Did you know that more than half of Americans don’t engage with their finances regularly? Half!
This could mean that they don’t financially plan, don’t have an understanding of their net worth, don’t budget, or don’t otherwise pay close attention to how money comes in or out of their household.
Where do you land? Do you consider yourself somebody who engages in financial planning?
I believe financial planning is extremely important, especially for us physicians. These days it’s becoming clearer that being a physician isn’t the one-way-ticket to the financial security that it used to be. If we want to transcend beyond the grind of the medical hamster wheel, we need to do more. Maybe for you that’s a side-hustle or the pursuit of entrepreneurship.
In order to pursue this additional income, we need to be smart financially. We may even need to do some planning to get our business off the ground. One strategy to keep our finances in order is creating a financial checklist, one geared toward our status as entrepreneurial doctors.
Keep in mind that a financial checklist is slightly different from monthly financial planning, the subject we discussed last week. What is the major difference? Monthly financial planning is geared toward completing specific tasks during a particular time of year. On the other hand, a financial checklist is more zoomed out—big-picture stuff that will help you on the journey to achieving your financial goals.
The big-picture items we’ll cover today are necessary because your businesses’ first year can be a challenge. There is no silver bullet to success, but there are sure-fire ways to help your journey to be a little less bumpy, even setting yourself up to thrive.
With all of that out of the way, let’s get started! Here’s a financial checklist of financial steps to go from 0 to 1 on your entrepreneurial journey.
1. Align Your Financial Plan with Your Financial Goals
When we discussed monthly financial planning last week, we framed it as a way to execute your financial goals all year long. So in order to be effective at financial planning, you need to understand your goals. That might mean you need to spend some time learning how to set financial goals.
But when you do have a clear understanding of your financial goals, use them and their timelines to shape your financial plan. That’s right: All goals should have a definable timeline. Timelines help you understand that for your short-term and long-term goals, each will require different actionable steps to realize.
Without goals or a purpose, you won’t be able to understand how or why a financial plan is helping you.
But if you do know what you’re after, that’ll set the direction and keep your heading. And this is something you can do yourself or work with a financial advisor on. Advisors help you understand how you are (and aren’t) well positioned to achieve your financial goals
2. Develop a Business Plan
As an entrepreneur, the first step to making your business a reality is setting up a business plan.
We hear that word all the time: “business plan.” But what is it? It’s a detailed, written document that outlines the company’s overall goals, comprehensive strategies (such as allocating resources, target market, value to customers, differentiation, marketing, exit plan, etc.), and financial projections. This includes an understanding of the business’ products and services. Essentially, the business plan is the blueprint for success.
When launching a new business, your plan should include estimated sales and expenses. Do your research. Try to estimate the sales and expenses of businesses like yours to make a well-informed guess. And although plans are estimates, it’s important to be as realistic as possible. Investors and lenders are very good at due diligence. They will spot anything that seems out of place.
If this is something new to you, join one of our many communities or look online for several helpful guides on how to write a business plan.
3. Register Your Business
This might be an obvious one, but that doesn’t make it any less important. Register your business.
Why? It’s essential for tax purposes.
When you register your business, you’ll likely receive an Employer Identification Number (EIN) from the IRS. You’ll use that to file taxes, open a bank account, and apply for any applicable business licenses.
A side note on licenses. As an entrepreneur, you need to be aware of the potential regulations involved with your products or services. That could include the federal, state, or local levels. At any of these levels, you may require various licenses and permits.
Registering your business is also an opportunity to show your creative side, because you’ll need to name your company. What will you call your business?! It can be anything you want! The only catch is that it can’t already be in use in your state. For LLCs, this will involve preparing Articles of Organization. And for corporations, it will involve preparing Articles of Incorporation.
4. Find Funding
There are two ways most new businesses are funded: investors or loans. For loans, they are usually offered through accredited banks or through the Small Business Administration.
Here’s a word of advice: Present yourself to lenders with your best foot forward. A dentist friend of mine was able to fund his very first practice through a bank because he presented a complete and thorough business plan. The lender hadn’t seen such a detailed business plan before and was really impressed. It ended up that the branch manager overruled the underwriters (who rejected the loan) to secure the funding. The morale of the story? It pays to be prepared.
For investors, securing them greatly depends on your circumstances and comfort. Some seek out friends and family. Others are open to equity financing, venture capitalist, and angel investors. And don’t forget the power of crowdfunding platforms.
When you secure funding, you must follow regulatory rules. If your business operates under a different legal entity than you (the owner), the business will need its own, separate checking account. With an EIN, you should be able to open one without issue.
5. Account for Everything
Let’s face it: We’re doctors who specialize in medicine. We have a lot of strengths, but there are a lot of tasks that are better delegated to somebody else. I believe accounting is one of those tasks. Finding a good CPA is one of the best moves you can ever make to accelerate your business.
Poor accounting is often cited as a major and primary cause for business failure. So from a math point of view, it’s in your best interests to account for everything by hiring a professional.
In the long run, you’ll be saving yourself a lot of headaches from the paperwork involved. There’s tracking and paying for invoices, managing employer paychecks, maintaining a healthy cash flow, keeping tax records, and just the endless records in general.
6. Monitor Your Cash Flow
The lifeblood of a business is its cash. Without it, you can’t pay your bills. Despite the blood, sweat, and tears you put into making your business, it can collapse quickly without enough cash to pay for employees, rent, inventory, insurance, and other operational costs.
In fact, insufficient cash flow is the top reason why new businesses fail in the first year.
This carries over a little bit from the need for an accountant, but it’s important. In order to have the proper cash on hand, you need funding and a careful eye on sales, expenses, and revenue.
Make it a daily or weekly habit to check the business’ checking account. Keeping tabs on cash going into and out of that account is a helpful strategy for understanding the cash flow of your business. It also keeps your cash on hand at the top of your mind.
7. Don’t Forget About Taxes
Here’s another reason to hire a great CPA: taxes. If you’ve only been employed in the medical field, tax day comes once a year. When you are a business, it comes four times. Businesses must file quarterly taxes with the IRS.
Most people know tax day as April 15—in the middle of the month. That’s also true of quarterly taxes: They are always due on the 15th of April, June, September, and January.
A good CPA will ensure that all of your revenue and receipts are kept to make accurate estimated payments during these quarterly filings. This will include knowledge of tax advantages that will save your business money (and more than pay for their services). Essentially, hiring a good CPA is like an investment.
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Complete Your Financial Checklist and Help Your Business Thrive
As an entrepreneur, the best thing you can do is set yourself up for success. That means following a financial checklist of must-do items that gives your business the opportunity it needs not only to survive but to thrive.
Making sure you’ve checked-off the steps we’ve discussed today will save you time, money, and energy down the road. And if you want to continue your education, join us at the next Physician Real Estate and Entrepreneurship Conference. Not only will you continue to learn strategies to help your business grow, you’ll also join a community of like-minded individuals ready to support each other and build upon success.
We hope that this financial checklist has in some way brought value to you. We here at Passive Income MD strive to support you on your journey to a dream life through multiple streams of income.
If you’re interested in more, subscribe to our newsletter for more content that will help you in and out of medicine. As always, make it happen!
Peter Kim, MD is the founder of Passive Income MD, the creator of Passive Real Estate Academy, and offers weekly education through his Monday podcast, the Passive Income MD Podcast. Join our community at the Passive Income Doc Facebook Group.
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