Running a chiropractic practice is rewarding but comes with its fair share of challenges—managing your business finances often being one of the toughest. Financial clarity isn’t just about crunching numbers; it’s about creating systems that give you confidence and control. In this post, I’ll share five essential steps to help you take charge of your finances and build a thriving practice.

Step 1: Understand Your Business Entity

Your business entity impacts how you pay yourself, manage taxes, and implement financial strategies. Whether you’re an LLC, S Corporation, or sole proprietor, here’s why knowing your entity matters:

• Taxes: Each entity type has unique tax implications. For instance, an S Corporation allows you to save on payroll taxes but requires you to pay yourself a reasonable salary.
• Retirement and Savings: Your entity type also affects opportunities for retirement savings and other tax strategies.
• Compliance: Missteps, like failing to pay yourself properly, can lead to IRS issues.

Action Steps:

• Confirm your entity type by reviewing your organizational documents or consulting with a tax professional.
• If you’re taxed as an S Corporation, ensure you’re paying yourself a reasonable salary and consider obtaining a salary compensation report.
• Schedule annual meetings with your tax professional and financial advisor to discuss strategies and adjustments.

Step 2: Establish Accurate Up-to-Date Monthly Bookkeeping

Accurate, up-to-date bookkeeping is the foundation of financial clarity. Without it, you’re guessing at your business’s health and making uninformed decisions.

Why It Matters:

• Up-to-date reports provide insights into revenue trends, profit margins, and expenses.
• Accurate data empowers you to set realistic budgets and growth strategies.

Common Pitfalls:

• Falling behind on bookkeeping, leaving you months or years out of date.
• Misclassifying transactions if you DIY your bookkeeping, such as loan payments or payroll expenses.
• Relying on a quick review by a CPA at tax time instead of ongoing oversight.

Action Steps:

1. Choose a bookkeeping system. For most small businesses, cloud-based software like QuickBooks Online is a user-friendly option.
2. If you’re DIYing your books, invest in education to ensure accuracy and get a professional to look it over a few times throughout the year.
3. Hire a professional outsourced bookkeeper if you’re struggling to stay on top of things or lack the expertise.
4. Obtain and review financial reports monthly. Understand your balance sheet, profit and loss (P&L) statement, and cash flow statement.

Step 3: Track and Analyze Monthly Expenses

Unchecked expenses can eat into your profits without you even realizing it. By monitoring your expenses regularly, you can make more informed decisions about where to allocate resources.

Key Areas to Focus On:

• Recurring Expenses: Cancel subscriptions or services you no longer use.
• Office Supplies: Ensure you’re not over-ordering or paying above-market prices.
• Insurance Costs: Regularly price out malpractice, liability, and workers’ comp insurance.

Action Steps:

• Create a master spreadsheet of all recurring expenses and update it monthly.
• Review your P&L report for spending patterns and identify areas to cut back.
• Use percentage-based P&L reports to compare expenses to revenue and benchmark your spending.
• Download my free chiropractic P&L statement for guidance on healthy expense benchmarks.

Step 4: Create and Follow a Realistic Business Budget

Think of your budget as a GPS system for your finances. It directs your money toward your priorities and prevents overspending. I actually like to call it a money allocation plan (MAP) vs. a budget.

Pro Tips:

• Use your historical data from your P&L to set realistic revenue and expense projections.
• Check in weekly to adjust your budget based on changes in revenue or unexpected expenses. Mark your calendar so you get an alert weekly!
• Choose a tool that’s easy to use. Apps like EveryDollar are user-friendly and accessible on your phone or desktop.

Action Steps:

1. Design a money allocation plan that outlines where every dollar will go.
2. Set a weekly reminder to check in with your budget and make adjustments as needed.
3. Combine personal and business budgets for a holistic financial plan.

Step 5: Strategically Allocate Profit

Profit isn’t just leftover cash; it’s a tool for growth, stability, and wealth-building. By allocating profit strategically, you ensure your business and personal finances are on solid ground.

Essential Buckets for Profit Allocation:

• Tax Savings: Set aside 25-30% of net profit in a separate account. This one is non-negotiable!
• Emergency Savings: Build a cushion for unexpected expenses. I recommend 3-6 months of expenses.
• Debt Payoff: Prioritize reducing debt to free up future cash flow.
• Reinvestment: Save for new equipment, marketing, or training.
• Owner’s Draws: Pay yourself responsibly while leaving room for business growth.

Action Steps:

1. Open separate bank accounts for each profit bucket to avoid temptation.
2. Decide on percentage allocations for each category based on your priorities. If you’re in debt, prioritize paying it off!
3. Review and adjust allocations regularly as your business evolves.
4. Automate transfers to ensure consistency.

Achieving financial clarity doesn’t happen overnight, but by committing to these five steps, you’ll transform your business and your confidence as an owner. Start small: pick one step to focus on today. Whether it’s setting up a meeting with your tax professional or reviewing last month’s expenses, action brings clarity.

Remember, no one will ever care about your business as much as you do. By taking control of your finances, you’re not only investing in your practice but also in your peace of mind.

Let me know which step you’re tackling first! And don’t forget to grab the free guide, 5 Steps to Financial Clarity, which are the 5 steps covered today.