Eric Miller of Econologics is back on the show with Nathan Shields to talk about money. His episode, released a couple months ago, is the most listened-to episode in the two-year history of the podcast, discussing what PT owners needed to do financially as they slowed down during the Covid-19 pandemic. Now, as clinics begin ramping up, he’s back to discuss what owners need to do to re-establish their financial foundation and set themselves up to weather any future downturns. He lists five accounts each owner should establish and the mindset needed to establish wealth. It’s simple yet takes consistent effort and intention.
Listen to the podcast here:
Re-Establishing Your Financial Foundation: Ramping Up After Covid-19 With Eric Miller
I’ve got a returning guest, one of my favorites, Eric Miller of Econologics. Eric, thanks for coming on again.
It’s always a pleasure and a privilege. It’s good to see and fear the beard now.
Also, be jealous of your tan. You are doing well down in Florida enjoying the sun. It’s great to have you back here, our favorite financial planner. I love going to you for advice. In your episode, we talked about financial management through COVID-19 is by far one of my most read blogs. You shared some great wealth of knowledge, but we’re in a different space. People are still hurt. They’re not running at peak efficiencies. There’s somewhere in the 40%, 60%, 70% productivity range. Private practice owners are gradually getting back into play. Some might even still be shut down, but we want to talk about what we can do to reset financially. I’ve talked in past episodes about resetting business-wise, our goals, purpose, marketing strategies, how we see our businesses and getting back into them the way we want to build them back up again.
Let’s talk financially about ramping back up and reestablishing some fundamental aspects to our financial foundation in our business. That will do a lot of us good as we start looking forward. I know you’re going to talk about this, but to summarize, we’re going to talk about PPP loans, how to use some of that money and how to eventually be in a better position to withstand these issues going forward. Let’s start with some of the PPP stuff, to begin with, unless there’s something you want to get off your chest right away.
The whole idea is that we have to get the attitude that we’re all going to try to get into financial beast mode. Let’s forget we’re trying to get by. Let’s have the idea that we can get in financial beast mode, which is a term that we’re starting to use a lot more. Let’s up the game a little bit. Let’s up the intensity of what needs to be done to get our financial house in order.
It does so much for you to be financially sound, provide so much freedom, and puts you in a position of power that you otherwise don’t have. When you can establish the foundation financially, be profitable, and force that profit from your business. There’s so much power to come from that.
You can relax to that degree and when you’re relaxed about your money, it’s amazing to watch what happens. The best opportunities that I see that come to practice owners is when they’re relaxed about their financial condition. That’s when they seem to get the best opportunities that come to them.
It seems like those opportunities find them. You don’t have to go far, they’d put the word out here or there like, “I want to invest in something.” They get resources, they do some due diligence and suddenly, you’re making money on top of money.
Good things happen to you.
Tell the owners what they should be thinking about with the PPP. A lot of them got funding, probably the majority of them. How should they see that money? What should they expect?The best owners are very patient with investing money but impatient with the money coming in. Click To Tweet
As you said, a lot of practice owners are around 60% to 65% back to seeing the patient that they were at. A lot of them have gotten this influx of money that is sitting in their checking accounts. The first thing is that when you get a lot of money, you have to pay attention to making sure that it doesn’t get spent on the things that it shouldn’t be there for. The purpose of the money is for whatever the stipulations were as part of the CARES Act and you should use it for that. At the same time, you’re still seeing patients, you’re still collecting money and I would be aggressive on my collections line. I would be making sure that when I’m bringing people back, especially in that area, we’re collecting money and pushing production back up to the numbers that we need to get to.
You’re saying don’t be compassionate when it comes to copays and deductibles. We need to draw a hard line.
Let’s not be complacent. Let’s try to break all these bad habits that we had with money in the past. You got to be aggressive on your collections. The best owners that we both seen are impatient with production and not seeing a lot of money come in. They’re patient with investing money and being diligent with investing money, but you want to be impatient on money coming in. I would spend a lot of time making sure I was collecting money and then I would make sure that you are controlling that money and you’re stacking Benjamins at this point because I don’t know what’s going to happen in the future. We could get another wave of uncertainty. I don’t think the people are going to tolerate another shutdown, but people are still nervous and scared and they may not show up. I would have a lot more in liquidity than what people have told you that you need in the past. For me, it’s important that you have that liquidity. I would stack as much money as I possibly can.
If they didn’t have it before, people recognize the importance of having a line of credit available to them at any given time. Would you recommend that having a line of credit open and available to you?
I’m always going to recommend that you have lines of credit open for everyone. I would even look at it a little differently. There are five important accounts that every practice owner should have going forward. The level of financial unpreparedness is evident. A lot of practices couldn’t survive for more than one month without making any money. That was an economic reality for many practices. There’s an engineering term called having a factor of safety. If you’re going to cross a bridge and it says, “This bridge can only hold 5,000 pounds,” the engineers didn’t build it so that if the car weighs 5,001, then the whole thing is going to come crashing down. They build that factor of safety. As an owner, you’ve got to have that same mindset when it comes to running your household finances or your business finances. You have to have buffers in place. For us, I’m trying to tell a lot of practice owners, “You’ve got to control money differently than what you did in the past.” There are five different accounts that I would set up and make sure that they’re part of what my make or break number would be for my business.
Do you literally have five separate accounts?
Yes. I can dive deep into that and quickly explain each one of them. The first one, we call our wealth storage account. That’s where the first 10% of your practice revenue transfers from the business to a personal wealth-building plan so that you can create other income streams for your household. That is what we call your owner pay. That is the reward that you get for the risk that you took in putting that business there having to deal with all the employee issues, the debt payments, and the compliance aspect of it. That’s your owner pay so we call that the wealth storage account. That would be account number one.
Ten percent gross revenues off to the side down.
Right off the top, like you didn’t make it.
I told you before if I had done that from the beginning, my financial situation would be significantly better.
It would be good. If you can at least get that one in, you’re going to win the game. The second one would be a business protection and liability fund. What’s the purpose of this? We all realized that we did not have enough in business reserves to pay our expenses for more than a month. I would start siphoning off money into that account. That’s for the purpose of creating about three months of business reserves.
When you say business reserves, would you get that number from your CPA of your fixed expenses only?
You can make it like payroll, rent, utilities and those kinds of things.
A skeleton crew with grants and that kind of stuff. It’s not your entire gross expenses. It may scale back a little bit, but multiply that by three.
It may not include all your profits and everything like that, but it would certainly be a number so that the organization can function for at least three months. Not only that, but that money would be there if you ever got sued for some reason. That would be to settle a lawsuit for legal fees. Anything that has to do with the protection of the business. We all realize that big corporations have these kinds of accounts. If they get attacked, they have resources to defend themselves.
Most of our professional liability plans cover us for $1 million to $3 million, depending on our plan but the out of pocket expenses usually somewhere around $10,000. You’ve got to make sure you have that.
It’s like weather-related. Sometimes, you have a snow day and you can’t see patients. You still got to pay the bills. It’s an important fund to have for the protection of the business. The third one was simple. It’s a tax account. In any business, most of the businesses that we see are S Corp, partnerships, or LLC’s taxes S Corp. The profits flow through to the owners. You’re liable for the tax on the profits of the business personally. It would make sense to work with your CPA, get some a projection of what you think your estimates are going to be, and make sure money is being siphoned in that account. Nobody likes to get a call from their accountant that says, “You owe $50,000.” You’re like, “I don’t know where I’m going to pay the money from.”
I’ve been there a couple of times. I had to learn the hard way. A couple of times, I had to get hit over the head. It’s April and my CPA was in a great mood. He was like, “You had an awesome year last year. You made a ton of money. You did great. Do you think you’re going to do the same next year?” I’m like, “Yes, I’m going to kill it.” He’s like, “Make sure you put a check in the mail for $80,000 for the IRS because it’s April 14th.” I’m like, “What?” I had to figure that out quickly. Setting money aside is important too.
You want to set money aside for that. At the same time when you start making a lot of money, you’re going to want to invest or utilize that money to create tax structures where you can minimize your overall tax liability. You need money to do that. They set up structures so that they can utilize them to offset their taxes.
When you say other structures, you’re talking about other LLCs that cover your family, toys and cars?Practice owners are overachievers. If you don't have a target, you are doing yourself a disservice. Click To Tweet
Yes, or other advanced tax structures like conservation easements or captive insurance companies, things that you can create, but you need money to do that. That can help offset. You can either pay that or the IRS, you choose. I’d rather do that one right there. The fourth account is simply going to be a business expansion account. How I try to look at this is there’s this idea that you have to use debt to expand. You can use debt to expand, but I don’t think it’s always necessary to have to use it. In business, you should be able to have enough profit where you can reinvest some of the profits to use for expansion, either buying more equipment, buying satellite practice or putting 20% down on a new building or something like that. The idea that I always have to use debt to expand, I don’t think is necessarily true. I would have some business expansion funds that you use to facilitate the growth and expansion of your business.
Especially as physical therapists, when we expand like that, that usually entails hiring on a physical therapist which is going to require some upfront salary before you get a return on that investment. Whether it’s a new PT that you’ve got to bring on or tenant improvements that you need to do the space to build a bigger building. They want the cash upfront for that and the bank is going to ask you to put some cash down in these situations, have some available and ready for you. That way, the opportunities before you with so much cash and reserves specifically for business development make it that much easier.
Let’s say that you did borrow a bunch of money to expand a bunch of practices and all of a sudden, they shut down the economy. You then have no money coming in and you have all this debt service to pay. It’s another reason why I have a mindset that I don’t necessarily need to always borrow to expand. It doesn’t mean that you don’t borrow money because borrowing money for expansion or cashflow producing assets is warranted but not necessarily all the time, especially for a PT practice. The last account, my favorite account, and I came up with this, so this is mine. It’s called a celebration account. A lot of practice owners wildly don’t celebrate their victories as much as they should. It’s a grind sometimes and you need to celebrate to get off that mental charge that accumulates with that grind. I have people siphoned out. It doesn’t have to be much, it can be $1,000 a month or something like that. It’s like, “If you hit the goal, I got this $10,000, $12,000, $20,000 and I’m going to blow and have a celebration of some kind.” It’s important to have something like that as well.
Life is all about the experiences. If you want more cool experiences that you can generate, how rich is your life? The cool thing I like about all of these is I’ve done this to a certain extent myself. It makes it so easy if you have automatic transfers. I have my tax account and I know how much my taxes should be at the end of the year whether it’s property taxes or personal taxes, we can estimate and whatnot. I have an automatic draw from the business account into that account. Same thing with my Business Protection Liability. I siphoned off a little bit of money so I never have to think about it. You set it up one time and it siphons money off every month. The money was never there, to begin with. It’s not like you’re writing a check and grimacing at the same time.
A lot of practices have an opportunity to set these accounts up. You want to set it up automatically and systematically doing this. What it does is it puts an expense on the business and that expense needs to be covered by demand of income. That’s why it works. That’s the only reason why it works because the business now gets accustomed to it as an expense style. I would start small and then build up over time in doing that but if you can get most of these accounts in as expenses, then you are never going to have to worry about turbulent financial times because everything is covered. That’s how it should be. That should be normal. It shouldn’t be, “I have to borrow $150,000 or $200,000 from the government to save my bacon.” I don’t think anybody wants to get in the habit of doing that because it makes people not be responsible necessarily for their money condition if there’s no way you can lose.
Let’s take this as an opportunity as the lesson learned. Hopefully, for most of the people out there that are reading, they weren’t completely devastated. They have an opportunity as they’re building back up that they can establish these different accounts and set up for their future. The Wealth Storage Concept that I had Christopher Music on, one of my first episodes in 2018. By the way, we had our anniversary here, the first part of June 2020 with a contest. He mentioned 10% off the top and that blew my mind crazy. Since I’ve read about it with Mike Michalowicz in Profit First, and he has a great way of laying it out and whatnot. Even if it’s not 10%, to begin with, how easy would it be to start with 1% or 2% of your gross revenues, siphoned off and then increase by a single percentage point every month or two until you get the time? You can either rip off the Band-Aid and go straight to 10%, or you could gradually build up if that’s going to be a little bit hard for you.
I wouldn’t encourage that. I would start with like you said, a flat dollar amount and then automatically program it up over a 10 to 12-month period until you get up to your 10%. It gets the business accustomed to that as an actual expense. That’s the best way that I’ve seen it done but it works either way. All of a sudden, you’ve got a couple hundred thousand dollars sitting in your wealth storage account, your business accounts are looking healthy and you feel like you’re in control of your money.
It puts you in a position of power because the last thing you want to be is in the same situation that you were, especially if you got negatively affected by the pandemic. You don’t want to be in that position with so much going on around us, so much unrest and many questions about the future.
Not me, not at all. Think about how people are feeling now. You almost felt like a dartboard like everything was happening to you. Unfortunately, a lot of that has to do with how the system is set up and a lot of business owners feel that way. They’re under a monetary system where your money is not worth anywhere near it was years ago because of inflation and they’re putting more money now. You’re under a political system where you’re like, “I have no idea who to trust. I don’t believe either party. I don’t believe anything that they’re saying.” We were under a tax system that’s completely ambiguous and hard to understand. You’re under a healthcare system.
I don’t have to tell PTs about the healthcare system. You’re under a legal system where the rights of you as an owner are underneath the rates of employees or anybody that would want to target you for your money. You’re under an investment system where you put all of your money in the stock market. We’ll hope and pray that everything will turn out even though I don’t have much control over that. I can understand why practice owners are spinning around sometimes but there is a way to fight back. The first thing is that you have to take the viewpoint that I can do something about each of those and then get a plan together on how you’re going to fight back because what’s the alternative?
It’s not hard. That’s the thing. There are not a lot of mental gymnastics going on here. You have to open up a few bank accounts and spend an hour or two setting up transfers. Over time, there’s a lot of comfort in knowing that everything is managed financially.
All of those things I mentioned can be done in such a short period of time. The actions that you would need to create in order to change your financial trajectory. People think it’s going to be this long and arduous process and it’s going to be like, “I’m going to have to change my lifestyle and all that.” You do a little bit but at the end of the day, isn’t it worth it to pay the price for the next 2 to 5 years to have the rest of your life where you never have to worry about money again? To me, that’s worth whatever uncomfort you’d have to do in the short-term to put in the systems in place so that your household and your business can flourish over the course of the next 30 to 40 years. Don’t be shortsighted about things. Don’t fall in the trap of, “I always have to have the nicest car or the most expensive house.” You can do all those things but you have to follow good financial habits and pay a little price in the beginning.
I want to touch on quickly that came to me. It was something that an exercise that we went through in your three-day Financial Freedom Summit that you have done. It was simply an exercise that you took. The group of us, but it was me and my wife, sitting down and determining what our monthly revenue goal was as a household. I wonder if that’s appropriate for people to consider because you did a previous webinar about readjusting your 2020 goals for your clinic. It’s a good time to consider our financial goals for our household. If you haven’t gone through the exercise before, figure out what is that monthly goal that you have in revenue that comes from your clinics to your home? We set a number that is that’s high for us. At that time, we’re like, “I don’t know if that could happen.” That’s our number. It’s not just meeting our expenses, it was double of what we assumed our expenses would be. It was crazy which would make us living high on the hog if we can get to that but it’s getting close.
I’m telling you, if you don’t have a target, you are doing yourself a disservice. Practice owners are overachievers. They love to achieve targets. This is the problem I have when people are working with financial advisors. I asked them, I was like, “Did they give you an actual income target for your household? How much money do you need to make? That doesn’t consist of what’s going to cover to pay your ‘expenses.’ That would include you putting money away into investments to create other income streams that would include your taxes and the other goals that you have. How much do you need to make to live the life that you want to live?” It is unlimited. Once you get that number and you see it, it’s not a confusion. It’s a certainty point. All you have to do is say, “I thought it was $200,000 a year, but it turns out that I need to make $400,000 a year. How am I going to do this?”
The good news is you have a business. How much would I need to get this business up to where I could earn $400,000 a year for my household? You operate on that target. By doing that, it’s amazing what happens. Year-after-year, client after client, when I give them targets, I look back and I show them like, “Remember when we gave you that target?” I look back, “How much have you made?” They’re like, “I didn’t think about that.” I’m not taking credit for it but it’s part of giving the observation of things and giving someone some reality that, “This is what you need to do.” It increases your necessity level, financial awareness, and demand for money. That’s the secret sauce there because all I do is show people how to channel it, control it and hopefully expand it but it’s your job to go out and make it.
It’s a cool exercise. The coaching clients that I have, I’ll say, “What are your financial goals with regards to the clinic?” “I want to pull $200,000 a year from that clinic.” I’ll say, “What does that mean? What profit margins are you running at? How many visits does that entail? Are you working full-time or part-time or not at all?” That stumps them. They want to get to the number. Working backward and figuring out it’s not a number, it’s an ideal scene that you want to get to. Let’s get clear about that. Once we have some clarity about that and what your part is in that ideal scene, let’s work back into the numbers and see where the gap is between where you are now and what you want to be at because you’ll then recognize that, “I’m only seeing eight new patients a week. I need to bump that up to twenty.” “What are your marketing efforts going to take to get from eight new patients a week to twenty new patients a week?” That starts giving you some action items but if you have some clarity about that number, there’s something magical about putting that intention out in the universe.
You hit it right on the head that the clearer you are precisely what you need or what you want your scene to look like, the better you can compare it to where you are now and you can see what the outpoints are. For a lot of people, the gap isn’t that much. It doesn’t take a lot to bridge that gap but you need a plan. You need someone to hold you accountable to making sure that you’re hitting those numbers as well. That’s an important part.
That’s huge whether it’s a financial planner. Honestly, a lot of the financial planners that I have had in the past aren’t good at communicating in those aspects. Finding the right financial planner and a coach that can walk you through that thing is important. They make you verbalize and hold you accountable like you’re talking about. That’s a huge part of the process. Another success story. One of my first guests was Sean Miller. He sold his practices at the same time we did, but five years earlier, he said he had a number in mind that was like, “I want to get to this number as far as wealth. I want many thousands or millions,” whatever that number was for him. Five years later, he hit it and there’s something to it. We’re talking about action steps and that stuff but sometimes it’s simply the intention is out there, you visualize it, you have that number and you keep that number in your head.
It’s a decision that you make. You look at the derivation of the word decision. It means to cut off. When you make a decision that you made, you cut off anything else that would prevent you from reaching whatever that is. There’s some power behind that. I can’t explain a lot of things but you can observe the phenomenon and know that it’s true because you observe it.
Once you make that decision or things, that tend to fall in place.It's important that you get a plan, get some direction, and be very precise on what you're trying to achieve. Click To Tweet
As long as there’s a good purpose there. Another thing too, you keep your ethics in good shape and that to me is a secret for success because if you’re doing the right things, there seems to be a reward for that. People that are doing immoral, destructive actions, there is a penalty to pay on that one. That’s a whole other webinar.
I did another episode with Mike Bills. It was simply not so much that he was doing anything immoral, but he put more emphasis on improving himself. As he did that, as he focused on himself making his time sacred and holding other people accountable around him, his business tripled in about eighteen months.
It can happen so fast.
It can happen quickly. There’s some power to maintain your ethics and don’t sleep until 10:00 AM. You’re not going to get to your number by that, but to maintain your ethics, hold that number fast and steady. As you said, the clinic owners we’re overachievers, we’ll get there. We’ll find a way.
We always do. I love it.
Thanks for coming on. Any parting shots? Anything coming up with the Econologics that you want to share?
I would say to your readers, we’re offering 15 to 30-minute free consultation. If they want to contact us, then they can certainly meet with one of our specialists and we’ll cover any questions that they have from a financial aspect. I would not wait. I would not pause and contemplate what I’m going to do with my money. Now, it’s important that you get a plan, get some direction and be very precise on exactly what it is that you’re trying to achieve because the dangers of not doing something like that are too great. There is going to be a different financial scene in this country in the next years.
The people that know how to produce, manage their money, control their money, invest it correctly and stay out of debt, all those things that we show people how to do are going to be rewarded for that. The people that are saying everything is going to go back to normal, I’ll do the things that I did in the past. You’re going to get punished at some point in time because it goes against natural law. My call to action is to get on a plan, get with someone that can hold you accountable for your actions and you can reach out to us. I’ll give you a link or something like that, that they can schedule a 15 to 30-minute time with us to talk.
Go ahead and share that with us. What is that? How can we get in touch with you?
You can always go to EconologicsFinancialAdvisors.com and reach out to us that way. We’ve got a YouTube Channel as well, Econologics Financial Advisors. That will be a couple of ways you can get ahold of us.
You have some great webinars coming out every so often. The next one is Seven Tax Saving Strategies and stuff like that.
We’re going to talk about taxes. I do want to mention that too because a lot of people that have gotten all this money from the PPP loan that they’re hoping to get forgiven and it may, but at the same time, you’re also building up all this cash from the money that you’re not spending now. You’ve got to be a little cognizant of how much you’re going to have to pay in taxes. I would tune into that. We’ll give you four fairly simple, powerful strategies that nobody is using. I’m going to give you two advanced tax strategies that can minimize your taxes by $20,000 to $50,000. It’s worth tuning into that and then we’re going to talk a little self-storage and real estate investments. We’re going to put out a lot of good webinars.
Hopefully, people stay in touch and stay in tune with what you’re putting out because you’ve got some great content.
Thanks for coming on.
- Episode – previous episode
- Profit First
- Sean Miller – previous episode
- Mike Bills – previous episode
About Eric Miller
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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