5 Major Financial Threats To The CEO Optometrist in Private Practice
Threat #1 – Not paying yourself first
As a small practice owner, you may want to pay yourself last to conserve money, but sometimes putting yourself first is the trick to succeeding.
With so many business expenses to pay for your practice- utilities, rent, inventory, staff wages, marketing — it can be hard to fit your own salary in. And as a small practice owner, you may assume you should put everything you make back into the business. Not so. The first thing you should do with your money is pay yourself first.
Many practice owners feel like paying themselves is a luxury; however, it is necessity for the success of your business. In this section of the series, I’m going to go over why you deserve to pay yourself first and how to do it.
Why You Deserve a Salary
If you’ve got a nice cushion of savings, you may not need a salary when you first open your practice to pay your bills. But that could change, so it’s best to prepare for the day when your funds run out. Getting into the habit of paying yourself, even just a little bit, will give you money for personal expenses when things get tight or the economy gets worse. If your practice happens to fail one day, you would have gotten something for your efforts by paying yourself and saving money for a rainy day.
Why do you need to pay yourself first? For one thing, if you were still working for another employer, you’d be bringing home a salary, maybe some commission or even a bonus. Plus, if you focus on paying all the bills, buying things you need for your practice, and paying employees before you pay yourself, you may end up with not much left. And not paying yourself can actually be detrimental to your morale and your practice’s success.
Giving yourself even a modest salary can have tax benefits for your practice. Compensating yourself minimizes your overhead, especially during startup. It can also help you make ends meet at home if things get a little tight while you’re building your business, or offer you some protection if your company doesn’t ultimately make it.
In the early days, your salary may be mostly what’s left over after operating costs and bills, but when you start bringing in some consistent profit, figure out what percentage of those profits you can comfortably pay yourself. Keep it to a reasonable amount, so the IRS doesn’t flag it as suspicious. Consider what you would be paid if you worked for someone else, or look up salary comparison sites to see what is average for an Optometrist in your region. Don’t be afraid, though, to give yourself raises to reflect the value of your expertise, especially as your business grows.
Other benefits to paying yourself include:
- You can save money for future business efforts or for personal use
- You will have more enthusiasm to work harder to increase revenue and your income
- You will feel rewarded for your hard work
How to Build in Your Salary
Plan your salary from the beginning. When you set up your budget, include at least a small weekly, bi-weekly or monthly salary for yourself. If you’re seeking financing, having your salary built in is key, as it will increase the amount you ask for from investors. In this case, determine how much you need to live, as well as what you professional skills are worth.
If you’re bootstrapping, start by paying yourself a modest salary, even if it’s just a few hundred dollars a week. This can increase as your profits grow. You can also pay yourself through employee benefits such as health insurance, 401K investment or loans. The important thing is to establish the habit of paying yourself as part of the practice’s expenses.
When to Not Pay Yourself
There are a few instances when you can delay paying yourself:
- If you don’t have enough to pay for your employees’ paychecks or pay bills, delay paying yourself until these expenses are covered.
- If you have significant up front expenses, you can delay your compensation until all expenses are covered with money generated by the practice.
- If you have a large accounts receivable you’re waiting on, you can postpone paying yourself until they are settled.
A couple more things…
Make sure you record the money you pay yourself in your accounting software so that you can properly claim it when you file business taxes.Talk to an accountant if you’re unsure of how to categorize it in your accounting program.
Pay yourself a reasonable salary; if you take $300,000 annually, the IRS might flag this as a suspicious expense. Look on salary comparison sites to see what Optometrists like you gets paid.
If you’re not making enough to pay yourself, consider raising your prices to better reflect what your services and your expertise are worth.
You’ve achieved something great by starting a practice. As a CEO Optometrist, you’re willing to take risks to grow your practice. You deserve to be paid, just like any of your employees. Invest in yourself just like you do your practice.
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