August 9, 2018

How to Become A Profit Maximizer

<p>The business of dentistry can be overwhelming, exhausting, and downright infuriating. Many dental practices are not operating at their full, profitable potential. Why might you ask? Simple. You might find yourself in the same boat and it’s because you’re not taking your profit first. But let me ask you this, are you ready to feel more confident and less stressed about your practice? Are you ready for peace, contentment, and security? If so, then Profit First is the simple system you need to get you there.
</p>
<h3>The Profit First System for Dentists
</h3>
<p>You’re probably thinking, “What are you talking about? That’s just not possible. This is lunacy!”
</p>
<p>Hey, don’t shoot the messenger; I come in peace. Good news, though, I’m going to show you how you can take your profit first. So, if you’re ready to stop with the paycheck to paycheck survival strategy, then let me show you how you can become a profit maximizer!
</p>
<p>But first . . .
</p>
<h4>COMMON MISCONCEPTIONS</h4>

<p>The traditional accounting formula of any business is <em>Sales - Expenses = Profit.</em>
</p>
<p>Concise, clear, and logical, right?
</p>
<p>Wrong! It’s not true. It’s a lie. A fake. A Fugazi. A myth. The truth? You can take your profit first. In fact, you <em>should</em> take your profit first. As a human being, you are wired to do so. Yet, in the original “accounting formula,” human behavior was omitted. As you’ll see in Parkinson’s Law below, it’s our tendency to consume based on availability. We don’t want leftovers, we want our piece first! Then, we can worry about other things.
</p>
<p>For this, it’s time to embrace your new accounting formula:
</p>
<h5>Sales - Profit = Expenses
</h5>

<h4>PARKINSON’S LAW
</h4>
<p>C. Northcote Parkinson was an author and historian who theorized that demand for a resource increased to meet the supply of that resource. A great example of this is how liberal we all behave with a full tube of toothpaste. For instance, we don’t care if some goes into the sink or if we add a bigger dollop than we need. However, once that same tube is empty, all of us become MacGyver trying to roll, fold, and origami the tube for every last drop. Our dollops are precise and we’re careful not to spill or waste any toothpaste unnecessarily.
</p>
<p>Sound familiar?
</p>
<p>Parkinson’s Law is an asset as it embraces your natural tendency to consume. Think about when you have a great month and collections are up. You pay all of your expenses and end up with a big chunk of change left over. With that money, you may buy equipment or do some additional marketing that wasn’t in the budget. Because hey, you have the cash, right?
</p>
<p>No! Don’t do that. Instead, pay yourself first!
</p>
<p>Then, get your expenses handled with the remainder. As your budget lessens, you are naturally forced to find ways to save money. And you can do it!
</p>
<p>I work with hundreds of dentists all over the country, and guess what, they all can and have found ways to work within their expense budget. It may not be fun, but the peace of mind and security that comes from paying yourself first each month will far outweigh the discomfort of budgeting.
</p>
<h3>How to Become A Profit Maximizer
</h3>
<p>Most dentists don’t review their financial statements as they should. Don’t feel bad if you’re one of them; it’s quite common for any type of entrepreneur, actually. Most business owners just use “bank balance accounting.”
</p>
<p>You know what this is. <em>“Bank balance accounting”</em> is when you check your bank balance and make decisions based on the number you see staring back at you.
</p>
<p>And, per Parkinson’s Law, we consume based on what is available. But I want you to embrace your humanity. There’s no use fighting it or thinking you can just rely on “willpower” to push through. Bank balance accounting is okay, so long as the balance you are looking at is the money available just for expenses. By allocating your money first, the temptation is gone as is the ambiguity of how much goes to what. In doing so, your practice is going to become more (and more) fiscally powerful. Plus, you’ll reap huge benefits from regular profit distributions!
</p>
<p>So, how do you become a profit maximizer?
</p>
<h4>1. SET UP YOUR CORE 5 BANK ACCOUNTS
</h4>
<p>The first thing you want to do is setup your “Core 5” bank accounts. These accounts are:
</p>
<ol>
<li>Income (Checking)</li>
<li>*Profit (Savings)</li>
<li>Owner’s Pay (Checking)</li>
<li>*Taxes (Savings)</li>
<li>Operating Expenses (Checking)</li>
</ol>
<p>Did you notice the asterisk (*) by accounts 2 and 4?
</p>
<p>These accounts should be set up at a different bank. Ultimately, this removes the temptation for you to “borrow” money from them. The harder you make it to get to the money, the less likely you are to spend that money.
</p>
<h4>2. SET UP YOUR TARGET ALLOCATION PERCENTAGES (TAPS)
</h4>
<p>Now that your Core 5 accounts are setup, it’s time to setup your Target Allocation Percentages (TAPS) for your dental practice. Keep in mind, every dental practice is different. The wrong allocation could prove disastrous or leave you owing a large sum for taxes, underfunding your operating expenses, or worse, spending money you should be paying to yourself instead!
</p>
<p>For this reason, this is where you should consult a certified Profit First Professional.
</p>
<p>There are only a select few CPA firms worldwide who practice this revolutionary form of cash management, but <a href="http://www.hpadvisors.com/" target="_blank">Hinrichs+Pesavento</a> is the only dental CPA firm that is certified in the Profit First method.
</p>
<h4>3. ESTABLISH THE 10/25 RULE
</h4>
<p>After setting up your Core 5 bank accounts and working with a Profit Advisor to properly establish your TAPS, you then want to establish the 10/25 Rule.
</p>
<p>This rule makes paying expenses and team member salaries a breeze. From there, you will also set up quarterly tax payments and profit distributions from the Owner’s Pay account.
</p>
<p>Isn’t that great? Earning profit from your business consistently can actually be done!
</p>
<h3>Turn Your Practice Into a Money-Making Machine!
</h3>
<p>While I can’t explain every area of Profit First to you in a single blog post, I hope you will at least start with the basic principles of the program I have outlined above. For more information on this topic, I’d recommend the book, “Profit First: A Simple System to Transform Your Business from a Cash-Eating Monster to a Money-Making Machine,” by best-selling author, Mike Michalowicz. It’s available now at most major retailers, including Amazon.
</p>
<p>HOWEVER, you can visit <a href="http://www.hpadvisors.com" target="_blank">www.hpadvisors.com</a>, right now, and download the first 2 chapters absolutely free!
</p>
<p>While you're there, sign up for our free Webinar, <a href="http://www.onlinemeetingnow.com/register/?id=svdfwtlzbc" target="_blank">“Become A Profit Maximizer.”</a> Let us help you turn your practice into a money-making machine! What’s stopping you?
</p>
<p>Happy profits!</p>

<h3>About the Author:
</h3>
<p>Andrew Hinrichs, CPA, is a partner at Hinrichs+Pesavento (H+P), a dental-focused CPA firm. Located in the suburbs of Chicago and Kansas City, H+P works with dentists around the country. H+P is growing, thanks to its extensive knowledge of the dental industry, focused client service, and ability to help dentists make educated decisions in every financial area of their dental practices. H+P uses its collective knowledge of hundreds of dental practices to help clients analyze fee schedules and insurance choices. Tax planning opportunities, practice growth, and creative retirement planning are key focus areas. Find out more about H+P at their hpadvisors.com
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