Starting a solo therapy practice is an exciting and rewarding journey. But in the early stages, it’s not uncommon to feel like your finances are stretched to the limit. Perhaps you're balancing your practice with a full-time job, or maybe you’ve just started seeing a handful of clients each week and are barely covering expenses. That’s okay. Implementing the Profit First system—even in small steps—can help you prioritize your financial health and set your practice up for long-term success.
This post will guide you through adopting Profit First principles when your practice is just getting started, with tips and encouragement tailored for those early days of tight budgets.
What Is Profit First?
Profit First is a financial management system that ensures you prioritize profit, taxes, and your paycheck by designating percentages of your income for these categories. Instead of treating profit as what’s left after expenses, Profit First flips the equation:
Income - Profit = Expenses
This subtle shift helps you build financial stability while keeping your expenses in check.
The Reality of Starting Small
When your practice is in its infancy, you might feel like there isn’t much room for profit or savings. That’s a common situation. For some solo practice owners just getting started, business revenue may barely cover fixed expenses like an electronic health record (EHR) system, email, a phone line, and a website. If that’s your situation, don’t worry—you’re not alone, and Profit First is designed to grow with your practice.
Example: Building Your Practice Side Hustle
Let’s consider Sarah, a new therapist starting her private practice as a side hustle. She sees three clients per week at $150 per session, bringing in $1,800 per month.
Fixed Monthly Expenses:
EHR: $39/month
Professional email: $12/month
Phone line: $20/month
Website hosting: $25/month
Liability insurance: $15/month
Sarah’s fixed expenses total $111/month, leaving her with $1,689 before considering other expenses like marketing, continuing education, or supervision fees. She also knows she’ll eventually need to save for taxes and profit, but with these numbers, it feels impossible.
The Starting Point
In Sarah’s early stages, she might not be able to allocate much to Profit or Taxes. And that’s okay! The key is to make profit and tax savings a priority as soon as possible. Here’s how Sarah can start small while building her financial foundation:
Allocate 1% to Profit and Taxes: Even if Sarah can only set aside $18/month ($9 for Profit and $9 for Taxes), she’s establishing the habit.
Cover Fixed Expenses First: Her fixed costs are essential to running her practice, so they remain non-negotiable.
Focus on Growth: Sarah can invest any remaining funds into activities that will help her grow, like marketing, so she can add more clients.
Growing the Practice
Over time, Sarah’s hard work pays off, and she begins to build her caseload:
When Sarah Sees 10 Clients/Week:
Weekly revenue: $1,500 ($150 x 10)
Monthly revenue: $6,000
At this point, Sarah’s revenue not only covers her fixed expenses but also gives her breathing room to:
Pay herself a regular paycheck.
Set aside a realistic percentage for taxes.
Allocate a meaningful profit.
When Sarah Reaches 20 Clients/Week:
Weekly revenue: $3,000 ($150 x 20)
Monthly revenue: $12,000
Now Sarah has a solid foundation. She can invest in new business tools, hire a virtual assistant to streamline admin work, or even save for a vacation. With Profit First in place, Sarah will allocate funds intentionally to ensure she’s not overspending.
How to Transition from Tight Budgets to Stability
1. Start Small
Even when revenue is tight, create a Profit account and Tax account and allocate just 1% of your income to each. While this may feel insignificant, it builds the habit of prioritizing profit and tax savings.
2. Grow Gradually
As your practice grows, gradually increase your allocations. Start with small steps, moving from 1% to 3%, then 5%, until you reach your Target Allocation Percentages (TAPs).
Profit: 5-15%
Taxes: 5-35%
Owner’s Pay: 30-60%
Operating Expenses (OpEx): 10-40%
It’s important to note that as your revenue grows, the percentage of income needed for Operating Expenses (OpEx) often decreases. This is because your fixed expenses—like EHR, liability insurance, and phone lines—don’t change with the number of clients you see. With more income coming in, a smaller portion of your revenue is needed for these expenses. This shift creates room to increase your allocations for Profit, Taxes, and Owner’s Pay, ensuring you’re rewarded for your hard work and saving adequately for taxes.
3. Reassess Quarterly
Review your finances every quarter to ensure your allocations align with your growing practice. A growing practice can see significant income changes in a short period—for instance, doubling revenue simply by moving from three sessions per week to six!
As you reassess, you may find that OpEx needs to decrease as a percentage of your income, while Owner’s Pay, Taxes, and Profit rise. For example:
If you were allocating 40% to OpEx early on, you might lower it to 25% or less as revenue grows.
The freed-up percentage can be reallocated to Owner’s Pay, allowing you to pay yourself more, or to Taxes and Profit, helping you save for the future and celebrate your success.
Frequent adjustments ensure your allocations grow with your business, reflecting its progress and sustainability.
4. Don’t Neglect Taxes
Saving for taxes can feel overwhelming, especially when money is tight. However, even small allocations help reduce stress when tax season rolls around. As your revenue increases, aim to save at least 15-20% of your income for taxes. By making it a priority, you’ll avoid the scramble to cover taxes later, keeping your practice on solid financial footing.
A Note of Encouragement
In the beginning, it’s normal to feel like you’re barely keeping up. But as your practice grows, so will your financial stability. Profit First helps you build a solid financial foundation so that when you reach milestones like 15 or 20 sessions per week, you’re prepared to:
Pay yourself well.
Save for taxes.
Reinvest in your business confidently.
Remember, your practice’s success is a journey. Start where you are, take small steps, and celebrate every win along the way. Profit First ensures your hard work pays off—not just for your clients, but for you too.
For more insights and tools to implement Profit First in your therapy practice, check out Profit First for Therapists by Julie Herres.
This article is designed to provide information only and should not be considered legal or tax advice. Because of the complexity of the law and the variables in your own personal tax situation, you can’t rely on our advice specifically related to your unique circumstances. In order to get the best tax savings and legal advice available to you, you should consult with your own accountant, attorney, or advisor regarding your particular facts and circumstances.
GreenOak Accounting specializes in working with counselors and therapists in private practice. For more information on our services, visit our website.
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