Clinician Consulting: Gross vs Net $

Welcome! If you’re here, you’re likely a clinician. In fact, if you’re not, I’d be interested to know why you’re reading this! Perhaps it’s because a lot of business principles transfer across professions. Fair enough! Either way, you’re here, so let’s dive into what the difference between gross and net income is and why you should by HYPER focused on one over the other.

Gross Income

First things first - “Gross income for a business, also known as gross profit or gross margin, includes the gross revenue of the firm less cost of goods sold, but it does not include all of the other costs involved in running the business.”

For an individual - “Gross income for an individual consists of income from wages and salary plus other forms of income, including pensions, alimony, interest, dividends, and rental income.”

Net Income

Net income. is a person’s income earned after deductions and taxes. Net income is the percentage of take home pay from each paycheck.

Statutary Withholdings on a paycheck include:

1. Federal Income Tax

2. Social Security Tax

3. Medicare Tax

4. State and Local Income Tax

There are other deductions that impact your net income that may include:

Health                
Dental                
401k                
Flexible- Dependent Care                
Flexible-Medical

How you adjust your withholdings has a direct impact on your paycheck. Be sure to review the federal and state withholding forms and apply accordingly. The more money that is withheld from your paycheck, the smaller the paycheck. The less money that is withheld from your paycheck, the larger the paycheck. Make the best use of your money, and have the right amount of tax withheld.

Alright, great, now that we’ve had a lesson in definitions, we can move on to KEY takeaways.

1. NET = What goes into your wallet, bank account, and hopefully into future investments (stocks, business expansion, property, etc.)

2. If your gross is high and your net is low, your margins are TRASH. Margins matter more than total gross (for most). For example, if you gross $14,000 each month, but net $4000 after expenses, you’re worse off than someone who grossed $7,000 but net $6,000 after expenses. Keep in mind this MAY differ depending on how many of those expenses can be utilized for tax purposes, but we’re not talking taxes today.

3. If you need to chip away at the margin issues, there is a good chance your gross expenses are too high for employees, software/POS/Etc, or overhead/utilities. Simple changes in these ares, or forms of consolidation in these areas can go a LONG way. For example, if your overhead/utilities are high, but you love where your business is located, you can look to sublease your rooms when you’re not there and put that money towards your expenses, thus creating more margin for yourself. Clinicians are also NOTORIOUS for being too warm hearted when it comes to employees. Let me be clear, DO NOT TREAT ANY EMPLOYEE OR CONTRACTOR LIKE TRASH, but you also don’t need to be taken advantage of… which happens a lot.

4. You need to understand that you net income is going to be the money that typically drives additional money. You have to spend money to make money! I’m sure you’ve heard that before. The more net you can create, the more you can put that money to work.

5. Your financial goes come down to 2 things, making more money, or finding ways to save more money (creating better margins). Want a better net? You’ll want to learn to grow the gross while maintaining the current expenses or cut down on expenses while maintaining the current gross.

I can not tell you how many clinicians DON’T understand basic business. They are quick to point the finger elsewhere for their financial problems. Don’t get me wrong, there are plenty of policy and external problems to choose from that are legitimate, but one of the first things I teach clinicians to do is get INTENTIONAL about breaking down their gross and net incomes. See where the money goes and create a clear picture to see what needs to change!

Please remember that this is not official financial advice. We are not licensed financial advisors, financial planners, CPAs, or anything else of the like.

For more information on clinician consulting - https://www.avantidfw.com/business-consulting