1. Cash Flow: Keeping Your Business Liquid

What It Is:
Cash flow is the movement of money in and out of your business. It ensures that you have enough money on hand to cover expenses like rent, wages, and supplies.

Why It Matters for EPs:

• Cash flow fluctuates due to client cancellations, insurance claims processing, and seasonal demand.

• You may have delayed payments from Medicare, NDIS, or private health funds, affecting your ability to cover expenses.

• A positive cash flow ensures you can invest in marketing, equipment, or additional staff when needed.

How to Manage It:
✅ Use cloud-based accounting software (Xero, MYOB) to track cash inflows and outflows.
✅ Offer direct debit payment options to reduce missed payments.
✅ Keep a cash reserve to cover at least 2-3 months of operating costs.

2. Expenses: Understanding Where Your Money Goes

What It Is:
Expenses are the costs of running your business, including fixed costs (rent, software, insurance) and variable costs (marketing, casual staff, equipment purchases).

Why It Matters for EPs:

• Knowing your total expenses helps set the right session pricing to remain profitable.

• Tracking expenses allows you to cut unnecessary costs and improve profit margins.

• Some expenses (e.g., CPD courses, professional memberships) are tax-deductible, reducing your taxable income.

How to Manage It:
✅ Categorize expenses into Fixed vs. Variable to understand cost structure.
✅ Track your expenses monthly to identify patterns and areas to cut costs.
✅ Set a budget for marketing, new equipment, and staff wages.

3. Breakeven Point: How Many Clients Do You Need?

What It Is:
Your breakeven point is the number of sessions or clients you need to cover all costs before making a profit.

Why It Matters for EPs:

• Helps set realistic revenue goals (e.g., "I need 20 sessions per week to stay afloat").

• Ensures you charge enough per session to cover costs.

• Essential for making hiring decisions (e.g., "Do I have enough client volume to hire an admin assistant?").

How to Calculate It:

Breakeven Sessions=Fixed CostsRevenue Per Session−Variable Costs Per Session\text{Breakeven Sessions} = \frac{\text{Fixed Costs}}{\text{Revenue Per Session} - \text{Variable Costs Per Session}}Breakeven Sessions=Revenue Per Session−Variable Costs Per SessionFixed Costs​

✅ If rent, software, and insurance cost $5,000 per month, and you charge $100 per session, you may need 50 sessions per month to break even.

4. Profit and Loss (P&L): The Health Check for Your Business

What It Is:
A Profit & Loss Statement (P&L) shows your total revenue, expenses, and profit (or loss) over time.

Why It Matters for EPs:

• Helps you understand trends (e.g., "My revenue drops in December when clients go on holiday").

• Shows if you are overspending in any area (e.g., subscriptions you don’t use).

• Necessary for tax filing and business planning.

How to Use It:
✅ Review your P&L statement monthly to spot financial trends.
✅ Compare revenue to expenses and adjust pricing if needed.
✅ Ensure profit margins remain stable by controlling costs.

5. Debt and Loans: Managing Borrowed Money

What It Is:
Debt refers to any loans, credit lines, or borrowed funds used to start or grow your business.

Why It Matters for EPs:

• Taking on too much debt too soon can lead to cash flow problems.

• Some business owners use loans to invest in equipment, clinic space, or marketing.

• Debt should be strategic and manageable (i.e., not exceeding 30% of revenue).

How to Manage It:
✅ Prioritize paying off high-interest debt first.
✅ Avoid unnecessary loans unless they directly contribute to business growth.
✅ Use business revenue, not personal savings, to cover repayments.

6. Net Profit Margin: How Much Do You Really Make?

What It Is:
Your Net Profit Margin shows what percentage of your revenue turns into actual profit after all expenses are deducted.

Formula:

Net Profit Margin=(Net ProfitTotal Revenue)×100\text{Net Profit Margin} = \left(\frac{\text{Net Profit}}{\text{Total Revenue}}\right) \times 100Net Profit Margin=(Total RevenueNet Profit​)×100

Why It Matters for EPs:

• Helps you gauge profitability at different pricing levels.

• A higher margin means more money to reinvest in marketing, staff, and growth.

• Shows whether costs are eating into your earnings too much.

✅ Healthy net profit margins for an EP business typically range between 15-30%.

7. Assets & Liabilities: Understanding What You Own vs. Owe

What It Is:

• Assets: Things your business owns (equipment, cash reserves, accounts receivable).

• Liabilities: Money your business owes (loans, unpaid invoices).

Why It Matters for EPs:

• A business with more assets than liabilities is financially stable.

• Helps track investments in equipment, technology, or property.

• Necessary for understanding your business’s net worth.

✅ Keep an updated balance sheet to see your financial position at any time.

8. Accounts Receivable Turnover: How Quickly Do You Get Paid?

What It Is:
This metric tracks how fast clients or insurers pay their invoices.

Why It Matters for EPs:

• Slow payments hurt cash flow (especially with NDIS, Medicare claims).

• High accounts receivable means clients aren’t paying on time, creating financial strain.

✅ Reduce waiting times with automated invoicing, payment reminders, and direct debit options.

9. Fixed vs. Variable Costs: Managing Your Spending

What They Are:

• Fixed Costs: Stay the same every month (rent, insurance, subscriptions).

• Variable Costs: Change based on service volume (session-based wages, supplies).

Why It Matters for EPs:

• Knowing your fixed costs helps set realistic monthly revenue goals.

• Keeping variable costs low increases profitability.

✅ Keep fixed costs under 50% of revenue to stay financially stable.

10. Client Acquisition Cost (CAC) & Retention Rate

What They Are:

• CAC: The cost to acquire a new client (e.g., marketing spend divided by new clients gained).

• Retention Rate: The percentage of clients who keep returning.

Why It Matters for EPs:

• Keeping CAC low makes your business more profitable.

• A high client retention rate means less money spent on marketing.

✅ Focus on referrals and organic growth to keep CAC low.

Final Thoughts

Understanding these financial metrics will give you confidence in managing your business, setting the right prices, and ensuring long-term sustainability.

💡 Action Step: Start by calculating your breakeven point, net profit margin, and fixed vs. variable costs to gain better control of your business finances.