Private practice owners need to make quick decisions in order to mitigate the negative effects of the COVID-19 pandemic. There isn’t a how-to on this disruption other than to take some logical and quick steps. In this episode, financial planner Eric Miller of Econologics (Private Practice Millionaire) talks about those steps that we need to take now and how to strategically ramp up in the future. Obviously, as the owner, your sole purpose is to keep the business going, so now is the time to take action in order to stay afloat until things turn around, no matter the time frame.
I'm bringing back Eric Miller because we are all worried about money in the middle of the COVID-19 pandemic. I don't know a single owner that hasn't significantly slowed down or shut their doors altogether. The concern immediately goes to not only your employees but also your money and your financials and if you're going to be able to stay afloat when this thing does get back around. Eric, you've been a multiple-time guest. Thanks for joining me again. I appreciate it.
It’s my pleasure.
I've enjoyed the information that you've put out through Econologics, your webinars, the downloads and all that stuff. I figured it'd be great to have a talk with you on the show so we can work this thing out and share some valuable information with the owners.
I know a lot of practice owners have a lot of uncertainties happening. Anything we can do to make them feel a bit more stable in these unstable times.
A lot of times, some guys are more prepared than others financially for an expense like this. It's coming as a shock to all of us. What are some of the first things we need to do right off the bat as we're addressing this as owners?
The first thing you have to do is you have to look at what the condition is that your businesses and your finances are in. The best word is confusion and uncertainty. That is the condition. The way that you handle a confusion is that you have to get rid of all the uncertainties that you have. What I hear most when I'm talking with practice owners is that, “I don't know what I'm going to open. I don't know how I'm going to pay my bills. I don't know how this is going to affect the longevity of my practice.” There are many of those. That's what causes the fear and the anxiety and all the things that you don't want.
One thing I do know about the condition of confusion is that it breeds bad decision making and we don't want that. My advice is let's clear up some of the uncertainties. Get everything out of your head, get it on a piece of paper and try to figure out like, "I need one piece of certainty that I can establish. I know how much I have in my bank accounts. I know how much accounts receivable I have coming. These are my open credit lines." You're trying to get some stability that you can navigate without making bad or rash decisions in this timeframe.
If it's not uncertainty, it's fear, which also can lead to bad decision making. Once you can get your hands on some real data and information that is true, that helps you then make the decision and you've got to start making decisions. You can't wait for the next update. You can't wait for the press briefing. You’ve got to start making some of these sure financial decisions based on the true data that you have to start overcoming the uncertainty and fear and start developing a plan not only for the now but for the future as well.The way that you handle a confusion is by getting rid of all the uncertainties that you have. Click To Tweet
Another point to that too, because there's information coming out fast, it's a mistake to start trying to look 4 or 6 months in the future. That's going to mess with your head when you do that. You have to say, "What do I have in front of me this week?" and plan out that way. Another week comes, "Here's my battle plan for this week." Because there's always going to be new information that's coming, it would be better to navigate that way. Otherwise, your attitude and your emotional tone level is the key. If you're an action and if you're like, "We're going to do this," you'll be imaginative that you can be creative. If you're in fear, anxiety and all those negative things that creep up, that doesn't spark creativity. Now more than ever, you need to be creative.
Keep your horizon to 1 to 3 weeks ahead of you and deal with it when you get there. I don't want to get too off-topic because I want to talk immediately about what things people need to do. After you've handled some of those things, think about maybe how this company to look in the future. If there are some things I want to change, do you allow time for that?
You're doing both. You study history, no great movement or organization ever made strides when everything was hunky-dory and rich and prosperous. You can make some big strides as an organization when times are in distress like this. What you would need to do would be the exact opposite of what everybody is telling you to do, which is a contract, close down, don't see anybody and don't promote. Those are the things that if you can do the exact opposite of that in some form, then you can become a beacon to your community and your patients and be like, "These guys were willing to provide good data and information and provide a safe place we can still get help." Make no mistake, the help that you provide is much needed in terms of what physical therapy can do for the human body.
It's interesting as people were considering shutting down. The information that I provide to my clients was don't stop promoting. Your message might change and probably should, but don't make your promotion and marketing budget one of the things that you cut. You still want to get the message out. You still want to keep in touch with your patients and your physicians and all your marketing vendors. Change the message if you need to. If you have some extra time, take an opportunity to redesign and rebrand a little bit or something like that but don't stop promoting and marketing. Find another way to do it.
You want to make sure that you're over-communicating not under-communicating. I'm having all my advisers, myself, I'm calling everybody, every client that I have because I want to make sure how they're doing and that they know that we're trying to figure out ways that they can navigate this situation. It's not easy for anybody. You can establish a lot of goodwill with your people and enhance that by doing that.
Another thing that came up in a mastermind group we've taken from physicians, we get referrals much from physicians. How many physicians are getting calls of, "What do you guys need? What can we do for you? Can we come over?" If you have a massage therapist on board or can hire a massage therapist to go over and one-on-one, not in a group, but provide massages to an overworked staff or something like that. What can you do for those physician groups who are having to stop all elective surgeries altogether? What are they doing and how can you help in that situation?
I'm seeing a lot of people that are giving stuff away. You have to do that at this time. We look at profits and revenue. That's important but at this point, you’ve got to be a beacon of help. That means that maybe I'm given a course away or I'm giving something away, a month off, whatever it would be. We want to help you. You have to do that.
When someone comes to you and as you're doing these interviews on shows, what's the first step now to handle things financially?
From a business point of view, the number one responsibility of the owner is to make sure that the organization can stay there. It means that financially speaking, you have to make probably some of the toughest decisions you've ever made in your life. Likely, a lot of practice owners have never been in a situation where you had to furlough and lay off 50%, 60%, 80% of your staff. Unless you have few months of business reserves, there's no way you can carry that payroll when no patient visits are coming in. You have to act fast on that one though. You can't wait because patient visits are dropping percentage-wise, 70%, 60%. They're dropping fast because people are scared. You can't carry that payroll if you don't have the patients coming in. You have to act fast on doing that. It's a tough thing to do, but you’ve got to make sure that you preserve the organization. Work on a skeleton crew. Keep your key people, keep your producers and the people that are going to help you fight your way out of this one.
Keep your billing people because that's your money lines right there. You need to keep those. Keep some good executives and some key producers that you need. Go down to a skeleton crew and try to produce the basics of what you need that you can keep the organization there. I don't know how many patients visit that is. Each practice would be different, what is the minimal amount of patients that we have to have come in here so that we can keep the organization flowing at least in that respect?
Have you recommended the owners get in touch with their CPAs and rework their break-even number? “What are my bare minimum expenses?” It's probably a good exercise for owners who don't have a lot of accounting knowledge and aren't good with QuickBooks and whatnot, but sit down with the CPA and say, "Walk me through it. What are my bare minimum expenses? What is my salary need to be? If I'm open, how many visits do I need to squeak out to break even and stay afloat?"
That's part of the getting rid of the confusion because you would need to do something like that. That is one of the smartest things you can do, it's going to put your attention on your money. In this time, you need to stay connected as far as who you have on your Rolodex, who I'm talking to you. You're talking to colleagues a lot and your associations. Like the show that you're doing, there is good data is coming out this. People in the news media, you go anywhere else I'm not certain that's necessarily good data, but the associations and your other colleagues, good data is coming from there. Your bookkeeper and your accountant because they're going to know your income and your expenses and they'll help you rework that make-break number. You want to get in touch with your banker because you may need to look at credit lines, see what you have available, see if there are different ways that you can access credit that maybe you didn't know about that you could.
Your financial advisors, if you have types of investments that you may not even realize have some liquidity features to them that you can access. They've made some changes with the Stimulus Bill that you can access qualified plans for some time if you need it. It's time to stay in communication with your financial team and your billing department. What do you have coming in? Whatever is in your business checking account, you have whatever accounts receivable that you're going to have coming in. You should know that and whenever your business credit lines would be. Let's get some certainty on what that is. I know what I'm going to have to do because your reserves and your credit lines are gold.
For me, as you're talking through that, I can see that if I knew I have this much cash available to me, even if it's in a line of credit and my accounts receivable and my checking account and then I know what my bare minimum expense level is, I know how many weeks or months I can ride this out. That's where I get some certainty and that's where I start getting more confident and less fearful because people might have more than what they think they have. They might be looking at their bank account and thinking, "This is only going to get me through two weeks." Whereas if they've done some proper planning and gotten a lot of credit ahead of time, they have access to that. Could people tap into IRAs possibly?
The Stimulus Bill came out and there were some provisions in there that if you were affected by the Coronavirus negatively in some way, shape or form, that you can get access to $100,000 of your qualified plans. Everyone's accounts got hit 40% and you're taking money out.
You don't want to sell low.
I'm not sure that's a smart thing to do. They have all the relief loans and grants that are coming out. I'm going to touch on that because my advice is that the devils are in the details on that. Be careful before you sign your name to something because when credit and free money is made accessible, it usually has titanium strings that are attached to it. I don't want people to start getting loans and grants and money and keep people because you think that you're going to get this money or you may be able to hit the stipulations that they're going to have of requirements before they forgive it. I would caution people to not do that. Get your mini make-break done. Know what your expenses are. Try to see enough patients ride this wave through so that way you don't come out the other end with $100,000, $200,000 of what you already have in debt. That's the problem that we're trying to solve. I don't want that for people.The condition of confusion breeds bad decision-making. Click To Tweet
What have you heard about people putting in claims with their general business liability, insurance policies or anything like that? Have you heard anything on that end? Whether that it's going to work out for people's favor?
Unfortunately, I have and insurance companies aren't dumb. If you remember the SARS virus that hit, insurance companies went back and rework that business interruption policy that this thing wouldn't necessarily qualify for business interruption insurance. That doesn't mean that if you did have it, you shouldn't take it to file a claim. You should do that anyway because who knows. From what I'm hearing, most people that have that type of insurance, this necessarily wouldn't qualify because they're saying that there has to be actual property damage for something like that to occur. That's hard to quantify. I wish there was better news on that, but I don't think there is.
I like your advice though about being wary of the SBA loans and grants that are out there because you can imagine. You're working with the government and the time and effort that it's going to take for this to happen and to get those funds, I can't believe that it's going to be quick and in a timely manner.
You don't have time to wait. You have to act fast. The speed in which you make decisions and doing it with good data, which is why you want to get out of this uncertainty is paramount. Trying to carry all this expense on your back, it's going to force you to potentially have to dip into your personal reserves. A lot of people don't even have that. It's something I would be much wary against doing something like that.
Number one, get some true data. Put some money together or figure out where you're standing financially and what you have access to financially. Stay in communication with all the important people. That includes fellow professionals and peers. I don't know if you can trust Facebook groups because you could get a lot of fear out of those. You pick and choose the right one. Stay in close touch with your vendors. Don't give up the promotions and make fast decisions.
There was one more point I was going to make. A lot of people have loans and leases and such. Get in communication with them. I'm sure you can get some relief, deferral payments or something like that. Don't be afraid to call them up. Everyone's going through the same thing. Most of them are going to be open to it and say, "I may need 2 or 3 months deferral and let's work together on this." If you don't call them, then that's where you're going to get in trouble.
Look at any of your expenses and feel free to call them. I say this because I know that they're forgiving some of the student loan payments at this time and deferring interest and whatnot. As a landlord, my mindset and the other landlords I'm talking to is I'm still going to send out the invoice until you call me. If they do call me, I don't want to lose your business. I don't want you to go under. There are a couple of things I'm willing to do. If you want to decrease your rent payment and then spread that out over the next twelve months, that's fine. If you want to take this month's rent payment and add it to the end of the lease agreement, that's fine. If you want to draw down from your security deposit that you're already put in and pay that back over time. I'm open to all of those things. If you're coming up on a renegotiation of a lease, now is the time to do that renegotiation and see if you can get some of those free months. If your lease is coming due here, it's the time to call your landlord and say, "Here's my situation. I need some help. I need some relief. Let's start negotiating so I can get some immediate relief and I will pay you back if you help me through this."
It's amazing what will happen if you get in communication because nobody wants to lose tenants. As a landlord, especially if you have businesses in your building, you care what happens to them. That's your lifeblood too as a landlord. You're going to be open to any creative methods, but to your point, if no one calls you, you're like, "Rent is due. I need it." That's a good point.
Outside of salary and payroll, some of your bigger expenses are going to be exactly that. It's going to be rent. It's going to be insurance payments, debt payments that stuff. Some of those can be relieved and taken off your plate.
We talked a little bit about this as far as when this thing recovers, how do you handle that point as well?
What would you recommend owners do as they're looking to the future? We've got some of this. I've got a financial plan in place. My idea to throw it in there is that, maybe start reading some books that you hadn't read before about business organization. Getting your mindset right. I'm a big proponent of Think and Grow Rich. Those first four chapters of getting your mind straight and getting an ideal scene in mind. If you've been working in a situation that you haven't truly enjoyed, start creating maybe an ideal scene of, what is this going to look like when I do revamp and how can I make it look the way I want to look in a situation I want to see?
You're getting an opportunity to reset this whole thing.
Take advantage of this pause button.
Right now, it should be, “If I had to do this all over again, what would I do differently?” You're going to have that opportunity, especially if you've had to let people go. You're going to have this opportunity to do good money management if you didn't do that. Now, you see the necessity of having organizational reserves and profits and putting that in as an actual expense. Maybe not having the percentages be out of whack where 80% of all your revenue is going toward staff and benefits. You have an opportunity right here to play the reset button on there. Put in some good business systems that maybe weren't there so that you can grow your organization and expand even more than what it was. Pay attention to that. Wear your owner and executive hat more than being a practitioner.
Our previous interview talked about how you handle things financially as a PT owner. You're talking to the points that we made in the previous show, is making your 10% profit margin and expense line and coming off of the top. Also, make sure that you're getting a decent profit. Some of these guys are working on 8% to 10% profit margins and I'm like, "You can do so much better." Now, is the time. As you started getting into this saying, "How are we going to ramp up and be more productive, profitable and financially sustainable?"
You have to do it on a gradient. You have to make sure that as you're bringing people back slowly that you're not overwhelming the organization with expenses again because that's what got you into trouble in the first place.
You don't open the doors and invite all the employees back in?They can try to bankrupt you or make your business non-existent, but they can't take away the ability for you to create it again. Click To Tweet
I'm sorry, this is going to be wildly unpopular. I know that and I'll probably get beat up from some people, but you can't do that because, in the reimbursement game, the lag on income is 1 or 2 months. You have to make sure that as you bring people on, you work on a skeleton crew even if they're working double-time seeing patients.
Pay them overtime if you have to.
Don't bring on all the staff too quickly. That way, as your patient load increases, because it's not going to go from, you're doing 500 patients a week and then it goes down to 50. It's not going to go right back up the 500 in a matter of months. It's going to take a little bit of time. You’ve got to make sure you can navigate that. Now is a good time to hit that reset button and say, "We're going to put in 10% for reserves, 5% for a tax fund, another 5% for a business reserve account. I'm going to put these things in right now." That way as I bring people on and I'm going to stick to those percentages and I'm not going to deviate from them because I understand how important my profit is. That's going to do a couple of things. Number one, it's going to put good control of money back in. It's going to allow you to expand the organization and it's going to make the business more valuable down the line because you'll have a profit margin, which as you know when you sell your business, that's largely what it's based upon.
That's the value of your company.
You have an opportunity right here to do that. If you overwhelm the organization with expenses again and bring all your stuff back right away, then you're going to be right back in the same boat that you were.
If any owners are reading out there, if there are people that you didn't like or didn't produce in your company beforehand, take advantage of it and bring back the people that you're excited to see. Not the ones that you're like, "We’ve got to bring so-and-so back because we need to fill that hole." No. There are going to be plenty of people out there looking for work. Find the good ones. If you have an amazing employee, one of the skeleton crew that is live and die with you, ask them about their friends and their network and how you can find more and more A-players because they're going to be there. Find your A-players, let go of the ones that you weren't excited to bring back, to begin with, and you're having issues with. Take advantage of this time. It's a time to not only strategize financially, but it's also a time to strategize with your human resources as well.
This became an employer economy. It was an employee economy because everyone was demanding higher pay, time off, benefits and all of that and it flipped like that. The business owners are back in control here a little bit where they can be. This is not a competition. It's not me against them. It's finding out who is part of your team, who wants to be there and who's there to get a paycheck. To your point, that's key to do that.
This is an opportunity. There are opportunities that abound. Financially, restructuring and reorganizing your financials, but looking at the structure of your company and the people that are in it, your team members and create your dream team. It's time to create a dream team. If you're sitting on your butt and waiting this out, then you're going to be behind the curve. You need to start reaching out to people who you might've wanted to reach out to in the past that weren't available, more than likely they might've been let go at. It's time to start making those connections again. Even if they might be committed to going back to the place they were before, it is not a bad time to reach out.
You can get rid of the negative people without having to get in there and fire them.
All the stuff that you've talked about, you shared a lot of this on webinars. You have those things on YouTube. You've got a PDF download for people to manage this. I hope they take advantage of the information that you're sharing because it's hugely valuable.
We're trying to put good financial data out there and if I can talk a little bit about the financial plan aspect of this thing going forward. What you're going to do going forward from this because you do have an opportunity to do something different. When there's a crisis, when there's blood in the water, there is an opportunity there for you to take advantage of. When you look at the several years, you look at the things that people have done with their money and what's happened, interest rates and checking and money market accounts have been 0% to 1%. Nobody saved any money because there was no purpose to save money. They made debt accessible and easy to get, "Buy this big house. Buy this car. You can afford the payment. That's all you need." They made the Tax Code confusing, ambiguous for practice owners because it's four million words. How can you confront that? Your accountants don't help you as well.
They made it seem like the stock market was the only place that you could put your money to earn any return against the inflation rate. We call that the default plan. If you didn't have your financial plan, that was your default plan right there. It worked well because if you look at the situation for most business owners, they don't have much liquidity. They have loads of debt. They overpay in their taxes and likely all their 401(k)s and IRAs were in the stock market where they took a 30%, 40% hit. Not only did your business value evaporate overnight, but all of your personal reserves at the same time went down 30% to 40% in value. There has got to be a better way to handle your finances than that. That's why I'm like, "Get a plan that does the exact opposite of that." It's fine having $100,000 sitting in a checking account, earning zero, as long as you have some liquidity there. It's fine to have some money in protected assets that may not make huge returns, but at least you know it is going to be there at some point. It's fine to take advantage of the Tax Code and save yourself $20,000 to $40,000 in taxes a year by being proactive and looking at it. It's time to get a plan that does that.
You're the man that can help us. If people want to get in touch with you, where do they go?
They can go to EconologicsFinancialAdvisors.com. They can hook me up on LinkedIn at Eric Miller and Facebook. They can go to our page. We do have that Financial Disaster Guide. For your readers too, if they want 15 to 30 minutes appointment or consultation, then I'll certainly extend that offer. Please take advantage of it, in any way we can help even if it's helping you navigate through this time. We'll be willing to do that to talk with you for 15 to 30 minutes with no strings attached.
It would help people for sure. Give them some certainty at least. I'm sure you'll give them a battle plan that they can go off and start working it so they can go from a place of surety and a little bit of faith.
Thanks for your time as always. It's awesome to have your information, your knowledge and wisdom. I appreciate it.
I'm glad to help. For those owners again that are having the feeling like their businesses because some of your guys are shut down completely. I've been telling a lot of people this is that they can try to shut you down. They can try to bankrupt you, they can try to make it that your business is non-existent there, but they can't take away the ability for you to create it again. That's a key point for those guys that are shut down. They only lose something if you don't think that you can create it again.
It's going to take some work, but you know how to do it. You've done it before. If you're an entrepreneur, you've been through crises. This isn't the first time. Thanks.
Eric Miller has been in the financial planning industry for over 20 years. He’s a co-owner of Econologics Financial Advisors – awarded an Inc. 5000 honoree for 2019. As the Chief Financial Advisor for the firm, Eric has had the good fortune to have over 10,000 financial conversations with private practice owners in various healthcare industry and helped guide them into a more optimum financial condition using a proven system.
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How can you further increase the value of your company so you can sell it at the highest price on your terms? In this episode, Nathan Shields welcomes back Eric Miller, the Co-Owner of Econologics Financial Advisors, to talk about money! In fact, he specifically discusses what it takes to increase the value of your clinic. Whether you're looking to sell or not, a clinic that has great value generates greater profits and is running at optimum efficiency or is easier to own. Eric breaks down seven items that you need to address in order to increase your clinic's profit, efficiency, and overall value, including routine work on your business in the specific areas.
I've got a guest returning, one of my favorites and one of my favorite topics, money. I've got Eric Miller of Econologics joining me. If you've read my blog, you know that I'm excited talking about money, but I've done episodes in the past regarding improving the value of your clinic, most notably one with Steve Stalzer of 8150 Advisors. It's a topic worth returning back to because even if you're not looking to sell your clinic anytime in the near future, it's important to run your business as if you are up for sale at any given time. If you are up for sale like selling your house, you're going to make it look as good as possible to get as much out of it as you can. If we run our clinics like that, something that's going to be more valuable on the market is also going to give us something that returns greater profits.
For acting like we are out on the market, it's going to be a business that gives us more money and runs more efficiently because those are the things that buyers want to see. Whether you're in the market to sell your clinic or not, this episode is going to be super valuable for you. Consider some of the fundamental things you need to do in order to increase your value. They are things that we've covered before in the past, but it's worth repeating over and over again because those things that bring us more value also bring us more profits. Let's get to the episode.
I've got Eric Miller of Econologics back on the program. We had so much fun the first time in our discussions a few episodes ago that we decided, “Let's do this again.” I'm always happy to talk about money. Thanks for coming on again, Eric. I appreciate it.
No problem. I love it.
We're not going to talk too much about your backstory. If people want to know where you came from and your history a little bit, they can read the previous episode a few episodes ago. We want to talk about increasing the value of our clinics and what we can do to put ourselves on better footing if we're going to sell. Even if we don't want to sell, how can we improve the bottom line by getting some sound structure and onboard? We're going to go into a number of different things but we want to get things started in that realm. This is something that you guys specifically work with. Why don't you tell us a little bit about what kind of clients you work with at Econologics so that people have an understanding of where you're coming from?
We work primarily with private practice owners. We've set up our business to work with that type of clientele. We focus on two things. The first is to make sure that a practice owner is running his household finances like a business and that they have their attention and emphasis on improving and increasing the value of your business. For most practice owners, that's your biggest investment and that's where all of your cashflow is created. You want to make sure that business is flowing money like a Mississippi and then convert some of those profits to the household to create other income streams along the way. 90% of a practice owner's attention should be on figuring out ways how to scale their business and increase the value of the business.
I love how you stress the importance of 90% of your time focused on this thing because number one, it is the lifeline to the business. It’s not only the lifeline to the business, but the lifeline to their household and the lifeline to their retirement. There was so much riding on it. It's imperative that we spend the time that we need working on the business and not in the business full-time. Let's talk a little bit about what we can do to increase the value of our clinics. Not only will we set us up for a better possible sale price or a better possible exit in the future but also improve our bottom line as we go forward. What are some things we can do?A good systems indicator is when your staff assures that they can handle tasks even without you in the office. Click To Tweet
A couple of things on that, the moment that you start building this practice value, not necessarily for you but for someone else is where it starts to change a little bit. It's a different mindset because you're not building this thing just for me. You're building this thing for a successor, for the employees, for the patients, for the community at large, and you start taking that perspective and that look. It changes the game. As far as trying to increase the value of the business, it's not just a money market value. Value has many different terms. There's time, money, relationship value, accomplishment values, all kinds of things that would make up the value. When you start looking at your business and saying, "What can I do to make sure that this entity that I put much effort into can provide the kind of value that I need? How can I build this not for just my own benefit, but for someone else?" It starts to change the game a little bit.
There are definitely some things that are going to drive value in the business. You want to look at it from the perspective of who's going to buy your practice. What are some of the things that they're going to want to see in order to make sure that you get the highest value possible for that business? I can go through a couple of those. The first thing is that if I'm going to buy a business, I want to make sure that the personnel in that business is well-organized. There's an organizational system in place, there are policies and procedures. There are job descriptions. All these things help the organization run. As a buyer, I'm going to want to see that. People are running around like chickens with their heads cut off. They want to make sure that there's order in that business. The first thing is making sure that you have well-organized personnel.
There’s some value to showing a leadership team so that not all the decision-making is on you. They don’t want to be buying you so much as they want to buy the systems that are in place and maybe the leadership team that’s there.
Think of it from that perspective. If I'm going to go in there, I don't want this business to be dependent on Nate Shields. I want it to be where there's a team there that I can depend upon that will continue the production and the profitability of the business even after the owner is gone.
If the owner is the linchpin and you pull that out, there's too much risk involved and don't know which way it's going to go. Is the team going to continue to progress and grow or are they going to say, “I don't like this buyer, so I'm out?” It's imperative to have that leadership team in place and you mentioned the importance of having the business systems. When I sold my business in 2018, they wanted to see all of my policies and procedures. They wanted to see if we have marketing strategies. They wanted all the HR contracts. They wanted to see everything that we had and the more we could provide, the better. It's almost like the more policy, the more procedure you can provide, the greater security they have in giving up their money.
It's not very exciting to build systems in business either. It's hard. It's a grind. It's like pulling teeth. Sometimes you don't necessarily see the fruits of your labor when you're doing that. It's interesting because it's repetitive, boring actions that you're doing to build these systems and you don't see, "All of a sudden I have this windfall of money now." It doesn't work like that. If you keep at it, if you do build those systems in the business, I'm telling you it will pay off as you know in a higher value for you and more time. The big indicator is this. To know that you have good systems in your practice, if you can walk away for about 60 days and come back and still have the production and the profitability of the business still uptrending, then you've built some pretty good systems in your practice. You’ve got a good leadership team. That's a good indicator.
It's exciting to interview some of these guys that I talked to. The one that comes to mind is Travis Robbins. He's with a group called Next Level Physical Therapy. There are some owners in there that are exactly that way. They work from home most of the time and when they go into the clinic then everyone is like, "Get out of here because you mess things up." You start making changes and giving ideas and we're like, “No, we're doing fine, step away.” That's the position you want to be in as an owner. That's where you have some real value than when you're out to sell. You're talking about value. It's not just the monetary value. Can you imagine the freedom that you have, the accomplishment to get to that point? Your employees are excited to work where they're more empowered to do more and make a change and grow and say, “We did this and it wasn't all the owner that did it all. I can have a little glory to myself." It's those kinds of things that provide some value.
That's when you're wearing your owner hat. That's the second indicator that you build good systems is that when you walk in there, the staff looks at you and says, “What are you doing here? Get out. We got this." That would be good.
That's great if you can do that. That's a position that a lot of owners dream of. There's some freedom there so that if they did want to treat, they could go in and treat a little bit. If they have greater aspirations, that's when you start looking for the next location, the next possible acquisition, or increasing your assets to get different revenue streams. Real estate is always an option. People have different ideas if they're going to want to trademark or patent something. That's when you have that freedom to do that and pursue those other avenues.
It certainly allows you to expand in any other area of your life. That's the moment where you start to realize that you're not there to serve the practice. The practice is there to serve you when you're in that position. That's a pretty good feeling.
We're talking about leadership teams, we're talking about business systems, but it also starts with a sure foundation. When I say that, you need to have some sound structures in place when it comes to your financials, legal structure and records.
I would think another area would be the assets of the company. From a financial point of view, you should be able to have your profit and loss statements at hand. You should be able to print off your balance sheet, your tax returns and all of those things that are an indicator, your production reports, all of those things you should be able to have at hand readily. That's one of the first things that a buyer's going to ask for. They're going to ask for your financials. They want to see exactly what cashflow this thing is producing. Make sure all your records are kept up to date. It wouldn't be a bad idea that you would have an audit done on your company prior to selling to make sure that all the records are in good shape and no back taxes are due. No payroll taxes are due. Make sure all the legal rudiments are in good shape, the same with all your corporate documents and then all your contracts. You should at least have your finger on the pulse of where all those things are and then you can access them quickly if you should need them.
Even if they're collecting dust, know that they're in that file towards the back somewhere. Make sure you have them.
It's an owner's function. That's an owner function to make sure that the compliance is in good shape and to make sure that all the financial records are up to date and current and it's not hard to do.Money has a way of filling up the crevices you poured in concrete. Click To Tweet
We might do some self-audits in terms of documentation. From a financial point of view, do you recommend doing occasional financial audits even if you're not up for sale?
I would because you never know what you're going to find. You're never going to go wrong by paying attention to what's happening on your money lines. If it uncovers something that may have been a camouflage goal, who knows? When you pay attention to your money lines and you have an audit done or something like that may uncover something. It could be costing you a lot of money. How often do you do it? I don't know. Maybe once every two years would suffice, but it's something that I think should be done, definitely.
If you're like I was several years ago, I didn't know what a P&L was. I didn't know what my cashflow was. I didn't know how to read any of that stuff. It was a matter of me telling my CPA, "I want you to teach me what all this stuff means and we're going to meet monthly from now on." As I did that, my expenses came in lying a little bit and they were more predictable going forward. I knew exactly what my make break line was. I could do some reverse mathematics to figure out how many visits I needed to make each month and where we were tracking. There's much power behind that. You can't take your finger off the pulse of your money lines. The guys that I'm talking to that are losing money and going into a negative cashflow are those people that have taken their fingers off of the money lines. They turned a blind eye towards it for a little bit.
It doesn't happen overnight. No emergency happens overnight. It is a series of things that have been neglected for a long period of time. That's what causes the emergency to happen. I see that regularly. I go into an office or someone's having trouble with cashflow. This wasn't a month phenomenon. This has been something that's been going on for months, if not years. Don't neglect it. It's too important of an area. Your financial solvency is everything. If an organization doesn't have more money coming in than what's going out, then that organization will eventually die. It won't be worth anything, which leads to the earnings of the business. At the end of the day, I've been watching a lot of Warren Buffett videos here. That guy is brilliant because he looks at things from the perspective of, “What kind of cashflow can I expect from this business that I'm buying?” He doesn't so much care about the price of it. He's not speculating. He wants to know what the return of the money will be from that particular business.
As a practice owner, one thing that we do have control over is what the earnings are. You look at the difference between a well-managed practice. Let's say maybe it's doing $1 million practice that's doing a 20% profit margin. That'd be maybe $200,000 of earnings. That may sell for $600,000 to $800,000 at a 3 to 4 multiple, but then you look at that same $1 million practice that only has a 10% profit margin. That's going to sell for a smaller multiple. That may only get $200,000 to $300,000. You're talking about $600,000 of value, same revenue, different profit margins, different management. One person paid attention to their money and their earnings and they got a much higher multiple and they got more money for it as well.
That's a real-life situation. When you can show it increased the bottom line, that's when you have greater value. That's when someone will pay more for your business.
Totally, because there's prediction there for them. Anytime you buy a business, you want to have a prediction. That's the one thing that you got to have to think of when you're selling your practice. You’ve got to think of that buyer, whoever it is, whether it's a corporate buyer or a successor, you have to think that they need a prediction of that cashflow. The more prediction that you can give them that all of the company, whether it's the systems, the personnel, the assets, the financial condition, there's a prediction for them when they assume control. You build a practice. There are moments of chaos all the time. It's imperative to make sure a transition goes well that there's going to be points of chaos when someone assumes control of the business. The more prediction you can give them, then that'll allow for the value to be higher.
I like what you talk about prediction and they want minimal risk. That leads into another topic that we want to discuss and that is making sure that you've got a well-diversified payer mix or referral mix of physicians so that not everything is coming from A1. If you've got one insurance or one referral source that leads to 60% to 70% of your business, that can be unsettling for a buyer. It should be unsettling for you as an owner to be reliant on A1.
The term I've always heard is that you never want to be relying on one of anything. When you rely on one of anything for too long, then you can lose everything because what happens when that source is no longer there? We all talk about having multiple streams of income for the household. That's been a notion that a lot of people have heard. It's correct. I would like to have multiple income streams, but you need to look inside the business as to where all of your income is coming from and make sure that you're not heavily relying on one of anything. That gets back to building the systems in the business and not relying on one referral source, not relying on one insurance company and not relying on one therapist or whoever it is. Don't rely on one of anything. Make sure that you're building it so that income is coming in from a lot of different sources.
That goes back to the buyers want to see your marketing strategy, your growth strategy, whatever that might be so that you are diversifying yourselves. Part of your strategy if you do have as a single, large payer source or referral source, what are you doing to diversify yourself? It doesn't have to be immediate, but are you reaching out to the community more or are you trying to gather the contracts? Are you talking to other doctors to get more to diversify your mix?
At the same time too, they want to see that your sales trend production-wise is going up, even if it's incremental. Even if it's at 4%, 5% or 10% rate, they want to see that. No one wants to be buying a company that's declining or sideways. It's important that you put your attention on that every single month. What's the trend of the organization? Is our production higher than it was the year before? What's that growth rate and what should it be?
No buyer wants to buy a sinking ship even if it's not falling off the cliff. If you're going downwards, there’s that lack of predictability. Which way is it going to go next year? We don't know.
You don't want to catch a falling knife. I certainly wouldn't want to. I'd want to buy a business that was showing a lot of strength and then I felt good at the marketing that they were doing was attracting a lot of new patients. That they were producing at the level that they should have. What's the percentage? I don't know, but if you're doing 10% to 15% a year, that's pretty good growth.
When we went through our sale, the accountants came in and they asked us about changes each quarter and, “What do you attribute this growth to? What do you attribute this loss to? Why is this happening?” They had some serious guys come in and look over our financials over the past two years and asked all kinds of questions. “Where did this expense go? Where did that expense go? What happened to that? Why don't you see more of this?” They wanted to see the predictability. They wanted to see a gradual improvement over time.You're never going to go wrong by paying attention to what's happening on your money lines. Click To Tweet
It's good that you mentioned that. It's a good exercise for every practice owner to go through that process even if you don't decide to sell. They'll do it. If you have a practice that's worth something and you reach out to a corporate buyer or somebody like that and say, “I'm thinking about selling my practice." They'll look at it. It's a good experience for every practice owner to go through because they see what it is that a buyer is interested in. To your point, they're going to ask you questions that you're like, “I didn't think about that before.” It's a good way to get some intellectual capital as far as what the people who have the money, what they're thinking and what they're looking for. I would encourage every practice owner, which I do, in some cases to like, "Go through that process. You don't have to sell if you don't want to." At the end of the day, you can say, “I'm not going to sell.” It's important to go through that process.
Prior to that sale that we did in 2018, we had been through 3 or 4 companies that had at least put out a letter of intent on our clinics. We had an idea of what we needed to do going forward and we turned down the other offers but good experience so that we weren't blindsided by the whole process. We knew that it was a long haul. This wasn't going to happen in a couple of months. We had a good idea of what they wanted to see in terms of financials and legal paperwork and reports. We knew that that was a whole process. It also gave us a good idea and I highly recommend people go through the thought exercise of what they want if they are going to sell. What does that exit strategy look like?
Will and I both knew ahead of time before even going out onto the market that we weren't going to sell unless we got to this point whether that was a number or a multiple or a dollar amount, you name it. We weren't going to sell unless we got that. If they didn't hit that, then we weren't going to sell. It was easy for us then to filter things out. Either it was a yes or a no. It wasn't, "Let's think about it for a few weeks." We knew in our minds what we wanted. Every owner should have a good idea of what that exit strategy looks like.
All the things that we've mentioned so far, all the value drivers that we've talked about from systems to financials to the diversification of income sources, those are all good. You need to start with a transition plan. What are you doing? Who are you building this for? What is your ideal scene for transitioning out of practice? Until you have that plan to something that you can strategize on and build upon like you and Will did. That's incredible that you knew exactly what you were doing and you built everything to that end and then it happened and you're like, “Great.” It was a pleasurable transition. It wasn't like you're selling this business on a fire sale.
At that point, you're selling it on your terms. You don't want to be in a position where you have to sell. That takes you out of a position of power. We had an ideal scene. We had an idea of where we wanted to go and how we wanted to grow. This exit strategy was a sideline thing that if it came up or if it got to that point, then we could visit that strategy. Our ideal scene when that offer came up is we saw the offer becoming an opportunity to accelerate our ideal scene to begin with. We went from 4 clinics up to 25 clinics. In a situation where we work together with other clinics that had shared values, shared vision and because of that, we felt it was an acceleration of what we were already producing in our four clinics. There are opportunities there for owners to figure out what their ideal scene is, both in terms of what they want currently, but what they want in their exit strategy. By going through the processes that you'd mentioned, it only gets us closer to that immediate ideal scene and benefits our household in the meantime and funds our retirement and all those good things.
To that end as well, you want to make sure that you've built a lot of good people around you as the practice owner. It's imperative to not only have what your transition plan would be, but the next step is making sure that you have good experts around you that can help you along the way. It's advisable that you have a good CPA or accountant that can help navigate. When you go through a transition, there are a lot of tax issues that come up that you may not be familiar with. Certainly, have a good mergers and acquisitions attorney, depending on what sale you're doing to review all the documents. Make sure that you have a good financial advisor that understands what you're trying to accomplish from a household perspective. Make sure you have a good business consultant that can help build the systems along the way. It's definitely not a one-man show as you know. Building that team around you is key to getting a lot of value for the business down the line.
I find that with anything financial when you have a team of resources that helps you so much, because you can't expect to know everything and the ins and outs of everything. To have that team around you and spreads the energy, but also increases your power on a multiple to access other avenues of wealth. I see on social media that sometimes people are saying, "What are you looking for in a CPA?" Does anyone that get well communicate with you quickly? If a CPA is willing to answer an email within 24 hours or sit down with me once a month for an hour and show me what my P&L is. I want a guy that's going to communicate well, answer my questions even if they're one-off things. Not someone who comes around every one year to do my taxes. Those are the type of mentors, resources and experts that you want to have around you.
They're out there. I love to make fun of CPAs more than anybody else on the planet because I have to deal with them and their viewpoints every once in a while. When you freely find a good one, don't let go because they can help you tremendously in this area. When you sell a business, this is likely to be the biggest financial transaction that you ever have in your life. You have to pay attention to what's happening, the tax situation, the proceeds that you would get managing that correctly. It can end well. They can send you to another level. I've seen some practice owners that after they've sold their business, it turned into a disaster because they misapplied the funds. They misallocated the money. They didn't know exactly what to do with it and then all of a sudden, you've got all this money and you're like, “I don't know what to do with this. I've never seen this amount of money before." There was no plan. Money has a way of filling up the crevices you poured in concrete. It will go everywhere if you don't control it.
It's one thing to plan an exit strategy or an ideal scene after you sell. Is it knowing what are you going to do now with some extra funds or with the extra time? I don't know what I'm going to do and I'm going to move forward doing this and I don't know how I'm going to make money after that. That can be a tough situation to be in and things can flitter away.
It's unfortunate that we have to see some of these things happen, but to your point, when you don't have certainty about what you're going to do next. When you don't have a plan or a game of what you're going to do after the sale that motivates you, that gets you up in the morning like, “This is what we're doing next,” then boredom sets in. Unfortunately, I've seen a lot of people that they start getting into things that aren't beneficial to them. I'll leave it at that. You can imagine what happens to people when they get all this free time. They start to do some not so constructive things for themselves.
I love the insight that you gave that if people want to see where they're sitting in terms of the value of their clinics or what that process looks like. I do have to put in a plug that the group that we merged with Empower PT, is always looking for clinics out there to grow with, acquire and merge with and share what we're doing. There is an opportunity if people want to reach out to the people in Empower PT, I'll put a little bit of plugin there but that's the group that we joined with. It was a great experience. I've heard about this a number of times, people who have sold and joined maybe a corporate owner and have been dissatisfied 1 or 2 years later. I can say that's the opposite for us. We've been more than happy with the structure that's been created after the fact because we did a lot of this work that you're talking about ahead of time. Imagining what that ideal buyer looked like, what our ideal situation looked like and planning that out ahead of time.
I'm glad to hear that because we tend to hear a lot of the negative stories and it's nice to see someone that's been through it. I'm sure that when you decided to work with that group, there were a lot of philosophical synergies that you had with that group. That's important when you're going to do something like that. It's not about the money, which I know is important. There's got to be some synergy there that I believe what they're doing and that I understand how they view physical therapy and running an organization and you're in agreement with that. When you have that, then it allows things to have the result that you did, which is awesome.
Thanks again, Eric, for taking the time on our second episode here, the last little bit. Are there any parting thoughts before we leave?
We're getting towards the end of the year. There's a tendency that the complacency sets in. Don't let complacency set in. Wherever you are in your business, your phase of ownership, there's always something that you can do to get more direction, more certainty, more control over the direction of your business and your personal finances. That's one thing that we always try to preach to practice owners is that something can definitely be done no matter what financial condition that your business is in or your personal finances are in.When you rely on one of anything for too long, then you can lose everything. Click To Tweet
Be intentional about it. Make that final push to meet your goals by the end of the year or start planning for 2020. How it might be different or take advantage of tax savings towards the end of the year and you get your stuff right. Start reaching out to resources like you guys or other people to take advantage of those tax savings opportunities.
Our phones are operational and working.
How can they get in touch with you if that's the case?
Are you guys doing any workshops, webinars in the near future?
I'm doing a webinar. The topic is The Next Level Game Plan For Practice Owners: Your Action Plan For Building A Profitable Practice And Personal Financial Success. We're going to talk about all kinds of things about getting to the next level and the areas that you're bleeding cash that you may not realize it and how to remedy that. We're an advocate for physical therapists. We believe in physical therapy. That's why we picked this niche because we believe in the care that they give and the help that they deliver. Physical therapists, especially owners, deserve to have financial success. Sometimes, I don't necessarily think that they, themselves, think that they deserve that, but they do. More than we can get them in the financial condition that their practice is strong or their personal finances are strong, then they can help more people. That's the point.
A webinar like that, are there some recordings on your website?
We do or we're going to. We're doing a transition to a new website, but we'll certainly have resources on our website for webinars like this. They'll be able to access that.
Thanks for your time, Eric. I appreciate it.
No problem. Thanks, Nate. I appreciate it.
Eric Miller has been in the financial planning industry for over 20 years. He’s a co-owner of Econologics Financial Advisors – awarded an Inc.
5000 honoree for 2019. As the Chief Financial Advisor for the firm, Eric has had the good fortune to have over 10,000 financial conversations with private practice owners in the various healthcare industry and helped guide them into a more optimum financial condition using a proven system.