How do you create successful partnerships for your business? Nathan Shields presents Eric Miller, the owner and Chief Advisor of Econologics Financial Advisors. Eric talks with Nathan about specific steps you need to take to put you in the best position to succeed in your partnerships – from aligned purpose and goals to gifting hard equity. Join in the conversation to discover critical steps that need to be taken to ensure you meet both parties' goals and sidestep the potential pitfalls. You wouldn't want to miss this episode!
I've got Eric Miller on with us, my favorite financial planner from Econologics. Eric, thanks for joining me again.
It's my pleasure. Let's do it.
We've talked a number of times here over the past. One of the topics that came up that I wanted to pick your brain on was about partnerships. A lot of owners might go into ownership independently or individually. Some of them might have a partner that they are considering opening up their first clinic with. Nonetheless, it's an invaluable thing to consider all the steps that are made for a successful partnership. This is a marriage. It might be as difficult as a marriage. It could cause as much stress because you're spending as much time with this person as you do with your spouse.
It’s probably more. The work is 7/10 of your life when you think about it. When you have a partner in your business, it's probably more so than your actual spouse because of the amount of time that you spend doing work.
You don't want to take it lightly and there are a number of things to consider. I'm glad we're having this episode because we're going to break down a lot of the things, if not all the things, you need to consider about a partnership. How to formulate one? What should it look like? What should someone consider when they say, "I want to partner with somebody. What do I do?" How would you first address that question?
There has to be an alignment between you and this other person. When I say alignment, it's like a marriage. It doesn't work if it's built on the wrong reasons why you're getting married. If it's just for looks, that's not always going to be a good thing. It's the same thing with a business partnership. You have to look at it from, "Do we have similar purposes? Do they have a purpose to whatever the purpose of the organization is or whatever the purpose that I have for the organization? Are we on similar purpose lines here?"
You can imagine if one person is like, "I want to go this way and you want to go that way," it's eventually not going to work. It needs to start with, "What are the purposes? What are the goals of the organization?" They have to be in alignment. I can tell you this from working with practice owners for many years. I have seen good, bad and awful partnerships.
There's one where they were not talking to each other but only through their attorneys. That's bad. Just like a marriage doesn't crumble overnight, a partnership has to be something that you're constantly creating. To that degree, you need to have some fundamentals when you start off with it. The goals of the partners have to be very similar like, "We want to get to seven practices and do $7 million in revenue a year. We want to eventually transition out and sell to a corporate group."
Whatever it would be, it has got to be pretty similar. You can imagine if one person is like, "I want to get to seven practices and $7 million," and the other person is like, "I'm good for two and coast along." That's not going to work. You have to build that alignment in the front end. There has to be some alignment on finances too because money is a big component part to partnerships. There has to be some synergy there as far as, philosophically speaking, similar viewpoints on the subject of money. That one person is like, "I need all this money right now." The other person is like, "We have set aside. We have to do this and this. We can't just rip all this money out of the business."
As you bring that up, I'm thinking most marriages fall apart because of financial issues and financial strains. Wouldn't you say that could be the same issue with most partnerships falling apart in how to appropriately spend money?
It usually falls apart because one person thinks that the other person is not pulling their weight. There's a lack of exchange there. It has to be very much written out as far as who is doing what in the organization. When you're looking at a partner, you want someone that can complement what your strengths are. Let's say that you're a good technician and you're very good at practitioner work, but you're not a good executive. Maybe you want to bring on a partner that has those skills. It's building that but there has to be that alignment to start with.
Of all those practice owners that you've talked to that are in partnerships, what would you say is the percentage of those that have been successful versus those who have not? I would think it would be a large percentage of those that have not.
It always starts off good. They're happy. Like a marriage, one thing that ends up happening is you try to put the partnership on cruise control. You stop creating, communicating, spending time with each other, and doing all these things. All of a sudden it's like, "Maybe I don't like that person as much as I did. Why do I need you?" You have to make sure that you guys stay in communication.
I have a partner. We talk every day but we have a dedicated hour every single week where we go over the basics to stay in communication of what the direction of the organization is. What are our goals? What are the purposes? What are our targets? That way, we're all moving towards a common objective. It doesn't mean that there isn't friction or you're not going to have upsets and any of these things.
You have to have someone that has an owner mentality that can take responsibility and isn't just doing it for a paycheck. I can give you stories of that happening where you have one owner that wants to expand and the other owner is like, "I just want to come here from 9:00 to 5:00. When it's 5:00, I want to check out and that's it. Give me my percentage of the profits." That's not going to work.
I loved how you brought it back to value alignment and goal alignment. What worked out with Will and me is that not only did we have similar goals, we wanted to prudently expand and whatnot, but we also had shared similar personal values. A lot of it ties back to we are like the same kids within our family and our fathers were very much alike. We didn't learn this until later on. I don't necessarily think that partners have to go this far but personally, we shared similar value sets. It's because of that and the constant communication that we shared that we enjoyed being around each other. Can you imagine being a partner with someone who you don't enjoy being around with? That would probably be a recipe for failure.
It's going to fail at some point in time. If you're enduring right now like if you've ever seen those relationships with people who are together just because they can't imagine being apart from each other is too painful, but they're just enduring. You don't want to do that. Any relationship can be fixed. I would recommend to people that if you haven't sat down with your partner in a while, make sure you do that. Get in good communication with them and find out what's going on like, "What is the direction that you're going? Why don't we map something out?" It doesn't take much to imbue some life into a relationship.
Once you begin that communication cycle, you can start fixing a lot of things, but it doesn't start until the communication begins.A partnership has to be something you constantly create. Click To Tweet
You've got to be able to take responsibility. If there is some friction and upset, don't just sit there and be right. You have to take the other person's point of view. That's the only way that any conflict is going to get resolved. We're getting into conflict management right now, which is a totally different episode. We can do that as well. To your point on that alignment, it starts with common goals and purposes. You got to have some affinity for one another and share some genuine likeness. That's important.
What if it's like I'm an owner. I'm not necessarily interested in giving up 49% or 50% of the business, but I've got a clinic director that has been with me for five years. He or she is amazing. I want to reward and incentivize them. Maybe I want to open up another clinic and they have some form of partnership at that point. What are the things to consider at that point?
You have to come up with some transition plan for yourself and decide, "How am I going to transition out of this business?" There are different methods that you can do. There are seven different ways you can exit out of a business. One of them is doing either what's called a buy-in or buyout. I can go over the specifics of that.
A buy-in would simply be where I have 1 or 2 associates or clinical directors that would like to start buying into my practice. They're going to buy-in based upon the value of the business. That is one method where a lot of people have been able to take some risks out of the business for themselves and also liquidate a portion of their business and get some cash if they need that by allowing someone to buy-in.
That is a method to be able to bring on someone. Let's say I have a practice that's worth $2 million. I want to have someone buy-in 25% of my business. They would have to come up with $500,000 to be able to do that. Most associates are not going to have $500,000 sitting in their piggy bank to be able to do that. You have to be willing to seller finance at that point.
The benefit to you is that you're going to get the same amount of cash that you've been getting even before because the profits are going to be paid back to you, except you're going to be getting it at capital gains tax rates because it's going to be coming back to you at a lower tax rate than what you're getting. That would be one method of identifying someone and then saying, "I'm going to let you buy into this business for a predetermined valuation."
That's giving someone some hard equity. You're talking about hard equity options. What if it's not a hard equity option and someone is like, "Maybe I don't want to go that far and give them a percentage of the company." I hear many therapists talk about how they're partners in their company. When I talked to them, they're just getting profit-sharing. There is a way to be a "partner" without necessarily giving up hard equity of the business.
You can designate money like executive bonus plans or something like that, which the owner is saying, "Based upon our profit of the business, I'm going to share the profits with you with selected people in the organization." Usually, it's a management team. It's like, "If we're profitable, I'm going to give you 1% or 2% of the profits and this is the arrangement that we would make."
That way, if you're an owner, you don't want to give up any of your equity, but you want to reward and tie executives in so that they're motivated based on the profit of the organization. You can structure it that way and there are 1,000 different ways to do that. It has got to be on a percentage of the actual profit of the organization, not the revenue. That's certainly a method that you could do as well.
That's the thing that Will and I came up against as we were trying to figure out how we can incentivize and reward some of the clinic directors or management team members that we had. We went to a lawyer. We said, "We want to do some partnerships and maybe some profit-sharing." They were like, "How do you want to set it up?" We were like, "We were hoping for some guidance." The lawyer said, "You can do it in a thousand different ways. What do you guys want to do?"
I'm glad that we're talking a little bit about considering the difference between hard equity and some kind of profit-sharing model because there are a thousand different ways to do it. When it comes down to what you want to put in writing, the calculation has got to be the same so everyone knows exactly how it's figured out.
I've seen some people do that with some success as well. Anytime you are trying to reward people that are producing for you, it's important that you incentivize them in some way. Trying to get people tied into the actual business though, there's a risk to that but at the end of the day, it's probably going to be a little bit more successful.
I know you recommend getting a business attorney. Find a business attorney if you wanted to do this to write it up and spend the money that it takes, especially a business and acquisitions attorney that specializes in this.
You would 100% want to work with a company that specializes in how to bring it on physical therapy, someone that has done it and understands the agreements that they're going to need to be in place. When you bring on a partner, now you're going to have a business entity that you guys are going to share. There have to be operating agreements, management agreements, and all these agreements that need to now be redone to include this new partner. You need to amend all the stuff.
You need to make sure that you have an attorney that has specialized in mergers and acquisitions in your industry. There are companies out there that specialize in that thing. They would perform the valuation. Most likely, they would determine what the value of the business would be. They're going to create all the legal documents to be able to do that.
They'll run the numbers as far as, "This is what the profit would be entitled to for the new owner and all of those guys." They'll help run all of those things. It's going to cost you $5,000 or $10,000 to do something like that. A handshake is still good like, "I'll do this." You have to make sure you keep the actual agreements in place for sure.
What a lawyer is also going to help you figure out are some kinds of clauses. The relationship between Will and me when we finally got an attorney was such that we had an agreement as to how things would end or when conflicts arose, this is how we would address conflicts. It's called a shotgun clause. If you're going to try to buy me out at a smaller amount than it’s valued, then I had the ability to turn around and buy you out for that same amount.
It also had conflict resolution built into it because we were 50/50 partners, which meant we had equal say. Our lawyer broke it down like, "If you guys are stuck on an important issue, who is going to be the tiebreaker?" We had to designate an agreed-upon person that we both trusted to be the tiebreaker. If we wanted to go to another level, we wrote out to someone else as well. It helped us with breaking down so we knew well ahead of time, if we ever had issues, this is how it was going to go down.Reward people who are producing for you. Click To Tweet
How many times did you guys have to do that?
Never, but I remember exactly what would happen if we needed it.
The thing is when you put something in place like that, it almost lessens the likelihood of that uncomfortable occurrence will ever happen. When you take responsibility for doing something like that, you lessen the likelihood that something bad is going to happen to you or you're going to have an unfortunate situation occur. If people don't take care of themselves, what's the likelihood that you're going to have health problems? It's probably pretty high. It's not rocket science. It's just observable.
To your point, these are what these agreements are there for. What happens if I die prematurely? What happens when somebody becomes disabled? What happens if someone goes off the deep end? How was it written out? That's all written out in the members' agreement and operating agreement. All those things are written out. If you're bringing on a partner, you got to make sure that that gets amended, updated and reviewed, both people agree upon it and it's executed.
More often than not, a lot of the issues that I see arising, there could be a lack of communication and one person is not feeling like the other one is pulling their weight. A lot of times, it's simply one person who wasn't in a happy marriage or at the beginning of the partnership is no longer in that happy marriage. Because of the relationship to the partnership, that causes things to get unraveled. Whether it's marriage, drug abuse or alcohol abuse, all those things can affect negatively on the business. Addressing those with a legal document ahead of time makes it so much easier to unwind when necessary.
There will be personal behavior clauses in there as well. If someone is not fulfilling their end of the bargain, then the other person has the right to buy that other person out. All those things are part and parcel of that. It's key that you have those things. Make sure that you have an attorney. Don't just grab something off from LegalZoom.com and do it. Make sure you have a mergers and acquisition attorney that does that for you.
You can have someone to buy-in. We talked about partnerships, to begin with, if we have a clinic director or someone who we appreciate in the organization and we want to do some profit-sharing with. Talk to us a little bit about the buyout stuff that you brought up.
We'll talk about two things. We'll talk about the buyout and then granting people ownership that you feel deserve it, that they have sweat equity.
Some people might not want to say, "I want you to buy out." They might say, "I've been with you for fifteen years and now you're asking me to buy into something that I've helped you build from the ground up." In those situations, you might want to gift some kind of stock.
There may be instances where the value to you as the owner is I have a person here that has been with me for 10 or 5 years. They've helped me build this thing. I want to reward them. I want to be with them for the period of time that I own this business. I don't want to make them have to come up with the money because I feel like they've earned it already for the value of the business.
What do you do in those instances? There are a couple of things you can do. You can gift them because everyone has the ability to gift money or assets to somebody over their lifetime. You can gift them a percentage of the value of the company, "I want to gift them 15% or 10%," whatever that would be. You would need to get all the same agreements in place. You would need to make sure that there are member agreements and operating agreements because now they're going to be a partner with you. As far as gifting them the shares, you can do that. The negative thing is that it would take away from your lifetime gift exemption that you have, whatever that amount would be, but there would be no negative tax consequence to them. That would be a hell of a thing to do. I've seen some owners do that.
Would the merger and acquisition lawyer help you with something like this or is this a CPA type thing?
It’s going to be both. A CPA is also going to be needed. There need to be agreements that are created and a legal document that says, "I'm gifting this percentage of the business, which is valued at this to this person." I'm sure there's a lot more to it, but that's essentially what you would do.
It's important to figure out how that's going to affect you and them. It's a very nice thing to do that they're not going to get taxed on this gift that you're providing them, but it also decreases the amount of gifting that you can do to other employees or even to your children, grandchildren or wife in the future.
That's the downside to it. If you don't want to do that and you still want to be able to give them a percentage of the company, then you would do what's called a grant. It's a little different and nuanced. This is how I got part ownership of our company in the beginning. I got a grant of stock. What that means is I got, let's say, 25% of the company granted to me. I did have to pay tax on the value of whatever that grant was. That's fine because I got the value of it. I just have to pay the tax on it. It was a big tax bill but that's what the person would be on the hook for.
They would be entitled to that percentage of the profits. Maybe in the first year, the profits that you get could go to Uncle Sam. After that, you're getting a percentage of the profits and you don't have to pay for the value of the business. I've seen that done probably at least a dozen times for people that want to reward someone that has been with them for a long time or want to keep someone tied into them and give them the sweat equity. It's a fabulous tool.
Hopefully, the person who was granted that stock recognizes that they are going to have to pay taxes on it. You want to be upfront about that, but they recognize that it's still a gift. It shouldn't be an upset for them to consider that they have to pay taxes on something that came to them for free.
If someone has a bad reaction to that, that's a bad indicator right there. You may want to rethink that. That would be a very simple way to give that sweat equity to someone that has been with you for a long time and tie in a top performer that you think can maybe take over the ownership or help the practice grow even more. Granting of stock is a cool tool.You can't build a business on chaos; you have to have something in order. Click To Tweet
That's not a way to buy out because then the owner doesn't walk away with anything. It would be more of the buy-in. Have you ever seen a situation where the employees buy out the owner and then take ownership of the company? Have you worked in that scenario?
There's something called an Employee Stock Ownership Plan. It's called an ESOP, which is a method where an owner can get to take shares and have the actual employees buy-in. It's almost like a profit-sharing plan, and buy-out the owner that way. It's super expensive to set something like that. You need to have at least $1 million EBITDA to be able to do something like that. A lot of practice owners have that EBITDA.
It would be as easy to have an associate to maybe buy you out and that would be an easier method. You still may have to carry a note in that scenario where you do a buy-out. Let's say you have 1 to 2 associates that want to buy you out completely. They say, "We're going to buy you 100% out. The agreed value is $3 million. We're going to pay you $300,000 a year for the next ten years at a 6% interest rate." You can do that. That's a buyout method. You just got to make sure they know what the hell they're doing.
If you're looking at maybe granting some kind of hard equity, then you're looking at a buy-in option granting or gifting. If you're not looking at granting this person actual stock in the company, then you're talking about profit-sharing models that could be rather diverse. There are many ways to cut that pie. All in all, we're also saying to start with the basics. Let's go back to building the foundation. Make sure the values and alignment are there, the goals are agreed upon, and everyone is in good communication. Start with a mergers and acquisitions attorney and go from there.
It seems like a lot. If you start there, all the methods, techniques and technical stuff can be figured out. The methods are an important thing. Having someone that has done it before or has some experience with it can give you the pros and cons of each of these different methods. Spend some time on it. Don't make a rushed decision. Think about it, look at it and make sure that it's beneficial for you. When you do sell a portion of your business, you are giving up that percentage of profits to your household. Make sure that you understand, are you financially ready to be able to do that? Are you doing this to expand or buy you more time for yourself? What's the reason?" Think about the reason that you want to bring out a partner from that respect.
The clinic owners that have done the best from my personal experience are those that have successfully navigated this. Either with profit-sharing or getting some hard equity buy-in, they have somehow been able to bring on partners and expand their practices without them having to do it all. There's something to having partners in each of those locations that incentivize that person that's on-site to build it and make it successful. Those are the people that have been most successful in the physical therapy owner space that I've seen.
You're right, which is another model too. If you're looking at different locations, partner with someone at that location. Maybe you own 51%. They own 49% in some models. Maybe that's another way that you can expand as well to give ownership of that particular practice.
Some of the larger privately-owned clinics that I know do exactly that. That person on-site might have 49% or less of the business, but they get a relatively average salary on top of maybe monthly or quarterly distributions. Their job is to run that clinic.
You run the practice. The parent company is going to do a lot of the marketing, collections, billing, HR and all of that. It's a good model if you want that owner to focus on the management of the business, production, patients and those kinds of things. It can work.
If people have more questions for you about partnerships, how would they get in touch with you?
Go to Econologics.com and you can download a ton of information that we have. Transitioning is something you have to think about all the time like the transition of your business. The moment that you start your business, you should be thinking about your transition. There are different time frames. We're going to create a checklist that's like, "If you're going to exit out in one year, these are the things you should be looking at. Three years, this is what you should be looking at. Five years, these are all the things you should be looking at." That way, you know you're on the right track to get an exit that is going to create maximum value for you and your household, which is what everyone is shooting for.
Hopefully, people take advantage of that because I'm pretty certain that most owners are thinking, "I want to exit out in 3 to 5 years." They assume it's going to happen and don't need to know that they need to prepare for it. That's why you're making a checklist.
From experience, it's not good to have no plan and you want to transition out in 90 days. That's bad. You're not likely to get the value that you want for the business. There are a lot of people though that end up saying, "I'm done with it. I want to get out." They ended up selling for some discount of what they possibly could make. It's not anywhere near what the practice could be worth. That's sad. I hate to see that but it happens more often than not.
Most of the time, it's putting some organizations. Put your policy procedures together and that can dramatically increase the value.
I don't think people realize how much that can increase the value of your business because it is the point of expansion right there. You can't build a business on chaos. You have to have something. It doesn't take much time. There are thousands of resources and materials out there. I can't express the return on investment with hiring a good consultant because I've seen it. I've seen people that have hired consultants and your profit margins increased by 2%, 3%, 4%, 5%. It's the value of your business because it's based upon a multiple of the profit that increases it by hundreds of thousands, if not millions of dollars.
That’s a good plug for me. I appreciate that.
I did that on purpose.
Thanks for your time. I appreciate it.
It's good to see you.
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 industries and helped guide them into a more optimum financial condition using a proven system.
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I've got a friend from my network by the name of Bill Knight. Bill is the Co-owner, Cofounder of HealthQuest Physical Therapy in Michigan. They have over twenty clinics out there. He's been successful. They do things right. I wanted to pick his brain. I don't have a path to go down on this podcast because we cover a number of topics. I simply wanted to pick Bill's brain on his experience and what he does successfully at his clinics to continue to grow and expand because I believe they were planning on opening up a few more clinics. The projections are great for their company overall. In general, I wanted to see what they've done right, what they've found to be successful and allow them to continue to grow.
I've had a few discussions with other physical therapists, as they're looking to expand and grow and open other locations, those owners that I've talked to not only on the podcast but outside of the podcast, have been successful with expansion when they've brought on partners in those other clinics. If you're looking to expand and open up another location, consider what you can do to make that person, that clinic director, a partner and have a vested interest in their success. I'm seeing that pattern both from my own experience and the guys that I talked to. That partnership is a way to go if you're looking to expand but even outside of that, Bill has a ton of stuff that he can share. Thanks for joining me, Bill.
Nathan, I appreciate the opportunity to get on here to speak to you and to other professionals alike regarding my experience and what has allowed me to move into a situation where I can not only help others in this incredible profession both patients and other employees alike. Also, to take the profession and optimize the opportunities for my family as well.
You've got a ton of experience. I don't have a particular path to go down. I know there are certain things about the business that I want to know and talk to you about. Before we get into that, do you mind sharing with everybody about your story, where you can from as a business owner and whatnot?
I have been a therapist for years. The first ten years of my career, I've worked in private practice for another practice owner who, at the time, was planning to bring the key staff members onboard as partners. I and my co-founding partner, Stuart Siegner, were two of those employees. At an all-staff meeting instead of discussing that any further, he told us that he had sold the company out from underneath us. We had put a good amount of our early professional career into that and planning that to be our future. When that happened, Stuart and I decided to go ahead out on our own and venture into this private practice thing and take that risk.
That was how long ago?
That was years ago. We started in 1998. At the time when we discussed that, we had also come to a mutual agreement that if we had the opportunity to help others, we would help others along their journey to ownership as well and not do what was done to us. Our model has gradually developed from that perspective and from that view.
It's been a rosy scenario ever since?
Our first clinic did exceptionally well. I knew a ton of orthopedic surgeons in the area. At that time, nobody was doing their own PT in doctors' offices, so we had more business than we could ever have wanted. We didn't understand how to run a business. We didn't understand anything about marketing. We were overflowing with patients. We opened two additional clinics at that point to handle the expansion. The bottom starts to fall out when all the groups of orthopedic surgeons in this area started opening their own practice, which then caused our model to crash. We were essentially in a state of panic and not knowing what to do. How do we save what we had created, which now at this point, created a new lifestyle for us?
It forced us to look at what we were doing and to come to the realization that we don't know anything about business at all. We were trained to be physical therapists, to be clinicians and we were great at that. That's why we had the business we had. Other than the people who are already loyal to us, we were getting far less from a referral source than ever before. When things were coming in, we did not know how to economize, hunker down and make it through that tough times. What we did was we looked at do we want to take the time to go back to school and get MBAs to figure out how to run a business or do we want to look at something more specific? We found a group within the profession that trains exclusively physical therapists and the whole business model side of running a practice. We started that in 2003. We were a little slow initially implementing the things that were recommended. Once we did, things started to take off.If you are developing a practice, you need to understand and own how much you don't know. Click To Tweet
I remember from talking to you in the past, you got to a point while you're at three clinics and with all the changes that came on, did you have to scale back the number of clinics that you had at the time?
We never scaled the clinics back. We were close to closing one of the three. We were able to work through that. We were able to implement a lot of the strategies that we learned. What happened and what would happen with any profession is things are heading in the other direction and things started to turn around for us.
If I remember correctly, your specific numbers were such that you'd gotten down to a hundred and something visits a week?
At one point, our busiest clinic, we were seeing about 350 visits a week. The other two clinics were around 200. We were seeing about 750 visits. When it got to the point where it was bad, we got to one week where we were at 158 visits between three clinics. At that point, we were panic-stricken. That's what drove us in the direction we did. Things turned around pretty rapidly when we started to learn and implement some of the strategies again that we had learned through the training.
What would you say was one of the most important things that helped turn you around? Was there one particular action or thing that you did that you can look back on and say, "When we started doing this, things started to improve?"
The number one thing was putting the focus on active marketing, developing and understanding what marketing is, and all the different areas and elements of marketing that are there. Implementing that, understanding that people aren't going to come to you that you have to develop relationships. You have to network with physician groups and with the community at large. That was a big thing that helped to drive business to us, to understand that we needed to know what was going on. That concept of tracking everything, statistically analyzing things and then planning accordingly on what steps need to be taken to improve.
Prior to the decline, you weren't tracking statistics as closely as you started doing after the fact?
We were not tracking much anything before the decline started. We were seeing patients as much as we could. We tracked a few things but not that much. I had a person who worked with us early on that had some accounting backgrounds which helped. She helped us a bit from that perspective. Relative to understanding all the things that you need to track to know what's going on, we weren't doing a whole lot of that early on.
As you started implementing that program to track statistics so you could act accordingly to help those statistics improve and that helped out a lot.
When you put a statistic on and track anything and put the focus on it, if you're taking ownership of it, it's going to improve. We identified what objectively needs to be tracked on each position in the organization and started to do those things. As we did that, people started having a clearer picture of what they needed to do, what should be occurring. Lo and behold, things started to turn around for us.Don't let go of the fact that you're a strong clinician. Click To Tweet
I want to come back to your program on what you do to ensure productivity amongst your staff in regards to the marketing that you did at the time. A lot of effort back in those 2000s could be spent focusing on physicians and physician networks. What we're seeing in the APTA statistics is the number of physician referrals has declined significantly over the past few years, some 50% or something like that. Have your marketing efforts changed in the last few years whether it's social media or direct to consumer?
It's changed. We still market our physician groups very aggressively. We have three full-time physician marketers. A physician still accounts for about 34% of our total referral source. We learn the difference between internal and external marketing. We've put a focus on internal marketing and got the employees to understand, to buy into the fact that it's everybody's responsibility to market and to draw business into the clinic.
You say 34% is physician referrals. Have you been able to track how many repeat clients?
The other big thing is we track the two together as far as repeat patients, previous patients as we call them, and referrals from family and friends from those patients. That accounts for the greatest number. That's probably still about 42% of the business that we have and that stays strong. The remainder of that is outside community marketing and efforts through the school systems. As time has gone on, our marketing program has matured and become much more sophisticated. We brought on a social media expert that has handled and taken care of all of the social media marketing that occurs basically taking over our web page, our website and do tremendous things with that. We worked with the staff on doing videos and encouraging them to get out into the community and market and promote. That's been huge for us. She's done a fantastic job.
Have you been able to track your ROI on someone like that, your social media expense and web page work and stuff like that? Have you been able to track what your ROI is on that?
We have not isolated exclusively to that. We're doing more and more of that. I don't have a number to say this is exactly what our return on investment for that is. I can tell you that it is significant. Our growth continues to increase year after year. We started developing strategic plans. Initially what happens is you develop a strategic plan. You're not sure what that is. You develop it. It doesn't become anything. We're to the point now where we develop it and we go back to it on a quarterly basis. The strategic plan has been a huge aspect of the entire plan. Focusing on that, understanding where we're at in regard to that and addressing accordingly, I can tell you that all of the partners' expectations on the social media site have been exceeded from what we've received on that. I can't give you a number, but I can definitely tell you it's an important aspect of your marketing program. If people aren't doing it, they’ve got to get on the ball with that.
Who's involved in your strategic planning out of curiosity?
The way our business model is set up, so we have a management company, which is the core of the umbrella. That management company has majority ownership shares in each one of the clinics that we have. We have partners that are part of the umbrella company, the management company. Those partners also act as consultants. The consultants or one of the partners will meet with the director owner at each of the clinics and together will develop a strategic plan for that clinic. We also have a strategic plan for our umbrella company that's put together by the owners and our VPs within the organization.
You've been so successful. How many clinics do you have now?
Legal entities, currently we have twenty. Within those entities, we have outside what we call satellite facilities. If you take the satellite facilities into account, we have 24-ish. Things are going well from that perspective. It's a model we've put together that when you get the structure, the processes, and the systems in place, it makes it so much easier to duplicate that process over and over.People nowadays are so much more knowledgeable than they ever were. Click To Tweet
What would you tell someone who's starting off as a clinic owner, maybe they're in their first year of ownership? What advice would you give them in this environment about developing a practice in getting started off? Any words of advice?
We are all trained as a physical therapist to be clinicians. We take great pride in being good clinicians. Most people who are ready to go out into private practice they understand at this point that they're pretty good. They've pretty much mastered this whole clinical treatment side of the game. They have a strong affinity to that. They are drawn to that and want to continue to do that. If you are developing a practice, you need to understand and own how much you don't know. Learn as much as you can and then get the infrastructure in place. The sooner you get the good infrastructure in place, the quicker your business is going to expand and grow to the point where it's stable. Your life is going to get back to some form of balance. What I've seen in a lot of practice owners, and I know what I did for so long, was that 60 to 80-hour work week was a regular drag in every week after week after week. You're in a mode of coping with what you're doing. Oftentimes, it’s very disheveled. When you get a structure in place and systems and processes in place that goes away. That's what I would stress with somebody is don't let go of the fact that you're a strong clinician. Don't lean on that as your strength and not do all the things you need to do to get the foundation in place for your business to take off.
You need to become a business owner at that point. Not necessarily a master clinician, but if you want some stability in what you're providing and what you're doing. You feel confident in the service that you're providing to patients that you need to take ownership as the owner and as the leader. Get some business acumen in place. What would you tell those same owners that might have a ton of competition around? Whether it's a hospital-based network coming in, what would you tell maybe even yourself back in the day when you had all that competition come?
It's what we talk to our junior partners and people who are coming on to partner with us on a regular basis is you're not in competition with everybody else. It doesn't matter how many people are in the area and how competitive that area is. If you have the infrastructure in place and you're doing the things you need to do, your business is going to grow. That's the great thing about this profession. We are scratching the surface on the number of people who take advantage of this profession and moving forward that's going to grow more and more and more. I know early on people worry so much about somebody opened up across the street or down the street, "What am I going to do?" the hospital system. They're so suppressive with their physicians and not allowing physicians to refer out. You need to have a plan. You need to understand that plan, be consistent with that plan, and continue to work it. If you do that, everything is going to fall into place for you.
One of the benefits that I see from people who are starting out in ownership is that there's a capability of moving off of something that's not working out. When you have a clinic or two and a number of physical therapists, changing the direction of that bigger ship can be difficult. When you're small, you can be a little bit more flexible. You can accommodate the needs of the community a little bit better. You can make changes to the policy and procedures, take feedback and immediately implement them and stuff like that. There's an advantage there when you're young that allows you to make changes on the fly almost.
You make a great point there. You need to have the time to be able to analyze and look at what programs that you've developed and you've got implemented. If they're working, continue to work them. If they're not, don't be afraid to make changes. I'll give you an example. Years ago, things were grooving well for us. I looked at and idealistically thought I want this organization to be part of the solution to the epidemic that's occurring in this country with obesity and the lack of movement that's progressively worsening. Those are the biggest timebombs as I see them. We focused and put a lot of money and attention into these programs not to say that it's not something that's not important. The reality over time was that while it's good, it's a great distraction to where you need to be. It wasn't paying the dividends for us from that perspective. We were a little bit slower than we needed to be to pull the plug on those programs. Having done that, you get refocused on what you need to be and you grow and build on the cash cow that's gotten you where you are. From a business perspective, that's the one thing I would recommend to everybody is stay flexible and don't be afraid to make changes if you're not seeing the outcomes that you're looking for. To see those outcomes, you’ve got to be tracking. You've got to understand what's occurring.
The important thing about your story is that you followed that. This feeling you had a little bit of a passion to do something good. You have the capability of doing it. You implemented it, but you also recognized that at some point, it wasn't fulfilling its purpose or might have taken your eyes off of the catch down and what's keeping you alive. Pulling the plug on it was an equally courageous move.
What we've done on top of that is starting to look at people in the communities where we're at, they're doing a great job with that already and partnering with them to assist back and forth. What that's created is a flexible partnership where there are referrals back and forth, which has helped our business in the long run on the PT side. We're helping not only the people we’re referring to but the people who are being referred to experts that have developed a program. From that perspective partnering with other people and networking as we have talked about is a good idea.
The cool thing about that is you've found people who are the experts in that. You guys were trying to become some of that, but it distracted you from where your core business was. Now you're able to partner with experts and support them in what they're doing. I don't want to be judgmental, but they're probably doing it better than you were or at least you like to focus on that.
What you run into is not only the networking with that particular group that does a better job producing a better product than we were able to. The collateral networking that occurs within those groups is significant because instead of now doing this all ourselves, the collateral networking to all the businesses that they're working with has expanded and allowed us to expand with them. To become a viable force against the physicians and against the hospitals within the communities. We are well-known and well-ingrained into the community. That networking model has paid off.Understand that you're taking a risk now so that the outcome can be multiplied significantly later on. Click To Tweet
Impressive how your goal to make that part of your clinic eventually became a goal for you to support the experts in it and have now that's paid off in networking and referrals. It's most definitely a bigger having a greater influence on the community. I want to go back a little bit to the productivity of your company because to get as big as you are, and people need to be productive. I know you shared with me in the past a little bit about your productivity expectations out of physical therapists. Could you share with me a little bit about the program that you use to ensure and have an agreement with your physical therapists as to their productivity?
There's a two-part response to that. From a marketing perspective on the model that we use, we essentially look for therapists who are more entrepreneurially driven that understand what that requires. We have transparent communication with them on all levels such that they understand your performance could dictate opportunity in the future to have your own clinic and to partner with us. That in itself has been a significant recruiting tool for us. The other side of the picture is what does full transparency, communication and expectation mean? It allows us to identify those people that are not afraid of performance and helps to weed people out. We have this program called The Fair Exchange Program. When we bring a physical therapist or a PT on, we explain to them their entire cost to the organization which will be their salary, payroll taxes, benefits, vacation, personal time coverage, professional development, and educational development costs.
What we do then is we look at that and expect to get 3.8 times that number in production or in visits. We have a formula that we use for that. If they get more benefits if their cost on that overall package rises a bit. They have to work a little bit harder to see their minimum required the number to have a fair exchange. Once the fair exchange is met, let's say your weekly number is 60 visits that you need to see to get a fair exchange. If you're averaging 65 visits a week, your five visits per week above what you needed to be. At the end of each quarter, we look at how many visits above the number that you need to see are you. We pay them 25% of the total dollars of that are brought in on those visits. It's not a bonus system. We call it a flexible pay program. They have a guaranteed base salary. They have a flexible pay program where they can earn more money based on their productivity.
They'll have a smaller salary but based on their productivity, that other portion of their "salary" could vary depending on the productivity.
We're competitive in our area on how we pay people based on a starting salary when people come in. The difference between what we do and what a lot of companies do where companies give regular raises that have nothing to do with productivity. That increased income that they earn is truly earned income. What it does is it weeds out those people who don't want to work hard. They don't understand that the private practice entrepreneurial model. It also identifies those people who can thrive in this environment. Those are the best people to partner with because they understand and know what it takes to develop a practice that's going to thrive and represent the brand of, in this case, HealthQuest the way we want it to be represented.
You found that sets you apart as one of the employers in the area. Do you find that that physical therapist now gravitates towards you? Is it like a recruiting tool?
It's a definite recruiting tool because now what happens is we hire people on and people from one class talk to the next class and they talk to their friends. We're blessed in this area to have three universities that have PT programs so we do not ever have a shortage of students between PTA and PT programs. We have multiple students that run through the organization. They learn about the organization. They go back and talk to their classmates about it. It's become a destination location both for the clinical internships but also for people who are interested in private practice. They now understand this is an opportunity. It's much easier to recruit and to hire.
I'd assume your retention is probably better as well because you're getting those people who are a little bit more motivated and understand the model already.
It's funny you bring that up. I try to look at research and a lot of different areas. There were some studies that came out years ago that indicated that if you can find a way to maintain interest and attention in an employee. You can get him to stand with you for three years. There's an 80% chance that employee will still be with you after ten years. The question is what do you need to do to maintain their interest that first three years so they've dissolved that habitual pattern working with you? What we did was we started to look at different things and we developed a professional development program within the organization. The professional program is a three-year program. Once they have several the courses they need to take and they go through a lot of different specific learning and many internships within the organization. When they finish, they receive a $5,000 bonus. They're motivated. They're going to learn and develop as a clinician with the $5,000 tag at the end that will benefit them. We benefit knowing that if we can get them to stay on for three years, they're much more likely to stay with us. Do we get people who jump ship and move around as everybody does? Yes, we get some of that but I don't think we get nearly as much as a lot of people do.
That program is not only professional development in terms of continuing education, but it's also leadership development?
There are two tracks to it. The initial track is clinical. In the clinical development program has several different markers that they need to hit. Within our organization, we have a lot of very experienced, well-trained clinicians, some that do continuing education courses on their own. They teach ongoing continuing education and they do weekend continuing training where people can come in and practice developing their skills. We have that side of the program. Once they finish that aspect of it, they move on to more of the business side, the executive training that goes along with that program. It helps some people who aren't sure if they want to be an entrepreneur. It helps them identify, "Am I interested in this or am I not?" It also helps us identify people who are going to be big players and people we want to partner with moving forward.
I want to make sure we shared an experience that you have that you shared with me. I thought I want to share your experience with the audience here because you were having some issues at the front desk and you wanted to get a handle on it with your front desk personnel. You did one thing, in particular, using a secret shopper. I wanted to get to your story on that.
Early on, we had focused so much of our attention constantly on what was occurring clinically, what was happening in the clinical area. It somewhat ignored the most important aspect of your business and that's that first impression where people are being greeted, met, and drawing their first impression. We started to look more and more into this from some communication I've had with other practice owners, etc. I started to look and I came up with the idea of identifying how good are our front desk people at greeting people at the front door, answering phones, and identifying potential patients. How are they at capturing that?
Everybody who is in practice and every facility has people that call in. They're calling in with curiosity, shopping, thinking and searing. There are so many of those people who get called in. Those are what we call missed opportunities. Every time somebody escapes with getting signed up. I always thought that our practice was pretty good at this. I thought we do a pretty good job teaching people their requirements, what they need to do. I had a company that I was talking to that offered to play a shopper for us. She called while myself and two of my partners sat and listened to the phone call. We ended up calling eight different clinics. The results clinic after clinic were simply abysmal and every call occurred and the worse it got, the more anxious I developed. I found myself walking around. I was having a difficult time listening to it.
It reached the pinnacle when one of the clinics was called and the actual partner owner, who was the director at the clinic answered that phone and how he answered the phone and how he handled that phone call was disappointing and shocking, let's say. We realized at that point we have a bigger problem at the front desk than we ever believed and knew that we need to do something about fixing this moving forward. I would recommend that everybody take a real good look at what's occurring at your front desk. How much are you respecting what they're doing at that front desk and who they are and how trained are they. Statistically, are you tracking what they're doing at the front? Are you being brutally honest in not letting people get reasonable with you? Are you providing the training necessary as needed?
The biggest question is what are your training procedures like? Are they trained or did you hand them the keys after sitting with them for a couple of days?
Initially what we have been doing in the past is we have a central administrative building where everybody essentially handles all the HR, the billing, and the finance. People would come here. They would do all their paperwork in their onboarding. We do a small orientation training process. We'd send them out to the clinics and expect the clinics to train them where they're running short staffed. That's what they were put out were these people who are insufficiently trained. The first thing we did was develop a task force of other front office managers from all the clinics and we started to identify all the different areas where work needs to be done. From there, we developed a certified training program. Everybody has to go through the training and they have to get certified, which means they have to pass written exams and practical exams. They have to be able to perform in front of us to show that they understand how to do that. We have several different areas where we do different things.
The last thing that we did at the front desk that's made a huge difference for us was recognized the number of people that call in or come in that is simply shopping. The fact that their front desk is expected to do a lot to essentially hook those people and get them in so that they're a patient. They're a big part of the sales process and we never recognize that and did anything to assist them. We've developed a program that essentially says, "You hook and bring people on, you'll get a significant incentive." We pay the incentive out quarterly, but it's pretty significant. The front desk staff all understand and know when someone's calling, they're looking for shoppers and those people that they can flip because they know each time they flip, there's another additional $50 or $100 that goes to their bonus that gets paid out quarterly. It's been a big difference.
I like the terms that you use because number one you're calling these patients shoppers and they are. If they've gotten to the point where they're calling you, they've already looked at your webpage more than likely. They might have looked on social media. They looked on Yelp, the Google reviews and at the comments. They're calling you and they're not just asking when you're open.
People nowadays are so much more knowledgeable than they ever were and that is because they explore a lot more. Everybody is looking for Google reviews, testimonials. Everybody is looking at do you have a sophisticated, well-developed, informative and creative so that it's an interesting website. If you don't have those two things, you're going to miss out on a good chunk of people because they're a good move on to the next one they find. That's phase one. Phase two on getting them is when they contact you, they're now asking informed questions. They know a lot more about physical therapy than ever before. You need a front desk staff member that is trained and can answer those questions, sound intelligent and interested in caring that can draw them in.
That might be the most important part. Are they interested in caring because if these people are calling and saying, "What times are you guys open and how many therapists do you have on staff and do you guys treat this malady?" If they simply answer those questions and hang up then that's a failed opportunity. They need to be interested in caring and say, "Tell me about what's going on. This is our experience and this is what we provide here." That gets into the salesman part of it. That's training that many clinicians bypass when they are considering their front office staff.
If you're a great clinician and you're thinking you want to go into private practice, it's everything at this point is second nature. Back then it wasn't. It was overwhelming. There was so much to know and understand. What you need to do is have some plan to understand how do I start to get the infrastructure in place? I highly recommend that you understand the value of that front desk especially early on because every call could potentially be a patient and you need to see it as such. You have someone that you have confidence that they're going to draw those people in for you. That's where it all starts.
Thanks for letting me pick your brain, Bill. You've got a ton of experience and you're successful. Things that you've done have turned into gold.
The last thing I would say is we've made tremendous mistakes along the way. We've wasted a lot of money. The heart of what an entrepreneur is somebody who's willing to take risks and understands that you're taking a risk now so that the outcome can be multiplied significantly later on. Understand that moving forward so don't be afraid to make mistakes and to lose a little bit here or there because you're going to learn on the way. Later on down the line, the more mistakes you make early on, the better things are going to be for you later on. Develop that infrastructure and that plan and then take the jump. It's well worth it.
You could definitely consider it tuition. You didn't get an MBA. You might as well invest in some of the programs that you need to whether it's a consultant or your infrastructure or the training that you do and consider that your tuition.
There's no question that comes back so much greater than you will ever expect. I know it did for us.
Thanks for your time, Bill. I appreciate it.
Nathan, no problem. I appreciate you giving me the opportunity to share with everybody.
If anybody wanted to check out HealthQuest Physical Therapy, what's your website? How do they get in touch?
They can go to HQPT.com and check out our website. If they have any questions, feel free to contact us.
I grew up in an active, health-conscious family environment and I have spent my adult life passionately believing, living and attempting to exemplify the value of healthy lifestyle choices. It is my belief that optimal quality of life is found thru conscious choices that nurture our physical, emotional, and spiritual self.
Shortly after high school, I was introduced to the profession of Physical Therapy and quickly realized this was how I wanted to leave my mark …assisting others. I practiced honing my craft for ten years and then with the help and support of my family and founding partner, I came to see the opportunity to assist others beyond those that I could personally care for. HealthQuest started from this realization and continues to grow and evolve today. It started and continues with personalized hands-on care based on cutting-edge, evidence-based science and continues thru education, support and ongoing personal reactions with everyone we are privileged to assist. Along the way, we have built an elite team that shares in this passion and philosophy of caregiving.
I am grateful for the opportunities I have been given, to develop and lead this organization and assist in its expansion as it seeks to touch and influence even more individuals along the way. Thank you for taking the time to learn more about us and myself personally. It is my hope and belief that the passion that this company was founded on, continues today and will always be as we expand into the future.