The Financial Success Guide for Physical Therapists
How do you make sure your physical therapy clinic business plan can work?
As a physical therapist in private practice for yourself, you’ve worked hard to build a solid reputation, a solid clientele and a solid practice. As you know, there are only so many hours each day. So how can you build and manage a practice and work hard to build a solid financial future as well? How do you make sure your physical therapy clinic business plan can work?
Unfortunately, if you’re not careful, all your hard work can still result in more loss than profit, more financial drain than gain; that’s why we’ve put together this article. This article is an overview of the basic tools and procedures that a private practice professional would use to maximize his or her economic well-being and quality of life.
This summary is distilled from decades of research and experience in the area of personal economics and finance and gives the reader a direct solution for handling any area of financial duress or improving one’s general financial condition.
You work hard to build a practice you can be proud of; however, taking care of your personal finances as well can become a full-time job! It doesn’t have to be-this guide can help!
In Part 1, we discuss what we call the “barriers to prosperity.” In order to get an understanding of how to achieve financial prosperity, success, and abundance as a private practice owner, we first must understand and delineate exactly what we’re up against in our modern economy.
Part 2 focuses on the engine to your wealth: your clinic. Since it is (or should be) the largest and riskiest asset you own, it is imperative that you not only maximize the gross income of your physical therapy practice but also the gross profit. There are 8 major areas that determine the gross income and profit in a physical therapy clinic and we’ll cover those in detail.
Part 3 is called “Your Household is a Business” for one very good reason: it is! In much the same way you learn to gain greater control over your practice finances in chapter 2, you will learn to do the same for your household financial situation in this chapter.
Part 1 – The Barriers to Prosperity
The Barriers to Prosperity
Before starting any journey, it’s important to make sure the route you’re ready to travel is free of obstacles, debris, potholes, roadblocks and other assorted barriers to your progress.
Likewise, before we undertake this journey to create a more financially responsible, ultimately more successful you, it is important to identify the barriers to prosperity that, like potholes, promise to give you a bumpy ride if you don’t; a) spot them early on, and b) take great pains to avoid them as they approach.
To say that we are working harder and making less these days is, perhaps, the understatement of the year. Often we tend to blame this on some blanket excuse like “the economy,” but it is more than just one central barrier impeding our success. In fact, there are several factors that are working against us every day, whether we’re actually aware of them or not.
So while the economy may be a prohibiting factor, so are other “barriers to your prosperity” like bad advice, taxes and even lack of education to name a few. Over the years we have identified, analyzed and catalogued nine common barriers, each of which we cover comprehensively in this chapter.
Much as potholes on a road trip mess with our shocks or detours send us off track, the nine barriers actively prevent us from achieving the success and abundance we seek for taking the risks associated with being private practice owners.
There is a continual flow of economic factors that will carry one downstream and over the waterfall unless one swims against the current. If you want to get upstream, then you are going to have to know something about the river and you’re going to have to know how to swim.
Let’s clarify exactly what’s briskly taking us downstream:
The 1st Barrier to Prosperity:
Lack of Education
It might sound like an insult, at first, to suggest that “lack of education” is a potential problem for you. After all, as a physical therapist you have been very well educated in your field of study and the different aspects of patient treatment. You are able to provide quality services as a result of the high level of technical training you’ve received during your career. You rightfully expect to be able to have a successful physical therapy clinic based on the quality of the work that you do. But, as you’ve no doubt experienced, delivering quality patient treatment is only part of the equation.
If you’re going into private practice there is another function that you have to know in addition to your field of expertise – how to run a small business. The problem is most of us were never taught how to run a business- not in our clinical studies, certainly not in our medical studies and, oftentimes, not even in our business studies (if we’ve even followed that course track). In fact, even if we have minored-or majored-in business we’re often unprepared come graduation day.
What about your education in personal finance over the years? Did you learn about money management in elementary or middle school? High school? College or grad school? No? The subject of personal economics is not taught in any educational curriculum unless you are training to be a financial planner. This is a glaring omission in your understanding of the subject and this translates into the financial condition of your household, whether acceptable or not.
The good news is it’s never too late to learn! Fortunately, education is readily available on how to function and operate as a successful practice owner. Books, courses, seminars, even software is available to help you run your business smoothly. Just as important, however, there is education that exists on the correct tools and techniques to actually build wealth safely.
The 2nd Barrier to Prosperity:
We all want to make the right choices when it comes to the financial decisions that affect our practices, our lives and particularly our bank accounts. In order to do that, we have to rely on certain information and what we believe to be factual in order to make correct decisions. But, who has the correct information? Bloomberg Television? Money Magazine? USA Today?
Or how about a financial advisor, accountant, next door neighbor, or brother-in-law? Unfortunately, there is WAY MORE incorrect information out there about your finances than there is correct information. The problem is that we often cannot distinguish between what is true and what is not.
How can you tell? Here’s the one “true” answer: the results!
What financial condition are you in right now? If you are having good results, then you are likely using correct information. If your results are less than optimum, then the information is incorrect. Believe it or not, that is the simplicity of the matter.
Part 2 – Prosperity in Your Practice
Prosperity in Your Practice- 2 Fundamental Metrics to Measure the Productivity and Profitability of Your Clinic
Is your practice prosperous? It’s a question we should be asking more often. The question is not: is your practice surviving? It’s not a matter of your practice breaking even. If you are only surviving and/or breaking even, you can be doing better. And if you are doing well, you can always do better.
Prosperity is a goal for all, but for many of us it may feel like an unreachable goal. This chapter addresses six simple things you can start measuring to ensure that your practice isn’t just surviving, but prospering.
You can’t manage what you don’t measure. When running a physical therapy office there are certain rules of-thumb, or metrics, one should be using to determine how well the practice is performing.
But before we dig into specific metrics regarding practice performance, we must look at how a practice should be operating if it was affluent and expanding and at the top of its class-the elite practice.
While we can certainly write a whole book answering that one question about practice prosperity, for the sake of simplicity we will look at the major areas that will make you or break you as far as gross income and profit is concerned.
This is commonly a weak area for most practitioners. Most practice owners only get involved with any marketing efforts when the patient visits plummet.
The elite practice:
- Would be visible to its public.
- Would have the staff PTs knowing exactly what to do to increase the patient visits when they are down.
- Enjoys abundant and increasing doctor referrals from a multitude of sources and the practice would not be dependent on any one referral source.
- Has a full-time marketing person implementing proven and workable marketing programs for new patients.
- Has a representative from the clinic visiting no less than three doctors a week.
- Maintains a database of both doctors and patients and regular mailings would be sent to the entire database.
- Would have an increasing internet presence through the use of interactive websites, email marketing programs, social media and patient reviews.
When marketing does work and new patients come in the door, it is not uncommon for current patients to be seen less often and many discharge themselves before the treatment program is complete. Anything that can be done to improve patient compliance will increase income.
The elite practice:
- Would have superlative patient care.
- Has very low cancellations and almost all patients would see their treatment plan through to completion, happily paying deductibles and co-pays.
- Has staff PTs using time to improve their technical skills or promoting the practice when cancellations do occur.
- Is objectively measuring each clinician’s technical performance, holding it to very high standards.
- Has staff PTs billing the appropriate number of units per visit.
- Would not suffer in the quality of treatment if the clinic owner was absent since the workload would be competently handled by all staff PTs as a group. ü Experiences excellent and consistent patient results.
The Top Two Fundamental Metrics
You were never trained in PT school how to run a company or understand the concept of Return on Investment (ROI); these six fundamentals will bridge that gap to make you successful and prosperous.
Now let’s take a look at some of the metrics that will measure our ascent to the elite status of private practices:
Fundamental Number 1:
You Should be Taking Home at Least 30% of Your Gross Income.
The main financial purpose of private practice is to make a profit without the “glass ceiling” of a corporate overseer giving you pre-set limits. You are, in fact, an entrepreneur and should be thinking like one.
Embrace that entrepreneurial spirit!
To gauge your level of prosperity, a well-run PT office should permit the owners to take home about one-third of the gross income on an annual basis. That means if you are generating $600,000 in gross income, then you should ultimately bring home more than $200,000 in salary and profits.
This may seem high. But it’s actually not. Still, the average household is taking home much less than that. Why? The average private practice is not utilizing a proven business management system as well as having a business plan. In the typical scenario, we build and grow our practices and everything seems fine until we suddenly notice a drop-off or leveling in profits. Our expansion hits a wall and rather than doing the standard actions with personnel, marketing, financial management, etc., we look for “tips and tricks” from our peers to help instead of a coordinated system. These “emergency” measures are implemented to make more money until the next “emergency” appears-and on it goes for a lackluster career in private practice.
This haphazard approach ends up costing much more in lost profits than it ever would to pay the consultant fees. If the consultant was a good one, the return on investment would be much more than the cost anyway- and this would be most noticeable in your bottom line.
For example, let’s say you paid a consultant $30,000 for consulting you on proven practice management techniques. Over one year, you experienced an additional $60,000 in gross income. That is a 100% profit in one year to your practice and will repeat itself year after year from now on. There is no other investment that gets those kinds of results. This is the number one reason why practice owners do not reach their potential.
Fundamental Number 2:
You Should Target a 5% Cancellation Rate or Better-This is the Easiest Way to Recover Lost Income.
The greatest area of loss for a PT practice is at the front desk. If you only get paid when the patient keeps the appointment, then tracking and improving the number of kept appointments each week would obviously be the area you’ll want to address first.
Take a look at the amount of patients who cancel. How many are you averaging per week? Take the number of kept appointments and divide it by the number of scheduled appointments and subtract that answer from 1.00-this gives you the weekly cancellation percentage; something you desperately need to monitor if you’re “bleeding money” at the front desk. If this number is high, then you will have trouble being profitable, let alone prosperous.
For example, let’s say that you book 200 patient visits a week and you have a cancellation rate of 15%. That’s 30 visits a week that consumed time (i.e. you couldn’t put any paying patients in those time slots because they were already filled), but did not produce income!
If your reimbursement rate averages $85 a visit, that’s $2,550 per week-or $132,600 per year-in lost revenue! If you could recapture HALF of that loss, then you would generate an extra $66,300 per year into the practice.
The fix? Simple. Start with a program to consistently remind patients of their future appointments. Then hire someone with the know-how who can help you implement a standard program at the front desk to resolve the problem once and for all.
Part 3 – Your Household is a Business
Your Household is a Business
Businesses exist for one primary purpose: to provide a product or service to someone else in exchange for the money it needs to survive. No matter the business, the industry or the niche market you serve, a business is a business is a business. From Microsoft to the Red Cross, from Pier 1 Imports to the Catholic Church, ALL businesses exist to provide a product or service to someone else in exchange for the money it needs to survive.
Just look at your physical therapy business. You provide treatment to patients in your practice in exchange for money and goodwill and you have a whole system set up to efficiently deliver those services in a way that ensures nothing interferes with the money flow. The practice must be profitable to continue to exist and provide service.
Too Few Practitioners Treat Their Home Like a Business
Your household is really no different from your clinic. Think about it: your household has income, expenses, assets and liabilities-just like any other business. It has a tax ID number, otherwise known as your social security number. It has a “staff” (anyone who lives there) that provides products or services (your jobs).
While they may reside in the corner bedroom instead of the corner office, the household “executives”-you, or you and your spouse-ultimately own all of the assets and debts of the household including all or part of the professional practice, the real estate, retirement accounts, bank accounts and everything else.
All of the profits and losses flow up from all of these assets into the household, and every year it provides an accounting of all of its economic activity in the form of an income tax return. The government views your household as a business; you should, too. In fact, the sooner you treat your home like a business, one with the intention to make a profit, the more quickly you will see better results from your financial planning activities.
CFO: Your Name Goes Here
Every business needs a Chief Financial Officer, the CFO. This is the person who is ultimately responsible for the financial condition of the business, whether good, bad or ugly. This must be done by one person, never by committee, because compromised agreement will always be financially disastrous for a company. There’s a reason it’s called “death by committee” (has a committee ever decided anything?).
Your Household is a Business
Instead, every household must have only one person who is ultimately responsible for the economic condition of the family unit. He or she will have the final decision on how the family’s money will be managed and spent, even if most decisions are made jointly. And that person must have an understanding of how finance and economics works, or the group will destroy itself under debt and waste.
Many CFOs have no problem working double-time to understand the finances that surround their business model, and yet act irrationally-even irresponsibly- concerning their household finances. If you are finding yourself lacking in your household CFO duties, bone up; get informed, get educated, read books, take online classes or join local seminars until you are confident you can meet the job requirements!
The Profitable Household is a Happy Household
Now, it’s one thing to run your household like a business but the real question becomes: Are you running your household business profitably? What is the profit margin of the household? In other words, what is the percentage of the income that is not spent on expenses? How much is saved in accounts that can be accessed at a future point in time? 10%? 20%? 30%?
If your practice is operating at a 20% profit margin (let’s say $500,000 gross income with $100,000 net income), then your household should have a profit margin as well (for example, $20,000 saved from $100,000 take home income) at the very least. Ideally, it actually should be much, much higher than that, but we’ll start here.
If it’s not there yet, take steps to get it there. For instance, if you’re only saving $5,000 per year but still making 100 grand, on what are you spending the rest?
Where are you “leaking money,” as they say?
One of the best ways to be a more effective CFO is not only making more money but also finding ways to get more value out of the money you spend.
The House Where Profit Lives
Before determining how wealthy you are, you have to define what “profit” means to you. Yes, we all want to spend less than we make, but while your household has many similarities to your business, there are critical differences.
Take a look at your household finances right now. How would you describe your current financial situation?:
- Are you affluent?
- Middle class?
- Barely breaking even?
- Drowning in debt?
Your Household is a Business
A good perspective is to ask yourself, “Would I run my household the way I currently do if the intent was to make a profit?” And what is the profit? Remember, when it comes to your household, profit isn’t always listed in dollars and cents.
Educated children, a nice home, time to pursue your dreams, comfortable lifestyle, plenty of money set aside as a cushion for life’s uncertainties… these are all profitable returns on your investment.
Parting Words about Your Household; The Parent Company
Our clients are often perplexed when we ask them to treat their home like a business, and their reaction is certainly understandable. For years we have been taught to keep “business” and “personal” separate.
But as our work- and home-lives continue to blend and merge, with more hours spent on the job than at home and, increasingly, many business owners treating the den or spare bedroom as a “home office,” it only makes sense to begin treating the home like a business.
When it comes to your household finances, in particular, of course you’ll agree that treating your home like a business only makes sense; it is the parent company into which all profits from your investments flow. As humans we like to keep things separate; work and play, church and state, household expenses and business expenses. But now more than ever it is vital that you begin to address your household income with the same veracity, rationale and professionalism as you do your business income.
The surest way to offset business gain is by losses at home. The goal is to strive for “balance” in all things, and your household and business finances are no different. Only when your business and home financial spreadsheets “balance” will both be able to flourish.