Step 1a: Figure Out Your Personal Expenses
I separated my expenses into business and personal, but since I am self-employed, both get factored in to my equation. I found it easiest to figure out what my expenses were per month and then times that by 12 to get the yearly expenses. Any expense that was paid yearly (car insurance, etc), I divided out to see what a monthly average cost would be. My estimated monthly personal expenses ended up totaling $1470, which brought my yearly personal expense total to $17,640.
Examples of personal expenses: food, living (rent, utilities), medical (bills and medications), car-related (gas, inspection, etc), gym membership, phone bill, etc. I also added in here an extra $100 for miscellaneous expenses (i.e. gifts, clothes, etc).
Step 1b: Figure Out Your Business Expenses
Many of you who have been following me the last year or so may know that I do primarily in-home counseling and some work-site counseling. I don't have any overhead for office space rentals, etc. I just wanted to throw that out there since my monthly business expenses may seem a bit low. My estimated monthly business expenses ended up totaling $400 initially; however, I did have to add in health care costs since I pay for my own insurance now. That brought me up to about $700/month for business expenses.
Step 2: Figure Out Yearly Income
Right off the bat, I know that I need to make at least $26,040 to cover my personal and business expenses (monthly expenses x 12). I also wanted to be able to save some of my income and not just live paycheck to paycheck. When I first figured out my desired income, I settled on $40,000 for the year. This level of income would cover my expenses + estimated taxes. For estimated taxes, I averaged about 15.3% being paid towards federal (SS + Medicare) and about 4% for PA tax. I rounded this up to about 25% just to cover myself. With taking out about $10,000/year for taxes and $26,040 for expenses, that left me with about $3,960. This number could vary in real life since I overestimated for expenses and taxes. Also, when doing taxes for the year (or quarterly), you do get some tax breaks for being a business owner and a lot of my expenses were write-offs. Regardless, I still wanted to have a rough estimate to figure out my income goals. If you wanted to have $40,000 be what you would see after taxes, just do the following -> ($40,000 x 25%) + $40,000 = $50,000. You could also think to yourself that you just want to make ends meet. In that case, you could do the following -> (Yearly expenses x 25%) + Yearly expenses = Desired yearly income.
Step 3: Figure Out Monthly Income Goals
One easy way to figure out monthly income goals would be just to divide out your desired yearly income by 12. Still using the $40,000, that would be $3,333/month. With $50,000/year that would be about $4,167/month. From this point, there are a lot of ways you can figure out client goals; however, below I list just two of them. Before I get into that, I just want to point out that you will need to think about what is considered billable versus non-billable hours. You may work a 40-hour week and end up only being able to bill for 20 hours of that. Billable time is what you are getting paid for (i.e. counseling appointment time, class time, etc). Any office work, emails sent, time prepping for an appointment, etc may not be time that you can necessarily bill for. So, when thinking about client goals just know that this is the billable time or amount of time in which you receive payment for services.
Step 4: Figure Out Client Goals (Option 1)
Let's say you have an income goal of $3,333 per month, this breaks down into a weekly goal of about $833. If you only have 8 hours available for billable hours (i.e. 8 hours to see clients) then this means you will need to charge at least $104 per client and see at least 8/week ($32/month) to be able to reach your desired income goal. If you don't take insurance and you already know that you charge $120/hour, this cuts the number of clients you see per month to 28 versus 32. You can think about what your time is worth and determine a rate for counseling or general services that is even higher and ends up cutting down on how many hours you need to spend doing things that count as "billable." If you accept insurance, you are bound to the fee schedule that they set for you. So, if you get reimbursed $120/hour for initial appointments and $108 for follow-up appointments, you may need 10 initials and 20 follow-ups to hit your monthly goal.
Step 5: Figure Out Client Goals (Option 2)
If you do more than just provide counseling services, you can use this option to determine client goals. Working with the $3,333 as a monthly income goal, let's say you run cooking classes or a nutrition class every month. Let's say you make $800 per month to run this class 3 times. This leaves you with $2,533 ($3,333 - $800 class) to still make for the month. This could mean about 24 follow-up appointments at an average of $108/hour or it could mean 5 initial appointments at $120/hour and 18 follow-ups at $108/hour. Although this seems like a lot of numbers and scenarios, it helped me to figure out how many clients I wanted to be able to see per month. Once I figured out a client goal number, I worked on a marketing plan. I mentioned in my last blog post that I wanted to work on more programs and content versus services. I love what I do as a dietitian; however, I find myself working a lot and only being able to bill (I accept insurance) for a portion of that time. I want to free-up my time and still hit my income goals, which would mean decreasing the "service" portion and increasing the "product/program" portion.
Step 6: Overview
In summary --> Desired Yearly Income (Factoring in Business + Personal Expenses + 25% for Taxes) divided by 12 months = Monthly Income Goal. Another option = Desired Yearly Income divided by 52 weeks (or 50 if you take out a week for vacation and another week for sick/personal time*) = Weekly Income Goal. From your monthly income goal, you can determine how many billable hours (and ultimately clients or classes) you will need to reach this. It really helps knowing your hourly rate.
*Normally, with being employed, you may get paid for personal, vacation and sick days. If you are self-employed and offer a service, if you don't provide the service you don't get paid.
As a way to check my progress monthly, I created two sort of "snapshot" documents for my finances. The first is the yearly look at my total income, total expenses, and net profit. I made this so I can see where my peak months are for income. The second document I created was for my monthly overview. I tracked the number of appointments (scheduled, cancelled, re-scheduled), classes ran, business and personal expenses, and total income received from both classes and counseling. I also include how many miles I drove that month for business. I was using apps to track my expenses/income before; however, I really like having the paper copy to just have it all laid out in front of me. I just recently got Quickbooks and I really love it, but again just like having my own sheet that makes sense to me.
I hope this blog helped you at least a bit in figuring out your own income/expense goals. As someone who doesn't have a background in finance/accounting, I wanted to just be able to share my process for setting income/client goals. Leave a comment and let me know what other resources have helped you with figuring out finances. I hope to post my snapshot documents on my website; however, if you wanted a copy to get you started, shoot me an email :)
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