If you’ve been running Profit First in your solo practice, you probably have a rhythm by now. Money comes in, you move it into a few accounts, and you pay yourself from the right one.
Then you hire your first W-2 therapist, and that rhythm stops fitting. A W-2 therapist is someone on your payroll who gets a regular paycheck with taxes taken out, as opposed to a contractor who sends you an invoice.
The good news is you don’t have to throw Profit First for group practices out. You just have to adjust it for a practice that now has people to pay.
Here’s what actually changes.
What Profit First is, and why Group Practices Use it Differently
Profit First is a cash system from Mike Michalowicz’s book of the same name. When money arrives, you split it into separate accounts before you spend any of it. Profit and taxes get set aside first, instead of being whatever happens to be left.
The book’s standard setup uses five accounts. For solo practices, we usually suggest something leaner, which we walk through in our post on Profit First for therapists. Either way, the solo version was built around one person’s income and one person’s costs.
Once you have employees, you’re paying other people on a fixed schedule. That’s the part the solo setup was never designed for.
Why Payroll Changes Your Profit First Percentages
Your percentages are just the share of each deposit that goes to each account. In a solo practice, most of the money goes to you and to taxes, and your running costs stay fairly small.
Payroll flips that. Your therapists get paid on the same day whether you had a busy month or a slow one, so payroll quickly becomes your biggest regular cost.
That’s why most group practices add a Payroll account. When money comes in, a share goes to Payroll first, before owner’s pay or anything else.
How big that share should be depends on what you pay your team compared with what the practice actually collects. It’s worth working out with your accountant rather than guessing.
Treat the Payroll account as off limits for anything except payroll. If you borrow from it for an owner draw or a new laptop, it won’t be there when payday comes around.
Employer Payroll Taxes: The Profit First Cost Solo Therapists Haven’t Met Yet
When you were solo, you paid self-employment tax on your own earnings. Self-employment tax is just Social Security and Medicare for people who work for themselves.
As an employer, you now pay your own share of Social Security and Medicare on every paycheck you run. It matches what each therapist already has taken out of their pay, and it comes on top of their salary.
You’ll also owe federal unemployment tax, plus state unemployment tax where you’re based. Federal unemployment tax only applies to the first slice of each person’s pay each year, and state rules vary. It still adds up across a team.
This is where a lot of new group practice owners get caught. They budgeted for salaries and forgot the employer side. Our breakdown of what hiring your first therapist really costs shows how the full cost stacks up.
In Profit First terms, that money needs a home before it’s due. Some practices keep it inside the Payroll account, and others give it its own Employer Taxes account. Either works, as long as you move the money every time you run payroll.
How Owner’s Pay Changes in a Group Practice
In a solo practice, Owner’s Pay is the main event. In a group practice, you might be paid in two ways, depending on how your practice is set up for tax.
If your practice has elected S-corp status, you’re technically an employee of your own practice. An S-corp is a tax setup that can lower self-employment tax once a practice has enough profit.
The IRS requires S-corp owners who work in the practice to pay themselves a reasonable salary before taking other money out as distributions. That salary runs through payroll just like your therapists’ pay.
So part of your owner’s pay may now come out of the Payroll account, with profit distributions on top. If you’re weighing whether an S-corp makes sense for your group practice, our S-corp vs PLLC calculator runs it on your own numbers.
How to Set Up Your Profit First Accounts For a Group Practice
Most group practices end up with some version of these accounts:
- Income, where every deposit lands first.
- Payroll, for your therapists’ pay and your own salary if you’re an S-corp.
- Employer Taxes, either its own account or a set-aside inside Payroll.
- Owner’s Pay, for what you pay yourself outside of payroll.
- Taxes, for the income tax you’ll owe on your share of the practice’s profit.
- Profit, which Profit First has you pay out a share of each quarter.
- Operating Expenses, for everything else, like rent, software, billing fees, and malpractice insurance.
Operating expenses just means the everyday costs of keeping the doors open.
The percentages will look different for every practice. A useful check is whether Profit, Owner’s Pay, and Taxes still get a real share after payroll and running costs. If they’re close to empty, that usually points to your rates or your collections, not to Profit First.
Run Profit First on Collected Revenue, Not Billed Revenue
A mistake that trips up a lot of group practices is setting percentages based on what they billed, not what actually arrived in the bank.
If you take insurance, those two numbers are rarely the same. Denied claims, underpayments and slow reimbursements all shrink what lands. Running your percentages on the billed number makes every account look healthier than it is.
Profit First only works on cash you actually have. Build it around collected revenue and check it monthly. If claims keep coming in low, our post on managing bad debt in your therapy practice covers what to do about it.
Do Group Practice Owners Still Pay Quarterly Estimated Taxes?
Most likely, yes. What they cover is what changes.
If you’re an S-corp, tax on your salary is withheld through payroll. The practice’s profit works differently. It passes through to your personal return, and you owe income tax on your share of it whether you take it out as a distribution or leave it in the practice.
That part usually needs estimated payments, or extra withholding from your salary to cover it.
If you haven’t elected S-corp status, you’ll usually make estimated payments on your full share of the practice’s profit, including self-employment tax. What you actually draw out doesn’t change that number.
Underpaying can mean a penalty, so revisit your estimates any time your setup changes. Our therapist guide to estimated taxes covers how the payments work and when they’re due.
When Profit First Stops Working For a Group Practice
Most group practice owners who give up on Profit First don’t have a broken system. They set their percentages once and never touched them again.
Revenue grows, you hire a second therapist, and payroll goes up. Meanwhile, the Payroll share is still sized for one employee, because the inputs changed and the percentages didn’t.
Review your percentages any time you add or lose a therapist, change a big contract, or see your collections shift. A quick quarterly check catches the drift before it turns into a cash crunch.
You don’t need to become an expert in any of this. You need your accounts to match the practice you run now, not the one you had when it was just you.
If you’d like us to look at your current setup and check the percentages against your real costs, let’s chat.
TL;DR:
Adding W-2 therapists means your Profit First setup needs a reset. Add a Payroll account, set aside employer payroll taxes every time you run payroll, and base your percentages on what you collect, not what you bill.
