Structuring your business is key to financial success and freedom. If the past 18 months has taught us anything, it is that we need to be ready! Choosing the business structure that benefits you and your business is key to putting more money in your pocket.
You're listening to the Functional Medicine Business Podcast featuring Dr. Deb, one of the most creative functional medicine business practitioners in her industry. She shares the wisdom and knowledge that she has gained over 25 years of functional medicine, a pioneer in functional medicine, scheduling, leadership and practice Management. Dr. De has a wealth of knowledge and is eager to share to help functional medicine become more productive. And for the practitioners and patients to live better lives. Our podcast shares the good and the bad of our industry, because Dr. Dad knows the pain you live every day building a functional medicine practice with practical tools on how to manage money, taxes and patient care. She will discuss it all with you.
We're going to talk about how do you set up a rainy day fund. You know, it's so easy for people to talk about having a rainy day fund. And what does that really mean? You know, in our personal world, that means that you want about six months worth of your expenses in a bank account, should something go wrong, you can cover your expenses. And in business, it's very similar to that you want to have six months worth of expenses set aside, in case you get into hard times you have something to draw from more than ever right now we know that that's what all of us in business should have done with COVID. And some of us have that some of us didn't, some of us were able to get stimulus money to keep us going. Some people didn't and many people lost their business as a result of that. So I think it's super important for us to talk about having that rainy day fund set up right now for you should something happen again, in the future, you don't have to worry about losing your practice as a result of this. Now, I like to have two rainy day funds set up actually, well, actually three. So I have a cash rainy day fund, where we have a set amount of money set aside to cover our payroll expenses, cover other expenses that we need, in case one of our practitioners has an accident goes out on maternity leave, we have another pandemic, whatever that may be, I don't want to have to be stressed that I don't have enough income coming into the practice to pay the bills. So we set that money up and set it aside and keep that for ourselves so we know that we're always comfortable. But something that I learned from my friend Garrett Gunderson is you should also make sure you have something set up like a disability policy on you and your key employees. So should one of them become injured, and can not work for three months, six months, a year or maybe permanently, the business actually gets paid for that disability. Now you could have a policy that pays them as well but you want the business to get paid, because when they're not there, they're not bringing in income for you. And if they're not bringing in income for you, you have a problem, either you're going to see more clients, you have to rush out and try to find somebody to fill in for them. And we all know what that's like new practitioner doesn't know your systems doesn't know your patients, patients get upset. And now you have another problem you're dealing with. Now, this isn't going to fix the problem of your patients being seen. But if those patients can get pushed out a little bit, too, that practitioner can come back or buy you a little time so you can train somebody, it'll be much less hectic. So I have a disability policy on my key employees so I don't ever have to worry about that. I have a disability policy on myself that pays my overhead business expenses. So should something happen to me, my business expenses are paid for. And what they do is they'll look at what your expenses are for the month. And that's how they'll set your disability policy. So if you have $60,000 worth of expenses you need to cover because your other providers are going to be in the practice taking over for you. But you're worried about your contribution to the practice that's how much you're going to take that disability policy out for. It doesn't mean you're going to take out a policy that's going to cover the entire practice share of the income or the billables. It's your share or that individual key employees share. What do they contribute? That's where you're getting the policy because if you had to pay take one for the entire practice it would be really expensive. But doing it this way, it makes it much less expensive. Now the other thing that you can do is you can take a life insurance policy out on yourself and your key employees and have it payable to the business, God forbid something happens to you or one of your employees, and they die, that's a big hit to your practice. Garrett has a story where he was partners with I believe it was four guys, they were all going to a event together, he was the only one that didn't get on the plane. And all four of his business partners died in that plane crash. We don't plan for those things. But they do happen. And his entire business changed overnight as a result of that, both physically, emotionally, financially, everything. And you have to recoup yourself from that. And can you do that financially better? If you have policies like this? Versus if you don't have policies like this? And the answer is absolutely yes, you can. So having key policies out on key people can make things easier for you if tragedy happens.
So we've got your rainy day fund of cash, you want available cash in case something comes up where you could purchase a practice, or you need a new piece of equipment, or you have a practitioner that goes on maternity leave unexpectedly, or someone gets injured, and you need to have fast cash, you've got cash, then you've got your disability policy that you're going to take out on yourself, and any key employees that contribute a significant amount of money to your practice, because if they're gone, you need that income, especially if you don't have another practitioner that can take care of them. Thirdly, you want a life insurance policy on your key employees. The younger they are when you do that, the cheaper it's going to be. So I encourage you to do it sooner than later. This is a business expense, because it's payable to the business not payable to you but payable to the business. I would also encourage you to look at a whole life policy versus a term policy for this. And the reason why is because you can borrow against that whole life policy should you need to. So if you have a whole life policy, say, just for number sake $100,000 value, and you have a cash value on that policy of $20,000, you get into a tough bind with the practice, you could borrow $20,000 in that life insurance policy, you don't have to go to the bank, you don't have to get a loan, you have instant cash within five days, and you pay your policy back, you pay yourself back. So it allows you to become a banking system for yourself, that can be utilized when the practice needs it. On top of that, it will pay you a death benefit when that employee passes. Now, because it's a life insurance policy, and a whole life policy or whole life policy, particularly, this is never going to go away. So even if this person no longer practices with you, that life insurance policy stays in place for the business unless the patient or the practitioner is going to buy it out from you if they leave. But that is not typically recommended. Typically, it's taken out for the business by the business for the employee, and they need to understand that that's one way to get them to agree to doing that is to give them a life insurance policy that's payable to their family as well make their family the beneficiary, you're part of a beneficiary on a policy, there's another policy that someone else in their family is a beneficiary out of this really helps you keep your practice in check. It is not something that people talk about a lot. It's not something that people encourage you to do. But it can be the difference between peace of mind and added stress that you really don't need. Now, where you put your rainy day fund money is totally up to you. Do you put it in a savings account where you can get access immediately? Do you put it in a CD? Do you invest it someplace else, I don't encourage anyone to invest it in any place a that it can be risked and be that you can't access it. So typically a savings account is better because you can access it immediately. Remember, emergencies don't happen planned, they happen when nobody is expecting them. You need access to that cash right away. You can't necessarily wait 14 days, three weeks to do that. So really pay attention closely to where you're putting those funds and how you access them. That is key to all of this.
I really hope this helps you think outside the box on how to set your clinic up and your practice up for that rainy day process and that rainy day fund and that you have some new ideas on thinking about how to protect your business from those terrible accidents that can happen. If you're not sure how to do this. Reach out to us in the 15k a day (now Functional MBI) Facebook page we have group page there, reach out to us ask some questions. We're happy to connect you with people that know how to do this and do this right and make you not have to lose sleep over something like this again. Thanks for listening. If you enjoyed this episode and you'd like to help support the podcast, please share it with others. post about it on social media, or leave a rating and review. To catch all the latest from me. You can follow me on Facebook at FMBI, join our free group where we support one another and share our struggles. Thanks again and I'll see you next time.