is that you don’t need to book yourself to the max all the time, because that is a short trip down burnout lane.
Your emotional energy is such a valuable resource as a therapist; you really can’t afford for it to run out. When you use all your emotional energy at work, then you don’t have any left for yourself or your family. It sucks, I know. Understanding how much you need to make lets you make booking decisions based on reliable information, not just a feeling of scarcity. That means Future You won’t be a burnt out mess.
Good Bosses Put Aside Taxes for You
Employers have to remit your taxes for you. When I worked at an agency, I never thought about taxes because there was an administrator doing this for me. You are your own agency now, so putting aside the right amount for taxes is your job. Putting aside your taxes is a way to treat yourself with respect, and take care of Future You so you don’t end up owing the government a bunch of money that you don’t have.
Using a separate bank account to set aside tax money is an easy way to put your tax money out of reach, so you’re not tempted to spend it. A good guideline is setting aside 30% of what you’re paying yourself, but that varies.
Here’s where I have to tell you… I’m not an accountant, nor do I play one on TV, but I’ve never had to worry about not having enough money to pay my taxes, because I’ve always put aside 30% of what I pay myself. Now it’s your turn – go talk to an accountant and figure out how much you need to set aside to make sure you’ve got yourself covered.
Good Bosses Pay You a Good Salary
Typically, we pay our businesses expenses first, and what’s left over we pay ourselves. But you deserve much better than that! A good boss pays you a wage every month that reflects all the training and energy you’ve put into being a therapist. When you prioritize paying yourself, and keep your business spending in check, then more of the money coming into your business can go to living your life.
The money you might spend on the ump-teenth training of the year, or a painting for your office, or a bunch of books you may not ever read (but they look so good on the shelf!) instead goes to you, so you can pay your personal bills or even treat yourself to something nice. If you want an easy guide on how to pay yourself a good, consistent paycheque, then you can check out my free guide Get Off the Income Roller Coaster.
If you’re still reading, koodos to you. However, if you do nothing with this information, then you’re not going to be any better off. So be a good boss to yourself and do the following:
- Open a business bank account
- Open a business credit card
- Start using a ledger, spreadsheet or software to track your business finances as you go
- Figure out how much money you actually need to make
- Pay yourself a good salary and put aside those taxes!
I have an easy guide on how to pay yourself a salary in private practice that you can check out by clicking here. I’m also happy to chat and help you figure out the best way to track and manage your business finances.
Linzy Bonham helps therapists feel calm and confident about money so they can focus instead on the work they love to do. She runs Nuts & Bolts: Money Know-How for Therapists, using her own private practice experiences and knack for finances to teach therapists how to understand and manage their business finances. You can find her here: http://moneynutsandbolts.com/hey-tiffany-readers/