#43: WHAT TO FOCUS ON IN YOUR MONTHLY FINANCIAL REPORTS

In this Financially Adjusted episode, I answer a question I get often: “What should I focus on in my monthly financial reports?”. I break down the essentials of the balance sheet, profit & loss statement, and cash flow statement so you can make informed decisions that grow your chiropractic business. I talk about the most important metric to zone in on each month which is profit margin.

You’ll gain powerful insights with today’s podcast episode that are easy to understand and apply in your chiropractic business!

Join my FREE Facebook Group: FINANCIAL ALIGNMENT FOR CHIROPRACTORS

Resources Mentioned:

• Episodes 11: Understand Your Profit & Loss Like a Boss
• Episode 12: Understand the Meat of Your Balance Sheet

Helpful Resource: Free Estimated Tax Guide

Email me with any questions you’d like answered in future Q&A episodes!

Recommended payroll software (affiliate links):
ADP
GUSTO

QuickBooks Online is my go-to accounting software. Get an amazing discount (30% off for 6 months) when you buy with my affiliate link below.
SIGN UP FOR QUICKBOOKS ONLINE

My favorite budgeting app w/ an amazing free version:
EVERY DOLLAR BUDGETING APP

My preferred business credit card with cash rewards (affiliate link):

If you have healthy behaviors around spending with a credit card, this is a great one to use and earn cash back. It also links up well with QuickBooks Online. If you have unhealthy spending habits with credit cards, please avoid using one! You need to be able to pay it off monthly and not carry a balance. I use this one for my business and it makes paying bills simple.

CAPITAL ONE BUSINESS CREDIT CARD

Check out all my FREE financial resources in one place

Follow me on social media:
Facebook
Instagram
LinkedIn
Pinterest

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

What's up my chiropractor friend, Thank you for tuning in today and if you're new to me and the podcast welcome. I'm bringing helpful and actionable financial tips to you every Thursday so be sure to subscribe wherever you listen, so you don't miss a thing. It's my goal to help as many chiropractic business owners as possible. I know that you love what you do and you trained to be the best chiropractor you can be but don't necessarily have the knowledge it takes to run the financial side of your business well and that's what I'm here to provide to you.

So, let's go right into today's topic, which is a question I get asked a ton. What should you focus on in your monthly reports?

Before I dive in, if you are saying “Leslie I am totally new to reports like what the heck are in reports?” “What reports do I run?”. Go back and listen to episodes eleven and twelve where I break down the balance sheet and the profit and loss what's in them, how to navigate them, and pretty much break down everything that's in them so that you can understand in a more detailed way. And then you can come back to this episode because it'll make a little bit more sense and you'll have foundation to work with.

This episode is going to be more of a short and sweet one on the most important things to focus on each month when you look at those reports. Each month you should be getting an accurate and up to date balance sheet and profit and loss statement. If you are not, now is the time to get into action to ensure that you do.

If you DIY your bookkeeping and you're not able to keep up or you're not sure if you're doing it right, it's time to hire an outsourced bookkeeper. If you already have an outsourced bookkeeper but they aren't giving you up to date reports, first make sure you've given them everything that they've asked for so that they can do their job. But if you have and they still aren't getting you those monthly reports, you need to talk to your bookkeeper let them know that this is a necessity you and that is a non-negotiable. If they can't make this happen or they continue to fall short, it's time to find yourself a new bookkeeper because that is a very important thing, especially when you're outsourcing your bookkeeper. That should be a no brainer. That should just be a given of what you get for that exchange.

Okay. So, first I'm going to get into the balance sheet. There is not much to focus on in comparison to the P and L. That's going to be what you're more heavily focusing on each month, but this is a going to be a snapshot of your financial picture at a point in time. So that point in time being the end of the month for that month that you're looking at. So, it's going to be listing out all of your assets all of your liabilities which are your debts and all of your equity.

Under assets, you want to make sure that any asset you purchased for twenty five hundred dollars or more within that month gets listed on your balance sheet. And under the liability or the debt section, make sure that you have told your bookkeeper about any new loans or any new credit cards and that they are showing up here in this section. I know sometimes you get busy and maybe you got a new credit card to run expenses through every month and you forget to mention it to your bookkeeper.

Or maybe you got a new equipment loan that you forget to mention to your bookkeeper so be sure that telling your bookkeeper about these is your first go to anytime you get a new loan or get a new credit card because they need to make sure that those are accounted for in your bookkeeping. So, you yourself you want to make sure that all of that has been accounted for.

And then under the equity section, this will show you how much you've contributed or taken out of the business so any owner's draws that you that you've taken from the business will show up here. So not a ton to look at on a monthly basis in the balance sheet You do need to verify that all of your assets and your liabilities have been accounted for as well as those owner's draws, owner's contributions.

You also need to make sure you're telling your bookkeeper if you paid for business expenses out of your personal funds. That's something they need to know about because they need to record that. So, that would be something that would show up in your equity section because you would be technically contributing that money to your business.

And also if any of your expenses that ran through the business accounts were actually personal expenses, you also need to let your bookkeeper know that because they would show up as draws because it's not a business expense. So, that would also be in this equity part of your balance sheet.

Okay, moving on to the profit and loss statement. This is also called an income statement or a P and L for short. So, anytime you hear somebody talking about a P and L that's what this is or an income statement. This shows exactly what it states. It shows your total income.

And it's going to show total income minus total expenses for the month which then gives you your total loss or your total profit. And of course, you want that to be profit and not a loss.

The first thing I recommend when it comes to your P and L is running a P and L that shows percentages in each row in comparison to revenue. Don't skip this part because if you're not getting your reports in this format, it's something you want to start doing immediately. Tell your bookkeeper you want your P and L in this format each month.

In QuickBooks online, you simply select the drop-down menu under that P and L And select percentage of income, and that will give you that percentage that I'm talking about for each row. This report will give you insights that you won't gain when you're just looking at a total dollar amount. That's why I tell you to run this. 

The first thing you're zoning in on when you look at this monthly report is your total income otherwise known as your gross revenue or top line revenue. You can break this out in different ways if you want to for either different services you offer or you can break that out between what you get in insurance payments and what you get in cash payments which would be like cash checks credit debit. You can break that out however you want, or you can just lump it all together which is fine too.

Many times, your chiropractic software will give you those breakdowns so you don't necessarily need that in your bookkeeping system. But if you have a percentage column, this will tell you what percentage each revenue category is. So, if you do like to visualize your revenue broken out between services or cash or insurance income, that will tell you what percentage…each is made up of which can be really helpful if you're tracking that.

It can be beneficial to also run a P and L that compares months of that year and totals from that year in comparison to prior years, analyzing your monthly and quarterly revenue trends can be really helpful when it comes to budgeting and forecasting what you'll make in the future months. You'll gain a solid idea of what your revenue looks like in slower months and seasons versus busier months and seasons.

Okay, the second thing to focus on when you're looking at your P and L's payment every month will be expenses that tend to be higher. So, overall, when you're looking down your P and L report you're paying attention to that percentage column versus the dollar amount. The percentage will quickly highlight those expense categories that are higher. The percentage is showing how much of that expense expense- what percentage that expense is- of your revenue. So, you will look at the total…expense line first versus the subcategories. So, say for instance, you have supplies as a category and then under that you have like subcategory for office supplies or clinical supplies, you're going to zone in on that total expense first.

Expense categories that I've noticed tend to be a little higher for most chiropractors and the ones that I advise my clients pay attention to are advertising and marketing, interest from credit cards and loans, office and admin expenses, payroll expenses, and rent. For advertising and marketing expenses, I recommend that you stay around two percent. You can go like two to four percent if you're testing out like an ad spend, marketing campaign but I really ideally want you to stay within that two percent range and not go above four percent.

For your interest from credit cards and loans, ideally this would stay at two percent or less. You want to be debt free or have very low debt because otherwise those interest payments for loans and credit cards are just eating away at your profit. And taking away money for growth and money that you can take home. For office and admin expenses. This can be anything from online apps and software to office supplies bank fees, ideally you want to be at five percent or less in this category.

Something I see getting out of control is just those regular office expenses and something I see happening is when you have like an Amazon account and maybe you have an office manager purchasing your office supplies for you they're not going to be as invested in you're making sure that you're being cost efficient when you're purchasing supplies. They're just sometimes checking it off a box. And some office managers are great. You know you can inform them try to price it out and I want you to kind of pay attention to the price of everything but it's up to you to be sourcing supplies that are reasonably priced and to not be over ordering on things. 

So, if you just have stuff on auto ship, and you've got some crazy amount of office supplies that you'll never use. Pay attention to that kind of stuff because it may seem minuscule but it's really not. That kind of stuff adds up over time. And it's amazing when you see that on your profit and loss statement and you think you're spending small amounts in these categories, and you're not So it can be a real eye opener when you're looking at percentages.

The next expense category and the biggest line item for almost every business is payroll expenses. Ideally, you want to be less than fifty percent in this category if you're an S corporation, and thirty percent if you're an LLC. The reason there's a difference between an S-corp and an LLC is that when you're in S corporation, you are required by the IRS to pay yourself as a W2 employee. Therefore, you have more payroll expenses you have your salary. You have more taxes possibly, you know company match on a retirement account. You're going to have more admin fees when it comes to running your payroll. So really pay attention to this line because this is one that can get out of hand if you're not careful. And something that you can do is when you're paying attention in this month after month is really assessing if it's getting up there and it's getting past that fifty percent mark or that thirty percent mark if you're an LLC, really consider your staffing needs. I mean not that you want to be letting people go but if you're overstaffed you need to consider what that means for you down the road and it's not that you're making any rash decisions right now but keep that in the back of your head. Like if you're continually seeing that be a really high expense and it's just getting out of control, you need to think about that in the back of your head. Think about those staffing issues.

Now, rent is going to be another one that I see creep up and there's not much that can be done about this if you're in a high cost of living area. I like this expense category to be no more than six percent but sometimes, realistically, that can be a lot more if you're living in a bigger more expensive, high cost of living city. You can pay attention to this regardless and if it's well past ten percent you might need to make some cuts in other areas to compensate for this higher cost. Even though there's not much you can do about the rent expense itself, there is something you can do about cutting other costs and making sacrifices to account for the fact that you do have to pay more money in rent.

If you are an S-corporation, I would recommend keeping your goal for expenses overall at eighty percent or less.

If you are an LLC see and you're not taxed as an S corporation, I recommend keeping your goal for expenses at sixty percent or less. Or fifty percent or less would be even better.

Alright, so the next and last thing I'll discuss when it comes to your profit and loss statement is your profit margin. This is one of the most important numbers you can look at on your profit and loss statement and zone in on every month. If I told you that you would just have to look at one thing in your business, it would be profit margin. This is one of the ultimate measures of health in my opinion when it comes to your business. You will focus on what your profit margin is. This is the percentage of revenue you keep after your expenses are subtracted…

So, it's going to tell you the amount of revenue you have left over that you can take in owner's draws and that you can use to pay down debt and save and grow your business. The more margin you have in your business the more growth that's possible for you. Your profit is also referred to as your bottom line. So, these are interchangeable terms.

When you're focusing on this number each month - this percentage of what you're taking home in comparison to revenue - you need to have a target in mind. So, if you haven't set a profit margin goal yet, start thinking about this. If you're an S-corporation, I recommend a monthly goal of about twenty percent or more. If you're an LLC, I recommend having a monthly goal that's forty percent and up for profit margin.

A common misconception when it comes to looking at profit at the end of each month, is that your profit is what's left over after all cash outflow happens like after every cent that's gone out of your business has happened. This is not the case. Profit margin does not include principal payments on loans and credit cards and it does not include owners draws. These are balance sheet accounts.

There's a bonus topic that I am adding to today's episode and it's on running a cash flow statement because it can get really confusing when your profit and your profit margin is not equaling what you have in your bank account. When your profit is sitting there on that statement, it's really hard sometimes to equate that to what you have going on in reality and what's sitting in your bank account. So, I'm going to talk about a cash flow statement or a statement of cash flows. This is an additional report that you can request to get from your bookkeeper, and it shouldn't be a big deal at all for them to run this for you, or if you know how to run your reports in your bookkeeping system, which I recommend that you look into, then you can run this yourself as well. This is the report that ties together the profit and loss statement and the balance sheet and that will account for all cash flow in and all cash flow out.

So, it's going to account for anything you did with that profit that you had left over. Any draws that you took like owner's draws and any principal loan payments. It will show you the total amount of cash increase in your business after all cash has flowed out or the amount of cash decreased during that period of time. This is a very good measure of health and growth in your business.

The profit margin is too; however, you can have a higher profit margin and it can make your business look great on paper. But if you have to pay out a ton of loan payments for debts that you have, it’s not capturing that money that's flowing out of your business. So when you see that profit number at the end of the month, that's not showing you or accounting for the principal payments on debts that you've made. An ideal situation for your business is when you have a healthy profit margin, but you also don't have a lot of debt. This means that you can funnel all that profit back into the business and take more home. If you have debt, you're robbing your business and yourself and your family of your hard earned money because it's going out the door to pay those creditors versus growing your business and growing your personal wealth.

Alright, so we talked about a lot today to summarize what you're going to focus on every month and the most important things to zone in on.

Ideally, you want that balance sheet and you want that profit and loss plus a cash flow statement is nice if you want to see your total cash flow increase and decrease for the month.

On the balance sheet you're making sure any assets or new loans credit cards were added, and take a look at the money you contributed or took out from the business. Remember to let your bookkeeper know of any new loans and new assets. Did you buy equipment? Did you get a new credit card? Make sure you let your bookkeeper know because they won't land here if you didn't.

On the P and L, pay attention to revenue and revenue trends. Zone in on those expenses that tend to be higher and more variable and use that information to make cuts if necessary. Don't just observe this and move on. Use this information to make decisions. If you are paying a lot for ads that aren't increasing revenue for you, it's time to make a decision to cut that ad spending. Also, on the P and L you're paying attention to your profit margin.

This is the most important thing to pay attention to in this statement. Set goals for total expenses and total profit margin and compare your goals to what happened in reality each month. If you're not meeting these goals, decide what can be done about that. It's up to you as the business owner take these measures. You can have a bookkeeper or a tax professional helping you to interpret and understand your reports, but it's up to you to execute on decisions moving forward that will enhance the health and growth of your business.

Finally, if you choose to run a cash flow statement each month, pay attention to the cash flow increase or decrease for that period. This would be what was left over after you paid principal on debts and after you took money home and do what you can to get that number up. It means growth for your business and long-term business health.

Alright, I know sometimes it can feel pretty overwhelming to understand all of this stuff. Especially if you're new to it. You would have to have patience with yourself and show yourself grace when it comes to this stuff. And you also have to decide to commit to spending time learning and plugging into your finances. This isn't something that's going to likely click right away. Or you're just going to get overnight. It takes some time and it takes some discipline. You have to show up each month and each week and each day determined to not give up when it comes to stewarding the money you've been blessed with in your business and your life.

Take a deep breath. And take it one step at a time. Stay committed to learning and I will be here to help you.

I have a free Facebook group that you can join at any time, and you can ask all your financial questions no matter how big or small. I will link that up in the show notes so you have it It's called Financial Alignment for Chiropractors and you are welcome there my friend.

If you haven't yet, grab my free sample P and L statement for chiropractors. That will also be linked in the show notes for you. It can serve as an excellent guide for you as you look at your own numbers each month and determine how healthy they are.

Until next week, remember that action brings clarity, and imperfect action is better than none at all.

Have a great day, friend!