BONUS: FINANCIAL FACTORS FOR CHIROPRACTORS

If you’re a chiropractor or the spouse or partner of a chiropractor, today’s episode of Financially Adjusted is for you.  Some specific financial business topics will be addressed that relate to chiropreneurs and what they face in their practices.

The chiropractic-specific financial topics discussed in today’s episode include equipment purchases, payroll, savings, your accounting method and what it means for chiropractors, highest expenses categories, and DIY bookkeeping. Even if you’re not a chiropractor and you run a different type of practice or business, this financial discussion can still give you some valuable takeaways for your own small business. Thanks for tuning in!

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Disclaimer: This content is for educational and informational purposes only. Please consult with an accounting professional for direct advice based on your specific business situation.

Transcript

Hello there, you’re listening to the financially adjusted podcast, and I'm your host Leslie Roth, I'm so excited that you're here for this special bonus episode that I've made specifically for chiropractors. But even if you're tuning in and you're not a chiropractor, there are still going to be some great takeaways that you can apply to your own business, and if you're one of my chiropractor friends at that also extends to spouses and partners of chiropractors who are helping to run the practice. So, I’ve been working mostly with chiropractors over the last over three years that I've had my bookkeeping business. I thought it would just be nice to offer some specific advice for my Chiro peeps based on some of the common financial situations that you face in your practice.

The first thing that we're going to talk about today is purchasing equipment. How much is too much and what is a healthy range of debt to have on your equipment. Now, let me preface this by saying that I do not encourage getting into debt. What I encourage is more so saving up and purchasing equipment when you have the money to pay cash for, but I do realize that sometimes it's just not feasible for everyone and to get off the ground with your business you do have to invest in some equipment. So, what recommend as far as buying equipment if you have to take out debt is that you have debt that is no more than fifteen percent of your annual projected revenue. So, this is going to ensure that you're able to pay it back within a reasonable time frame and it's not eating away at all of your profits for many years to come in your business. So, for example, if your annual revenue is say two hundred thousand dollars, fifteen percent of that would be thirty thousand dollars. And payments should ideally not be any more than five percent of your revenue monthly. So, let's say your revenue with the two hundred thousand dollars annually is going to be about sixteen thousand six hundred and sixty seven dollars monthly.

Then your monthly payment would ideally be no more than about eight hundred and thirty-three dollars. So, this means that you would have the loan for about three years unless you pay it off quicker which I highly recommend if you can throw anything extra from your net profits at your debt I recommend doing that before you take a bunch of extra money home. Now the goal is to operate debt free of course but if it's your circumstance that you do need to get some equipment try to stay within these parameters or close to it and you will be setting yourself up for success in your business and your debt won't be out of control.

And the next thing that we're going to talk about is what to pay yourself. A lot of my chiropractor friends have this question- what to pay yourself - and many other business owners also have this question. That's one of the biggest things that people wonder about as far as what they should take home as a salary if they're an s corporation and then what additional they should take home on top of that in the form of draws or distributions which is what we actually call them, if you're an s corporation. First, you want to definitely make sure you are paying yourself as a W2 employee if you are an s corp. Average reasonable salaries for chiropractors…you're really going to have to speak with your tax professional…specifically for your situation to get a recommendation on what reasonable salary would be. But I have seen that for chiropractors, this typically ranges between sixty to eighty thousand dollars. And again I am not your specific professional. I don't even do taxes or advise people on taxes. But as far as what I've seen in the bookkeeping, this seems to be a reasonable range. 

And the next thing that we're going to talk about that I see a lot of business owners having questions about in their chiropractic practices is savings goals for reinvestment and budgeting for them. This also extends to other business owners. This is one of the main things that business owners think about. And some of my other podcast episodes have addressed this. But if you don't want to go into debt, we talked about how much debt is somewhat reasonable to stay afloat, but if you don't want to go into debt, you're projecting out that you need certain equipment in your business. Let's say you need an adjusting table because you know that yours is not going to be lasting that much longer. It's really good to save in advance for this. Get an idea of how much you want to spend ahead of time. And really you should be assessing all of your equipment in your practice to kind of get an idea ahead of time as far as what you need to replace, how long you think you can stretch with what you currently have, and really price things out to get a solid realistic idea of how much is going to be. So, you're assessing your equipment, and you're also going to be assessing other things in your business that you might want to save up for. For instance, a lot of chiropractors that I know end up spending a decent chunk of money on continuing education, whether that's seminars or online education, or conferences. If you are aware that you have certain conferences coming up or educational seminars coming up that you want to spend money on. And specifically, if you are traveling to them you definitely want to project that in your budget. And save up for that and what that can look like is taking from your net profit a certain amount. Stashing it away into a sinking fund which is just a fund that you're saving for incrementally up to the point where you need to pay that expense So if you know you're going to a seminar or a conference that's going to cost you thousand dollars and have associated travel expenses, you can…you can back out of that and then save what you need to each month for that upcoming expense.

So another thing we're going to talk about today is DIY bookkeeping. In the chiropractic community, I've noticed it's very common for people to do their own bookkeeping or have a spouse do their bookkeeping. Some people even have an office manager doing their bookkeeping. Well, there's nothing wrong with this. This works for a lot of people if they can stay on top of it but something I've seen more of unfortunately, is that the bookkeeping is done wrong and it also gets neglected. And there's no shame or blame in this but it's just a fact of the matter that when you're running a busy practice, that seems to be something that kind of falls behind. You get months behind and then before you know you're almost a year behind. And a lot of people then when they come to tax time they feel like they're scrambling because they don't have their bookkeeping in order. And to me like worse than that is actually just the fact that you don't know your numbers from month to month. So if this is you and your you're feeling pretty seen right now, I want to just to encourage you to price out some bookkeepers. Talk to a few different bookkeepers, interview some see what it would cost you monthly and consider outsourcing your bookkeeping. I'm going to be building a course in the future to help with people that do want to do I why their bookkeeping. And my goal is to help you to do it properly.

So, next I'm going to talk about some common mistakes that I see with DIY bookkeeping. For those people that are doing their own books. The first mistake that I'm seeing is breaking out loans improperly. So, when you have a loan payment typically that's going to include principal and interest payments. And if you were not breaking those out properly and you're just putting the whole payment as expense, then that's not being tracked in the right way. The interest portion is technically an expense that shows up on the profit and loss statement and the other portion of that which is the principal, is going to be applied to the loan and it's going to decrease the loan which sits on the balance sheet. So, you want to make sure when you first get equipment and a loan that goes along with that that you're categorizing that properly. So, you would categorize the asset side which would just be the cost the full cost of the equipment that you pay for it and then the loan. And so as you make payments then that loan should be decreasing. One thing you should also be doing is reconciling that loan. You take the balance each month and you reconcile it to the balance that you have in your bookkeeping, and they should match. That's one way you can stay on track with those.

Another thing that I am seeing done improperly in bookkeeping is breaking out the payroll properly. Payroll can be kind of a tricky thing to understand unless you've studied the accounting, and you've really understood like what is involved in the actual debits that come out of your account. So usually you're going to have a net pay debit and you're going to have a net tax debit Now that's where it gets confusing A lot of people take those and they just apply them as an expense, but they're actually made up of liabilities and expenses and you're not tracking those properly if you're just adding them kind of similar to how you added your loan payments. So what I suggest doing I'm not going to get into detailed full on explanation of how payroll works on this podcast, but one thing that I can recommend that you do is if you're using a payroll company a payroll processing company, you can go in and most all of them now have mapping features so you can often connect them with your accounting software I know QuickBooks online connects with a bunch of them…ADP…Gusto. If you even do your payroll right in QuickBooks online, it'll break out for you all of the expenses. But you can go in and map all the accounts within your payroll processing company software, and then it'll automatically apply the correct entry into your accounting software.

This can make it very streamlined and easy where you're you don't even have to enter anything. It’s actually done for you so that can be very helpful.

Another mistake that I see, chiropreneurs making in their books is paying bonuses out to various employees via just a check rather than through payroll. So, the IRS deems this taxable and reportable for the employee and the employer. So, instead of just writing a check to your employees for bonuses, at Christmas time or annually, however you do that, you want to make sure you're running that through payroll. That's very important! That's going to be all we’re going to discuss today for bookkeeping mistakes. Those are the most common ones So, if you're doing your own books and you can look closely at those, correct them make sure you're doing them properly on a month-to-month basis you'll be in pretty good shape. One thing I do recommend if you're DIYing your bookkeeping is to jump into any education online about bookkeeping that you can. And of course I'm going to be offering a course down the road. I can't say right now how long that is going to be I'm hoping to be doing that within maybe three to six but there's lots of different education on YouTube on Udemy. But definitely stay tuned for the help that I put out there in the future. One thing I suggest that you do is link up with your tax professional a little it earlier than tax season and just let them know you could really use some help with them looking over your bookkeeping to make sure that everything is accurate ahead of time and maybe ask them to look on a monthly basis so that you can get proper monthly numbers Because one thing, that a tax professional won't have time for is to get into the tediousness of monthly recordings…making sure everything's recorded properly each month. Typically they're doing corrections, they're doing entries…that are reflected from, you know December thirty first at the end of that year they're not going back and tweaking it monthly. There's doing one entry so that the whole year's categorized properly and then you're not going to be getting accurate monthly numbers, which is very important. 

The next thing that we're going to be talking about specifically for chiropractors are expense categories that I see being the highest in this field. And that's advertising and marketing continuing education, and payroll. And this can actually go for a lot of other businesses. These are just those higher categories on your profit and loss statement in general for most people.

Advertising and marketing is one that I suggest reevaluating…each month. So, if you're trying out let's say Facebook ads, or some new advertisement. You want to make sure you are getting an ROI on that. And not just paying month after month and really not seeing new patients coming in. Do you want to try to get an idea of how many new patients you're getting each month So you can kind of track your ROI on any new advertising that you're trying out because that can be a real profit suck paying for expensive ads and then really if you're not seeing the ROI on that you're thrown your money down the drain. Another category is continuing education. It’s great and I totally love that chiropractors invest so much in education. They value that and they should, but I think that's one category that you can really plan for a little bit more. Like I was talking about earlier, just have those sinking funds where you know if you’re going to a conference you are going to be investing in something that involves travel make sure you're really planning out for those costs.

Another one of course is payroll. Usually, I recommend to stay under fifty percent of your revenue in payroll costs each month. And that is something that can be difficult to do. And it's okay to ride the line and maybe you're upwards of like forty to fifty percent but you can even stay below forty percent for your payroll cos. That is ideal. And so this is going to include on your profit and loss statement gross wages paid out the taxes that the company has paid and also any payment or payroll processing fees that you paid to the company. And then it'll also include like if you paid any contractors. So this is just something that you have to assess in your practice you know do you have the right staff…if you are overstaffed, you know maybe that's something you can remedy over time. I do have a friend, Dr. Jodi Dinnerman… she actually has a course, a program where she teaches chiropractors how to run a staffless practice. So, you could even look into something like that if you are a smaller practice and that's something that be feasible for you, look into different automated systems. It could be for you…you never know. So, payroll is one that you really want to pay close attention to And, um I also have a free resource could help you I have a sample profit and loss statement for chiropractors. You can use that as a guideline and a benchmark to look at your own numbers and see if you're operating at a healthy range in a lot of these categories. It'll also have in there a net profit margin that is a healthy range. So, twenty percent is usually what I say for net profit margin, really, your goal could be higher than that you could say forty percent profit and sixty percent expenses I think that's a great goal. But the idea is just to have a goal that you're working towards for your numbers and then you can kind of gamify it and it becomes fun. You're looking at your profit and loss.

The next thing I want to talk about for chiropractor specifically is the type of accounting method that you are and this may not be super relevant for you to deep dive into and understand But Most chiropractors, I would say ninety nine percent of chiropractors are cash basis versus accrual basis accounting. All that that means is that your sales are recognized at the time that cash is received versus when the service is provided So if you have revenue from insurance companies that hasn't been processed yet and hasn't been received yet this is not going to be included in your P and L. So, what revenue you're going to see on your profit and loss statement is going to be actual cash that you received. So, if you have those insurance outstanding payments that have not come to you yet, they will not be recognized as income until you actually received and so I think that's something to keep in mind like because your chiropractic software in your business might say that you made a certain amount that month which includes a lot of the insurance submissions. I know a lot of people are only operating as a cash practice so this wouldn't apply to you. That's just something to keep in mind. And something that you can also discuss with your tax professional and ask them if you're filing as cash or accrual basis. And if you're doing your own book this is good to know because then you're making sure that you're categorizing properly.

The next thing that we're going to talk about is inventory. I know a lot of chiropractors don't sell supplements or pillows supports that kind of thing but a lot do. And so, this will apply to you. It could be some food for thought. So as far as how much you're purchasing to just have an inventory in your practice, whether it’s supplements, pillows, supports whatever it is you're selling. Just make sure that you’re keeping an eye on how much you're selling on average each month because if you have a whole bunch of supplements that are sitting there on your shelves collecting dust that aren’t being sold, you just want to make sure you're not ordering those on autopilot from the supplier because this is going be your money being tied up and not coming back to you in revenue. Just be weary of that and make sure you're only ordering really what you're selling. Or, you can link up with a supplier where you get a commission and the patients are actually just ordering it online so then you don't even have to keep any inventory in house.

The next thing that we're going to talk about is missed deductions. And some of the biggest deductions that I see being missed by chiropractors. And that would be mileage, home office, donations, and travel. And then also personal funds being used for business expenses. And I'm sure this will also apply to many other businesses out there so this could really be food for thought for anyone who's a business owner. But mileage is definitely one that I see being missed by a lot of business owners if you're traveling for business. Let's say you work at your home office and you're traveling to your chiropractic practice. Now if you are working at both places, you can deduct that mileage that you're traveling in between. And I would definitely suggest of course talking to your tax professional about this and your specific situation. And if they would agree that, for you, that mileage deduction would be feasible, it's something worth looking into because if you're constantly working at home and working in the office or traveling to run errands to get supplies for the office you want to make sure you're tracking all of that mileage. If you have QuickBooks online, you'll be to use the app on your phone to track mileage and it's very handy and a very nice tool to have. Another one is the home office. So a lot of chiropractic business owners out there have a home office that they work from a lot. But they're not necessarily telling their tax professional about the home office. So you want to make sure that you are getting that deduction because it can be a significant one. What they do typically is take the square footage of space that you're using for your home office. And you get a standard deduction based on the square footage. So, something to keep in mind for sure because I guarantee many of you are working from home as well as in the office and you're not taking that deduction.

The next one I want to talk about is donation. So many of you are very generous people and are always um donating to different charities out there. One mistake I see being made with people that do their own bookkeeping is you are putting a donation out there that actually is a sponsorship which is an advertisement for whatever event you're donating to. And what you can do on your books is actually categorized that as an advertising and a marketing expense versus a charitable contribution expense. And then it's fully deductible. A lot of times charitable contributions are not warranted as deductible fully depending on the situation. Again, that is something you need to discuss with your tax professional, but this is one category you can really save in. So, if you are donating to an organization and it's giving you an advertisement on a flyer in return make sure you categorize that as an advertisement versus just a charitable donation. And you can write in the memo what that's for specifically.

The next one we're going to talk about that people miss with deductions is travel. So, if you are traveling for business, make you're using business accounts to get that deduction. And also, if you have a credit card that has travel rewards on it what you can do is just pay for the travel cost outright. And then you can use those travel rewards for personal travel if you'd like because a lot of times that's not going to be taxable in your business anyway. So, instead of using travel rewards for business travel, get the deduction and actually pay for it out of your business accounts when you travel, and then reap those rewards on the personal side. 

The next and last thing we're going to talk about as far as deductions being missed are using personal funds for business expenses. Make sure if you're using your personal funds whether it's by accident or on purpose make sure you're documenting in your business you contributed money from your personal account for that expense. There's probably a lot of you out there that are missing these deductions. And even if they're small you know it's here and there it really adds up and you want to make sure you're getting all the deductions you can in your business.

In the future, I will do Q and A episodes for small business entrepreneurs including chiropractors so if you have any financial questions that you need answered, in regards to money management in your business financial systems, budgeting, bookkeeping please send them to suppor@financiallyadjusted.com. 

That's it for today's topics, but definitely reach out if there's something at the top of your mind that I did not cover today. And make sure you check out my freebies. I have the sample chiropractor profit and loss statement that I mentioned earlier and I also have a few other freebies that you can check out. And all you have to do is go to financiallyadjusted.com and it'll be really obvious where they are on there. You just click on freebies at the top.