I have been having some very interesting conversations with clients recently regarding how much they pay themselves and what they should be paying their associates. One of the most noticeable points is that they usual way of deciding salaries, picking a figure of out the air does not work and leads to acute and chronic financial problems in the practice.
As a principal you have three main roles
- Business owner
Each of these roles requires you to have a different skill set, and responsibilities and for each of these roles it is reasonable and right to be to be remunerated. You would not expect your staff to work for free so why should you?
Every one of my clients who has gone back to the numbers has had stark discovery; if they were being paid the same rates as their associates for the work they do they would be taking home more money. Let me repeat that every principal that has gone back and done the numbers is being paid at a lower % than they pay their associates.
Added to this as a principal you are working as a manager, usually in your lunch hours, before work, after work and at the weekends. If you were paying a manager, administrator, book keeper, or employment specialist to do this work what would you expect to be paying them, maybe 25-45k year depending on qualifications and experience.
In the word of commerce people buy businesses and expect to get a return on their investments both in the short and long term. If the financial returns are not sufficient to reflect the financial risks they are taking and the work they have to do at a strategic level they will not buy the business. How much are you drawing from your practice as the business owner?
And then there are ancillary roles of engineer, maintenance, decorator gardener that many principals take on if you were paying someone to do these roles what would you pay them.
I am curious to know what would it be like if your practice was set up so that you and every member of staff were being paid the full market rate for the work that they do.
What I would like to see happen is for you to change your financial budgets to reflect your drawings as a clinician, manager and business owner.
If you would like to discuss with me any of the aspects raised in this short blog post please comment or e mail me Jane@iodb.co.uk.