Many doctors set up their medical practice, open the doors, and hope they make enough each month to keep serving their patients. Although you might make it with this business model, you’re not likely to grow or increase your profits.
For that, you need a predictable cash flow and savings account set aside for the months when you don’t quite reach your revenue goals, when unexpected expenses arise, or if you’re saving for equipment.
Saving money and being intentional about how you use your business income is a mind shift for many business owners, doctors included. However, saving money forces you to create a plan for your revenue goals and build security into your practice.
In this blog, we’ll cover the reasons your practice needs a savings account, how much to save, and how to get started.
Why Your Practice Needs Savings
You never know when your practice might face uncertainty. For example, the COVID-19 pandemic initially shut down many medical practices for months. Doctors were scrambling to find ways to continue generating revenue, while also educating their patients and keeping their staff safe.
Businesses that had money in savings, however, were able to take a much more measured approach to their response. They didn’t have to quickly find a way to keep making money. They were able to take a step back, evaluate their options, and choose the best way forward for their clients and their business. All because they had money in their savings account that could keep the practice going without patients in the exam rooms.
Your medical practice needs a savings account because that cushion buys you time in a crisis situation. It allows you time to find a new office space, recoup lost clients, or adjust to new regulations in the medical industry. Whatever change comes, you want to have time to think of the best solution, not just the first solution.
How Much Do You Need?
At Every Single Bean, we teach our clients the Profit First Method. Profit First is all about being intentional with your business finances to maximize profits and create stability. This extends beyond operating costs and managing expenses to savings as well.
Profit First teaches that if you want a successful practice, you need to know where your money is going. That means creating savings accounts for specific purposes, such as taxes, operating costs, and owner’s pay. You’ll also need to create rules about how much and when you deposit into and withdraw from these accounts so you can meet your business goals.
Once you have your account set up, you can establish a target amount to keep in it. A good rule of thumb is to have 45-90 days of operating costs in your savings account at all times. This ensures that if all other operations stop, your practice can stay running long enough for you to find a solution.
This window might seem big to some — after all, there’s a lot of time between 45 and 90 days — but it’s designed so you can find the optimal time period for your business goals and comfort level. Some people feel more confident with deep savings accounts behind them, others can comfortably operate with very little in their rainy day fund.
You have to find the savings amount that puts your mind at ease and supports your business goals.
Where to Keep Your Savings
Again, the answer to this depends on what your goals are and how you’re comfortable handling your practice’s finances.
The simplest, and often safest, place to hold your savings is in a savings account. Although the interest rates are significantly lower than other types of accounts, you will still earn some interest on your money, have easy access if you need it, and won’t lose it to the stock market.
Another place to keep your savings is in an investment account. Some people opt to put their savings into a money market account where they can safely earn interest. Others like using a drip account that provides steady, predictable cash flow for their operating accounts.
No matter what type of account you choose, make sure you understand the fees associated with it. Many accounts charge fees for managing or holding your investments, which come out of your savings. Be sure you’ve planned for and can adjust to these withdrawals.
How to Reach Your Goals
If you’re just starting out or not accustomed to saving for your practice, getting started might seem difficult. Luckily, there is no magic formula to start saving. You just have to start.
Decide how much you’d like to save each month based on your current revenue and expenses. Set up automatic savings so you know the money is going into those accounts and you don’t have to worry about adding an extra task for yourself. In time, you’ll see that those small investments have added up to a big number.
Founder and Master Certified Profit First Professional Dan Daugs says saving is contagious for many of his clients. Once they see the gains they can make from it, they’re encouraged to step up their efforts and save even more.
Ready to Start Saving?
Saving for your business is an easy way to buy time in a crisis and build security into your day-to-day operations. The key is to be intentional about your goals and how you save your money.
The Profit First Method can help you do just that. Schedule a call with us today to see how we can help you implement Profit First in your practice and start working toward your financial goals.