The Therapy Business Podcast
We know how challenging growing a therapy practice can be, and don’t think it should require an accounting degree just to run your business. If you own a solo or a group practice, we’re here to help you build a business that creates more time, makes more money and serves more people.
The Therapy Business Podcast
How to Pay Off Debt In Your Practice
We explore the silent burden of business debt in therapy practices and provide a clear, systematic approach to breaking free from financial stress without sacrificing growth. Through practical strategies like the debt snowball method and creating dedicated "debt destroyer" accounts, practice owners can regain control of their finances and build a permanently profitable business.
• 60% of small businesses carry outstanding debt, with 40% having over $100,000
• Credit card debt among small businesses has doubled in recent years
• Reactive approaches like increasing revenue alone or cutting owner pay lead to burnout
• Business cycles between "foundation years" and "growth years" - know which phase you're in
• The debt snowball method focuses on smallest balances first to build momentum and free cash flow
• Creating a separate "debt destroyer" account helps maintain focus on debt elimination
• Weekly payment rhythms for credit cards prevent debt accumulation
• Building a 3-month emergency fund prevents future debt cycles
Ready to make your therapy practice permanently profitable? Visit therapybusinesspod.com to learn how our coaches can help you implement these systems and break free from the debt cycle.
Meet with one of our coaches
*Intro/outro song credit:
King Around Here by Alex Grohl
Roughly 60% of small businesses are carrying outstanding debt, and therapy practices are not immune to this statistic. Today, I'm gonna guide you through debt in business and how you can start to proactively make your way out of it. Or, if you don't have debt, how can you avoid it completely. My name is Craig and I'm the owner of Daisy Financial Coaching. Our team is on a mission to make your therapy practice permanently profitable. If you own a solo or group practice, we're here to help you build a business that creates more time, makes more money and serves more people. This is the Therapy Business Podcast.
Speaker 1:When it comes to debt, none of us are really immune to it. Right, it can sneak up on us. Even myself. I'm a profit coach. I have been teaching people about paying off debt and getting control of their finances for well over a decade, and I still, during that time, have found myself in the credit card trap or finding myself falling into debt that I have to crawl my way out of. What happens is sometimes it can sneak up on us. Sometimes we don't even realize and the next thing we know we look down at the credit card at the end of the month and we don't have enough in the bank to pay it off completely, and then the next month it gets higher and higher and before we know it, we have this mess that almost feels insurmountable. It's tying up our cash flow. It's creating all these issues.
Speaker 1:Debt really is an anchor on your small business. Now, I know that there are ways that you can leverage debt in a positive way, and so really, today is not talking about those options. So I just want you to know I acknowledge that sometimes that's how you can get your business off the ground, or that is a tool you can tap into. However, most of the time, it's not done the right way and it ends up being this anchor on you and your cash flow. It's borrowing from future revenue that you then have to service later, and most of the time it's. I don't meet a lot of business owners who are happy that they did that. So while we walk through today and some steps to pay off debt and get yourself to a debt-free place, I also want you to keep in mind that if there comes a time where you are facing the question of, do I take out this loan to scale or to do X, y and Z, we want to make sure that we are doing it with eyes open and that we have exhausted all other options. A lot of times, debt is a safety net, a thing we can tap into. That prevents us from looking or getting creative and thinking outside of the box when it comes to solving our problems.
Speaker 1:Now I want to walk you through some statistics, just really quickly, on what debt looks like in business. So 60% of businesses are carrying outstanding debt, and with nearly 40% of those having over $100,000 in debt, that means most businesses are dealing with this in some form or fashion. Now, credit cards has doubled over the last few years. About 25% to 50% of businesses have credit card debt. That's between 2023 and 2024. One in three small businesses struggle to make debt payments and over half of businesses 51% are considered financially unhealthy. That's I tell you this in a sense to. So if you're dealing with debt, if you whether it's 10,000 in credit card debt or hundreds in SBA loans and credit and student loans and other things, whether it's in your business or your personal life you're not alone. Most people are struggling with this, and even that data is just on the business side. That doesn't even tap into the amount of personal debt that business owners are carrying Now, the numbers are one thing, but how is this showing up in your life?
Speaker 1:What we see is that people are losing sleep. I know this for myself. I was stressed, I was anxious. I wasn't sleeping well because just in the back of my mind, I knew I was carrying this weight financial weight. We're robbing Peter to pay Paul, we're working long hours just to make ends meet, and sometimes our body is present, but our mind isn't. I would find myself sitting with my kids, playing with them, and maybe my body's there, but my mind is a thousand miles away, doing financial gymnastics, thinking about the credit card debt that has piled up, thinking about having to make payroll and knowing at the end of the month, unless some drastic changes happen with our revenue, that credit card debt was just going to get higher. Now, when people are faced with this and this is what we see every day here's what they think the solution is. I want to guide you through some of the things that maybe you've thought of, things I've definitely considered when trying to tackle this problem Increasing your revenue.
Speaker 1:I'm not saying that's not a solution, but some people think, oh, all I got to do is make more money, bring in more sales, then I can solve that problem, get some more clients problem solved. They cut their own pay, they sacrifice on the personal side. So scorched earth spending is what that's called. That means you're not spending a dime on anything fun, you're not spending a dime on anything extra, it's purely just. We are going just the basics. We borrow more to pay off debt, whether that's refinancing into a different way, or we borrow more to invest in maybe advertising, hoping that'll bring in some clients, and then that just puts us in a deeper hole. We make large payments anytime cash comes in.
Speaker 1:I was super guilty of this. If we signed a client who paid upfront for six months, my instinct was great I'm going to take that cash, I'm going to throw it on the credit card and pay that down in a huge chunk. But then what would happen is I'm having to pay my team to work with that client, and so the next six months I'm paying out more in operating expenses and in payroll and I don't have that cash to help fund that payroll and to help pay that coach. And so inevitably I'm putting more on the credit card to cover our overhead costs and then we find ourselves penny pinching. Now this isn't the solution, and I know, going back to the revenue piece, more revenue just doesn't always work. Just because we're bringing in more sales doesn't always solve the problem. Now, I think it solves a lot of problems but truthfully, we have to have something in tandem with that. So the things we're going to talk about today, we have to have some kind of game plan system tied to that revenue piece. And in fact, we've had clients in the past who, if we looked at their numbers, literally, if they were to sign another client, they were going to be further in the hole. They were so tied up with vendors, so tied up with different things, that, financially speaking, if they got another sale, it was going to hurt them. We had to do some other work inside their business in order to turn that around.
Speaker 1:Cutting your paycheck or scorched earth on the personal side, it can lead to burnout as the business owner. Now, temporarily maybe that could be a solution. But again, if it's not tied to a plan if that is our solution, it's not tied to a bigger solution you're going to get burnt out because you're probably not going to suddenly be able to start paying yourself more. Usually we get stuck in that lower paycheck or find ourselves not taking home anything. Sometimes what we find from business owners so if you can relate to that, you're not alone Borrowing is just a Band-Aid for an open wound. You're hemorrhaging and you're trying to put a Band-Aid on it. That's not solving anything, you're just making the problem worse. And then reactive payments putting lump sums when it comes in just creates that financial yo-yo that I was talking about. So I want to guide you through some steps that you can use to put into place to pay off debt. Step one is to be proactive. That is the problem.
Speaker 1:Our natural tendency is to be reactive, especially when it comes to debt or anything with money. When money's good, we spend. When it's not good, we stress. When it's tight, we are freaking out. We hold money in. We are scared to spend a dime on anything. So we want to be proactive.
Speaker 1:What are your goals? What are you trying to achieve? We want to know where you're trying to get, and part of being proactive is knowing what phase of business are you in. We believe there are two key phases of business that we kind of cycle through. So some years we're going to have what we call foundation years and then some years we're going to have growth years. Foundation years are the years where growth really isn't the priority. We are creating necessary systems in order to grow. We're creating a solid foundation so that our business can handle the growth that could come in. What that might look like is building your team, hiring some people to then be able to support more clients coming in the door. It might mean implementing a brand new money system, which is what a lot of clients come to us for is okay, we are, yes, maybe we are passively trying to grow, but right now, our main priority is can we manage the money that we have coming in better? So then, as we add zeros to the end of our revenue, we are in a healthier financial place and that money is being better utilized.
Speaker 1:Maybe you are focusing on streamlining processes or prioritizing debt elimination. All of those can fall into that foundational year where maybe you're growing, but again, your focus is on let me get this stuff organized, let me get it into play. And then, of course, growth years are the years where you are focusing on scaling the business, reaching new milestones, trying to get your revenue up and up, and that might be where you invest in marketing, you invest in advertising. You invest in different things to directly bring in some more sales. So right now, I want you to do a status check. This is part of being proactive.
Speaker 1:Where do you stand? How can you free up cash flow? Looking at your minimum debt payments, looking at your overhead expenses? How can we free up cash flow to then focus it toward the debt? What do we need to cover our expenses? If you have no idea, let's get that status.
Speaker 1:How much revenue do I need to be bringing in in order to cover our expenses? What are our monthly expenses? Payroll, rent, all the above. What do we need to have in order to cover that? So how much extra cash do we need to pay down debt? Or how much extra cash do you have to pay down debt? So how much extra cash do you have to pay down debt? So think through that, and that could be your minimum payments. What are my total minimum payments? So, on top of our bills and our payroll, what do we need on top of that to pay down this debt? Cover our minimums and then, on top of that, any extra we want to do.
Speaker 1:And then, what is your business currently paying you? We want to get a pulse on that too. How much is it paying you now? And then, what is your business currently paying you? We want to get a pulse on that too. How much is it paying you now? Is that enough? Is it more than enough? Is that something that, again, if we're strategic about it, that we can pull down for the next two pay periods, or the next one or two months, whatever that looks like, we don't want it to be permanent, and so it's got to be real intentional. That's why I say cutting your pay is not a solution. But if you're so, if you have a solution of, okay, we're gonna go through, and over the next six months, we're going to focus as much excess cash as we can to pay off these two debts, which will free up these monthly payments. That's the solution, and then you can step in and say, okay, where can we pull some cash from? Is it from our optics, can we pull a little bit from the owner's pay again temporarily, knowing we're going to go back into it?
Speaker 1:When I was getting through going through the debt payoff for myself, we do profit first, which is the bank accounts having multiple bank accounts for different things, and I have a bank account labeled owner's pay. So what I did was I was putting more in there than what I needed to take home. So I pulled my paycheck back a little bit. I opened another account and I named it debt destroyer and I took a percentage from what I was putting into owner's pay and put it into that debt destroyer account. The reason I did this way was because, by intentionally taking it from there and moving it over here, everything in that account is money I can throw on top of the debt. It's extra money to go toward the debt, and then, when I am done with that goal, I can just move that percentage point right back to owner's pay and it's going right back to me. It's not going to get mixed in with the operating expenses. I'm not going to look down two years from now. Realize, oops, I never went back to my old pay. It's really intentional and it's separate. Okay, we gotta be proactive.
Speaker 1:Step two is to have a debt payoff strategy. Now there's multiple debt payoff strategies. I'm not gonna get into the weeds on these. In fact, we have an episode where we talk about debt payoff options, and so go find that episode, listen to it. It's gonna go more in depth, the one that we see most success with is what we would call the debt snowball, and that's just listing all your debts in order from smallest to largest balance and focusing as much attention on the smallest balance as you can. So we're paying minimums on everybody and then we're focusing as much attention as possible on that smallest balance. Now, this means we're ignoring interest rates, like I said, so maybe you're not paying off those more expensive ones. Maybe you're. You have, like this, really low balance, one that is a 0% interest.
Speaker 1:Our goal with this method is to free up cashflow. The attacking the smaller ones means we're going to knock them out quickly. That's a monthly payment that we no longer need to pay on that debt, and then we take that monthly payment, we start paying it toward the next debt, and so on and so on. So that's where that snowball effect can come into play. There's also the debt avalanche, where we focus our money. Same thing we list it, but it's an order of largest interest rate to smallest interest rate, so you're getting rid of the more expensive debt first. The problem here is maybe your most expensive debt is a $75,000 SBA loan that's going to take you 18 months, a couple of years, however long to pay it off and so you're not going to be able to free up that cashflow very quickly, versus if you were able to knock out three or four credit cards that might free up, you know, maybe five to 500 to a thousand dollars a month then that you could turn around and start throwing in other things If you're doing the snowball method.
Speaker 1:The other method that we talk about is what we would call the emotional connection, and this is going through and saying, okay, which debts maybe carry an anchor to me. So is there a debt here that has an emotional toll that we want to get rid of? You know, on the personal side, the example I use is we've had clients in the past who had a death in the family that they ended up having to borrow money to for hospital bills and things that ended up not working out. The person passed and now they have this debt hanging over their shoulder. That's just a negative reminder of the trauma, the heartache, everything they just went through, and so, regardless of whether it was the financially best one to pay off first, getting it out of their life, out of their way, was super important and it was a priority. Okay, so that is the three possible methods that you can follow for paying off debt. Again, for sake of this podcast episode, I'm not going to go super in depth on those, because we've already done that before and we will likely do it again. So just keep an eye out, or go back through and find our episodes on debt. That will guide you through the snowball method and the avalanche method.
Speaker 1:Step three is to create a debt payoff system. So having that game plan is one piece, but how are we going to implement it inside the business? Because it's great to have them listed in order and be like cool, I'm going to throw as much money as I can at that smallest one. But how? Where am I going to get that money from? So what we want to do is anything excess and operating expenses we're going to throw towards that debt at the end of the month. So making sure your payroll is covered. You have enough to cover bills, anything extra we're going to throw.
Speaker 1:The next thing we're going to do is, if you're doing profit first and if you're not, then what I would recommend is opening an account and nicknaming it profit and putting some percentage amount into that account, even if it's just 1%. Put it towards there. I would aim for maybe 5%. If you can squeeze it, do that and then at the end of every quarter even every month if you want to do it more frequently we're going to take what's in that account. We're going to throw it down on the debt. So we're going to just use excess cash here and there, and then we already talked about using maybe a debt destroyer account, like I did excess cash here and there. Then we already talked about using maybe a debt destroyer account, like I did, we are going to just proactively look through and say we are going to take this cash. Where can we find cash so that we can implement that strategy?
Speaker 1:The strategy is just one piece. We actually have to have a system in place in order to do that. So if you don't have a money management system in place, you have to have one. Episode two we go into profit first, how it works, why your business needs it. So I highly recommend you go listen to that after this episode. If you haven't, if you don't have a money system in place, of course, always in the description below here, we have coaches on standby ready to help you. You can always schedule a free call to learn how we help people like you. Put in systems to manage your money better, but you have to have that system in place or else a debt strategy is not going to work.
Speaker 1:Now what if you can't afford your payments? So you have your debt. You calculate all your minimum payments. You're like I can't even afford to pay just the minimum, much less anything on top of that. Well, the first thing we can do is negotiate monthly payments. So I always recommend calling each of your lenders and just how can I lower my monthly payment credit cards, especially seeing if you can negotiate that payment down because it's eating you up, if you can refinance loans, or if you can consolidate loans over a longer term or for a lower interest rate that might bring that payment down. We want to focus on freeing, reducing payments, so that you can then not only cover everybody and make sure that everyone's taken care of, but also have excess cash to funnel towards those debts and then avoiding debt in the future.
Speaker 1:I want you to think through these things. So number one is managing revolving debt. So those of you who maybe don't have debt now, or you do, but you don't want to fall back in the trap, we need to manage our revolving debt, meaning that's the debt that we pay off. You charge it to a card and you pay it off at the end of the month. I recommend switching to a weekly rhythm so you're only paying off debt from that week, expenses from that week, not from the full month. Then we want to build an emergency cash reserve. This could be anywhere from depending, and I give a rough estimate, but I would say three months of expenses that's like your bare payroll overhead expenses in that account and then ideally enough to pay you what you need to get paid just in a account to cover your expenses, so that you don't have to borrow in order to make ends meet and then know yourself, use your financial habits.
Speaker 1:Are you somebody who can manage credit cards or are you somebody who has struggled in the past and it's caused issues and it's gotten you into a trap and it's gotten you into trouble? If that is you, then maybe revolving debt is just not an option and you should probably move toward a debit card and just paying for things with cash. So debt again, it's an anchor, and so if you're finding yourself struggling with debt, please reach out to our coaches. That's what we are experts in helping people like you turn it around, get the money in order so that you can grow a perfectly financially healthy practice. Thanks for joining us on the Therapy Business Podcast. Be sure to subscribe, leave a review and share it with a practice owner that you may know If your practice needs help getting organized with its finances or just growing your practice. Head to therapybusinesspodcom to learn how we can help.
%20copy%202.jpg)