At the beginning of the year, it is common for PT owners to have a dip in revenue due to various factors. From the holidays, vacations, and deductibles in play to the winter weather, illnesses, etc. Thus, Econologics’ Eric Miller’s presentation on How to Resolve Cash Flow Issues is a timely one but appropriate for any time an owner has cash flow issues. In this episode, Nathan shares the recording of Eric’s presentation to The PT Millionaires Mastermind. He breaks down the ten steps to go through to resolve cash restrictions and open the floodgates. Overcome cash flow crunch and start the year right! Don’t miss out on this conversation!
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Cash Flow Crunch? How To Improve Cash Flow With Eric Miller Of Econologics And The PT Millionaires Mastermind
In this episode, we are doing a little deviation from what we normally do with the show. I do have a frequent flyer guest, our favorite financial advisor, Eric Miller on with us from Econologics. Eric, thanks for joining us.
It’s my pleasure.
For those who are reading, it’s not just Eric who is on the episode but it’s also my mastermind group, the Physical Therapy Millionaires Mastermind, which includes six PT owners from across the country. We have invited Eric to be part of the mastermind and present on the topic, which is how to get through a cashflow crunch, which is an issue for PT owners, especially at the beginning of the year, when deductibles come into play, and there’s a reset from patients after the holidays where things tend to slow down. If that gets prolonged, that could be an issue but it is timely for anyone who’s in a cashflow crunch. It could happen any time of the year.
He’s joining us and is going to present to the mastermind. He might ask questions of the individuals of the group, and they could ask questions of him. If you hear other voices, know that this is a presentation that’s happening amongst the mastermind for January 2022. Thanks for joining us, Eric. Thank you for having him on.
It’s a topic that I know that we don’t like to have to talk about very much because when you are in a cashflow crunch, that usually means that bad things are happening. I have worked with all types of practice owners in all different stages of their financial journey. I have yet to meet anyone that did not have to deal with a cashflow crunch at some point in time.
For most of you, the reality is that the business is the main generator of income for your households. Most of you don’t always want to be in that financial condition but the reality when you are getting your practice and trying to build it is the main generator of income. If it has a cashflow crunch, that has a direct impact on your household.
When I started to see that as an advisor because that’s where a lot of my client’s money is coming from, I’m like, “What are some actions that you can take that will allow you to get over whatever the cashflow crunch is?” I did a lot of study and observation and looked to see what other people had done. I came up with a list of things you can do to salvage your business when you are in a cashflow crunch.
What I will do is go through some of the items. There is a sequence to them in terms of the action steps that one would take when you are confronted with a cashflow crunch. Defining cashflow crunch is when money is going out than what is coming in. You can define a cashflow crunch that way. I also wanted to make sure that I associated what role you are playing when you utilize these actions. If you heard me talk, a lot of what we talk about is that you have three roles in your business. You have your owner, executive and practitioner role.
I wanted to try to align what these actions were with what role you are playing when you are trying to correct them. I had a conversation with somebody in the chiropractic industry, and he was having an issue with cashflow. The first thing that I tell everyone is that when you are having a cashflow crunch, the most important, vital, and necessary thing that you have to do is that you have to go back in and re-establish the purpose, the vision, and the mission of the organization with everyone. There are external factors of why your business cashflow can be interrupted but 99.9% of it is an inside job of why you are where are you at. You can blame the external factors but more likely than not, it’s an inside job of why it is in the condition that it said.One of the worst things you can do is not communicate with your staff about money. Click To Tweet
It sounds like you are speaking a little bit from experience. You have seen it too many times. Do you mind going into that a little bit? Maybe either examples or situations that you think it’s an inside job.
As we go through this, what you will see is that an emergency never just happens. When an emergency occurs, it happens fast like a catastrophe that happens fast but nothing breaks down over a short-term period. It’s because there were a lot of outpoints that were being created that you let fester and led to the emergency.
You can utilize this for a marriage or for whatever it would be. You don’t get divorced overnight. There were a lot of things that were not handled or confronted prior to the emergency. When an emergency or catastrophe happens, it happens super fast, and it’s hard. I say that because there are a lot of things that you could have done that you did not that were leading up to what happened because of the cashflow crunch.
One of the members of our group shared that he decided in early December 2021 that they were not going to have a slow period in January 2022. He had been in business long enough to know that there was a slow period because of multiple factors at the beginning of January. The idea was to decide that there wasn’t going to be a slow period and get that expression through the organization to lead out on that.
From there, he decides, “These are the things that we are going to do, such that it is not a slow period. We are going to talk to our patients before the holidays about continuing their plan of care, so they continue to get better and how not coming in for a week or two because of holidays, or the beginning of the year is going to disrupt their progress. Also, make calls to past patients so that they come in at the beginning of 2022, instead of waiting and putting that in front of the line.” He had a list of 7 or 8 things that made it, so they were not slow at the beginning of 2022. That goes to what you are talking about.
It’s just the disagreement because we can all come up with 1,000 different reasons for why things are happening but it doesn’t solve the problem. You need to have some level of disagreement. I hear this all the time, “It’s that time of the season. This is traditionally a slow period.” I’m sure there’s validity to it but you have to be like, “What can we do proactively so that the effects of that are not as hard or as impactful as they usually are?” I’m not saying that there are no external factors because if the government shuts you down, what are you going to do? That’s an external factor. I’m saying that 99.9% of the time, it’s because of inside factors that are causing the cashflow crunch.
In this situation, you re-established purpose, vision, mission. These are team meetings and conversations that you have with your team. Do you let them know that there’s a cashflow issue?
One of the worst things that you can do is not communicate with your staff about money. A lot of people don’t like to do that. You’ve got to remember that an organization will try to spend every dollar that it makes and then some but it will also make what it thinks it needs to make to survive. When you, as the owner, say this to the organization, “We need to make this amount if we are going to keep our jobs, continue to help people, and want to bonus out.” You’ve got to get the buy-in from everyone that this is what the target is.
When you start having a cashflow crunch, that is an indicator that the organization is starting to die. Not to the point where it’s going to close down but the production is lower. It’s starting to go in that direction. You have to imbue life back into that organization. It may sound corny but you have to get the purpose back in the organization of why you are there in the first place.
Everybody has to buy into that belief that we are here to relieve people from pain or discomfort. Whatever your purpose of the organization, makes sure it’s memorialized and get people reinvigorated. They are not just money motivated. There are other things that motivate people. Getting people reinvigorated and what the purpose of the organization is, is the most important thing that you can do to start with.
People buy based on emotion, not just material things. They buy your purpose, vision, and mission-aligned through emotion.
This also will help you identify the people that are not, which as we go down the list, you will find one of the reasons why you are in a cashflow crunch in the first place because you have somebody in there that is working against you. The second one would be making sure that you are operating on the right targets. To your point, most people are way underestimating how much the organization needs to bring in to maintain solvency. Solvency isn’t meeting your expenses. It’s having more, which means that you have to include your profits, reserves, taxes and expansion. That has to be part and parcel of what the organization thinks it needs to make.
That’s why I’m saying the whole organization should know like, “This is our make break number.” They don’t have to know all the expenses but they should know what the make break number is. Internally, you know that you factored in your buffers into that equation. The necessity is on making that make break number, and it has to be correct. Otherwise, if it’s not, then I will go back to the two golden rules of income and expenses. The business will try to spend everything that it makes, and then some.
I had an experience with a veteran physical therapist on my team. We were in the slow season in Arizona, and new patient numbers had gone quite low. I was with her in the back room at lunch, and I said, “We are going to have so many new patients and visits this week.” She looked at me with deer in the headlights look. She had no clue or perspective of what those numbers meant whatsoever. I immediately thought, “That’s my fault.” They don’t know what’s good, bad, what we need to hit and the expectations are to simply break even or cover themselves and the expenses. They had no clue. That’s the fault of the owner at that point.
It’s okay to communicate. You are not going to give them every single nuance of your expenses but that number is important for everyone to know. Going on that basic data that I say about the organization spending more than everything that it makes but it will make exactly what it thinks to make. I have seen too many examples of that in small and big organizations, governments or whatever organization you want to pick. That seems to be a natural law of finance amongst people that occurs.
Your promotional activities should not decrease. We saw a lot of this, especially when the pandemic hit. The first thing that they were cutting was their promotional activities. Making your good works known is promotional activities, and the last thing you want to do is decrease those promotional activities at that point in time. That’s an area that a lot of people will cut but that’s the thing that you have to increase because you have a problem with not having enough patients in the door and seeing new patients. It’s a counterintuitive thing that the first thing you want to cut is your marketing and promotion in which it’s the last thing that you should do.
David was a good example of this. He shared with me how he’s increasing his marketing budget here the first month of the year.
The next one has a lot to do again with money and speed. Money loves speed. When you are facing insolvency or a cashflow crunch, what do most coaches do when the team is not performing as it should? They round them up and say, “Let’s get back to basics.” What is it that ideally, our organization needs to do for us to meet our make break number? They say, “I need to get everyone back to doing their jobs but I have to make sure they do it with a lot more intention and speed.”
Take time out of the equation, wherever you can. That’s a mantra that you will hear in this office all the time. You know what I am talking about in terms of time, patients getting scheduled and called back, programs getting implemented, and billing and collections, aggressively getting money in. Wherever you can take time out of the equation, that will increase the speed, production, and income by doing that.An organization will try to spend every dollar it makes and then some, but it will also make what it thinks it needs to survive. Click To Tweet
Collecting money at the time of visit, for many owners, can be difficult, especially during these deductible periods where the patient might have a $2,000 deductible, and they don’t collect part of that deductible at each visit. A trap that we fell into is we wait until the EOB comes back and bill the patient for that deductible amount instead of collecting a portion at each visit that would go towards their deductible. That’s the speed that we are talking about. Let’s not wait 4 to 6 weeks to go back and build a patient that collecting is rather difficult. Let’s get it at the time of service.
Get people to do their jobs. That’s going to be your executive and owner function, “I need people to go back and do their jobs.” You will find out where people have a disagreement or someone you may have to confront and get rid of. The next one doesn’t apply too much to the PT industry as far as promoting highly profitable and easily executable services. To the point here, it would be what are those income sources in your business that you can deliver quickly, have good profit margins, get paid for some cash services that you have, and cash-based services that you are trying to deliver.
Do those things that are highly profitable and easily executed, especially when you are in a cashflow crunch because now, you are trying to get money in as fast as you can. What is that? It’s going to be good profit margin services and those that you can deliver quickly so that you can get the money in for that, whatever that would be in your practice.
Do you find many physical therapists that you work with that have massage therapists on staff that can sell massage therapy packages during a cashflow crunch or promote that little bit more?
This goes to looking at your facility, and you have so many square footages in that facility, “How do I maximize the production out of that facility? What are the income sources that I have available to deliver in this facility? If I’ve got a 5,000 square foot facility, I could see so many patient visits but we can use this space for massage therapy or this space for dry needling.” Whatever services you could, try to maximize the efficiency and the capacity of that space. That should be the game.
Everyone should be able to name it like, “If my facility were operating at optimum capacity, I had a maximum number of patients and staff, we were busting out the doors, my reimbursements were getting paid on time, and I had some cash-based businesses. What could my facility do in revenue?” That’s going to be the maximum amount of value that the practice will provide you and your household. Not just in enterprise value but in cashflow to the household as well.
There are a number of reasons why you would want to make sure that you get to that number. It’s one that we try to do with everybody, making sure they understand what that number is. I have said this a million times, and maybe some of you have heard this, and some of you have not. I will make a bet with everyone what your biggest expense is, especially in the PT world where you are looking at 55% or higher of staff wages being the norm of your biggest expense.
Most of you think that’s your biggest expense but it’s not. Your biggest expense is money that you should have made but you didn’t. That has a lot to do with the size of your facility, and are you getting the most out of it that you possibly could? If you have a facility that can do $250,000 a month, and you are doing $150,000 a month, that’s $100,000 of lost income that you never get back.
You are in a cashflow crunch. You have to inspect your cashflow lines. Money is an energy, and there are things that can obstruct the flow of money coming into your organization. You have to inspect your income lines. I have had people that started to see their numbers go down and didn’t do anything about it. They waited 2, 3, 4 months. I’m like, “No.” When you start seeing that number go down, you attack that immediately and find out why it is that this is occurring.
A lot of the time, you are going to find that you may have the wrong people on your collections’ lines. You need someone that has a bulldog mentality when it comes to getting money into that organization, not afraid to say no, ask for money, and offend because it’s important. The most important part of your organization is being solvent. Everyone is going to have their issues but when you start having people on your collection lines that are always having problems and personal problems, we are sympathetic to hard-luck cases, or they don’t have a disdain for money. You better not have those people on your finance lines. They will kill you.
People that have a hard time asking for a copay can’t work. PT owners don’t know what they need to assess when it comes to the billing and collections reports. If they don’t know or if they haven’t had experience with it, and they are not sitting down with their biller on a monthly basis, 1) They don’t know what they are looking at when they are given reports. 2) They don’t know if those reports are good or bad. They don’t have perspective. 3) They don’t know how to hold the billers accountable. That makes it difficult for them to assess those cashflow lines.
You would need to have some percentages or some basic metrics of what you should be looking for. This all comes back to the ideal scene and what that looks like. How do you know if the wheels are off the bus if you don’t know what it looks like when the wheels are on the bus?
That’s why you need to talk to your coach. If you don’t have one, talk to me or Will Humphreys. They will do a free audit for you.
I can’t stress that enough in terms of people with a lot of personal problems, you cannot have them on your finance lines. Everyone is going to have personal problems every now and then but they have to keep that off because sometimes these people become a repellent of money. I see the characteristics of those people. They repel money coming into the organization.
I have said this before. This is going to lead into number eight, which is amazing what happens. I can’t tell you how many times I have seen this. Two miracles of business are the day that somebody shows up for help, where that first day when you’ve got your first patient, and you are like, “This may work.” The next miracle of business is the moment that you get rid of a toxic individual in your organization. I have never seen revenue increase more than when they spotted the negative source. It’s usually just one person in the organization.
It’s amazing what happens when you root out that toxicity of the organization. If it happens once, it’s okay but if it’s a perpetual thing and it’s something that’s continuing, you’ve got to look and find out the person in the organization that’s trying to do this to you because it is a who and it is usually one person. It’s amazing what happens when you root that out of the organization. This is your owner hat because you are responsible for the morale and the culture of the organization. If you can’t confront them and get rid of them, I don’t care how important you think they are to the organization. It’s going to keep a cap on what you can do.
One of our owners in our group experienced this last 2021. Mike, do you want to share quickly what happened?
I kept someone on for a long time for good reasons. It was a compassion thing. In 2021, things happened where we were able to give an opportunity to go out, and then we have increased our revenue significantly in the company. We probably doubled our revenue by putting key players in place and bolstering those that are willing to work well. It was a hard move that I didn’t want to make. I made some choices to get that to correct and it was pretty significant.
You didn’t say you went up 5% or 10%. You said you doubled your revenue. That’s crazy. You can see the importance of that. An organization is made up of people, and unfortunately, there’s going to be 2.5% of people out there that don’t want anything good to happen to anybody. As you expand your organization to 5, 10, 20 to 30 people, you are going to have to realize that the law of large numbers is going to affect your organization at some point. You are going to bring in one of these people. It’s finding out who they are, getting rid of them, and doing it fast. When you let them linger, you can tell the weight of the organization and what it does, and it’s not a good thing.Money loves speed when you're facing insolvency or a cash flow crunch. Click To Tweet
Everybody has that story. We had that in 2021 in our organization. We had to get rid of two people because we found out there was some underlying toxicity. I had not been doing well before that. I have experience with this, too. We do the same thing. It’s like, “Why am I not feeling good? My morale is not high.” We had to inspect and find out where it was, and you can see what happens. The one thing that will give rise to your cashflow faster than anything else is rooting out that person and going from there.
The next one is, increased prices. I wish you could increase your prices like all my other practice owners. Unfortunately, you can’t do that. This is where you have to have additional services. To your point, Nate, you have to add additional profit services or income sources because inflation is increasing your wages every single year but not your profits.
Some of us are getting a little bit of extra cashflow from dry needling services or laser and musculoskeletal ultrasound.
The last thing is to cut expenses. There are nine steps that you do before you even start thinking about cutting expenses. I did that because this is the last area to examine. It’s very rare that I find practice owners overspending on certain things. You can look and see where some needless expenses would be. From our viewpoint, marketing, consulting, and anybody that’s trying to push you forward, hold you accountable, and going to expand the organization, I would never cut that as an expense. That would be the last thing that I would look at as far as cutting expenses is concerned because it’s faster to make money than to try to go through line item by line item on everything you have and try to cut that expense.
The knee-jerk is to cut expenses, and that doesn’t get you very far. I love that you said, “Have you checked the previous nine steps?” Not until you are clear that you have done all nine steps prior to this point should you look at your expense line.
One step is not going to solve all of your problems. I have seen too many people that have implemented some or part of these that have allowed them to remedy their situation pretty quickly. Don’t ignore the cashflow crunch. If you start seeing that your collections are going down, don’t just hope and pray they are going to go up. You’ve got to attack that immediately and figure out why that’s occurring. That’s the biggest issue that I see a lot of practice owners do. They may go months without attacking that, and all of the sudden, it’s like, “What’s going on now?”
One of the questions from our group is, where would you borrow money from? What are good sources of funds when it comes to a cashflow crunch? The best source of funds is to have a reserve account. That would be ideal but when you are looking past that, where would you look?
Having a two-month reserve fund would be optimal. A business line of credit, if you had one of those but you are not going to get a business line of credit if you are in a cashflow crunch. There are a lot of these things you have to prepare for prior to that. If I have a practice on the Northeast, it’s quite likely that there’s going to be a snowstorm that’s going to shut down my business for 1 or 2 weeks. I don’t know when it’s going to happen but it’s likely going to happen.
I’ve always got surprised when I’ve got a phone call from someone that had a practice in Boston or something like that, and they were like, “We were shut down due to snowstorm. I don’t know where I’m going to get the money from.” Didn’t you know that it snowed in Boston during the wintertime? It’s something that you want to plan for.
Having business credit lines are always going to be good. In our system, we do put a premium on making sure that clients continue to put money into assets or investments that you can access that there are liquidity features there, whether you can borrow from the asset or get a credit line against the asset. I’m all for having cash and assets but I also want to make sure that you have plenty of credit lines attached to those assets in case you do need to tap into them. It’s a phone call away to be able to get access to it.
You are referencing certain life insurance policies that can also be lines of credit as well.
It’s the brokerage accounts where you can get a security backline of credit against the brokerage account. You can tap into a lot of different things. The key is making sure that you have access to all these things. If you have a home, have a home equity line of credit if it’s accessible. Same with your building, if you’ve got a building and equity in there, get a line of credit against it.
The banks will be more than happy to lend to you when the financial seas are calm but the moment that you demonstrate that you are in a cashflow crunch, they are like, “We are not going to talk to you.” This is where the planning preparation comes in. Quite likely, when you do all this planning, have open credit pools, and all these things, when a cashflow crunch does come, it’s not as impactful on you. It doesn’t impact your household, morale, and emotional wellbeing when that happens.
Some owners might have 1 clinic out of 2, 3, 4 or 5 clinics that are not financially doing as well as the others. I’m assuming you recommend that each clinic has its standalone financials.
It all depends on your transition plan like what you are planning to do from a transition standpoint. There is a concept of trying to compartmentalize all the clinics so that they are standalone to that degree from asset protection and financial point of view. In that way, you can look and see, “Am I subsidizing this practice? Am I willing to do that, and how long am I willing to do that for?”
The point is it’s important for owners, even if they are not separated by the veil of limited liability corporation but at least financially their books are separate, so you can see that sometimes the overall organization is doing well but one singular clinic might not be doing as well financially. It’s important to recognize simple cashflow issues in those singular clinics outside of the other 3 or 4.
You should understand how to read a profit and loss statement, and a balance sheet. We will do something about that, making sure that everyone understands how to read those things.
Any other questions from the group or even comments that you want to share with Eric? Mike, you put something in there.
I find it interesting that your list is pretty all-inclusive, not just for times of cashflow crunch. Generally, it seems like these are good business practices that we should pretty regularly stay on top of, regardless of our financial situations. That would trend us better to having more cash regularly.The next miracle of business is the moment you get rid of a toxic individual in the organization. Click To Tweet
That’s 100% correct. It’s the basics. The reason that the cashflow crunch occurred is that the basic actions went out. When you get these basics back in, it allows the organization to be more stable. You are going to have your ups and downs. The point is you don’t want to have those downs that are super significant. Make sure that you are putting these things into play so that you can correct these quickly.
Are there any other best practices that you didn’t have on the list? You mentioned reviewing your profit and loss statement on a monthly basis. Are there other keys you would put into this list if it wasn’t so much cashflow crunch but a good practice act?
The frequency of talking with your financial team needs to happen a lot more frequently than what it does, especially if you are growing quickly. I’m sure we have all had that moment where we’ve got a call on April 15th or 14th from our accountant. It was like, “You are going to owe a lot more in taxes than what you thought you did,” because there wasn’t much communication up to that point that you were growing.
They are pretty reactive in their approach. They want your reports from the previous twelve months. You’ve got to be super proactive as a business owner, knowing that, “I’m growing. I should make sure that we are setting aside the proper amount for my tax estimates and that there’s some planning that’s involved prior to that, so I can address any non-optimal tax liability that I may have.”
I need to think about that. I can probably come up with a list of another twenty things as well. There were some other things that we had talked about in the past like some characteristics that you have to be that people are uncomfortable being. I had mentioned that you have to be a bulldog on collections. That mentality is important. You have to be able to understand all the lines in the organization, so you can spot where the resistance is coming from in the organization.
I had mentioned that a real skill that you need to develop is that you know the lines of your organization when someone is marketed or referred to, they come into the organization, sit down, go to the front desk, to a treatment room, get cared for, come out and pay. It sounds so simple. Why does it get messed up in so many different places?
Your ability to be able to know exactly what the ideal scene would look like for every post and division of the organization is the key, so you can spot where the wheels are coming off. That’s something that we can all do a little bit better. That’s having the time to wear your owner and executive hat, and not just being a practitioner the whole time.
That was something that came up, I was asking owners about their clinical statistics and he gave me the statistics, then I asked, “What about the individual provider statistics?” He had not gone that deep with the stats. Sometimes, even if the clinical statistics look fairly good, average or a little bit above average and there are 2 or 3 providers underneath it, when you dive down into the individual provider’s statistics, 2 out of the 3 are working well. The 3rd one is being average or below average and needs to be addressed.
If the message was to the whole clinic that we want to improve our statistics or, “You are doing well,” then those 2 out of the 3 are saying, “We are busting our butt,” typically they know that the 3rd one is not producing as well. Whereas it’s more effective if you can isolate that one provider and talk to them specifically about their down stats.
There is a question about how good is a CPA in avoiding a cashflow crunch. What would you recommend setting aside for a good CPA that is a tax strategist on a monthly basis? It all depends on what your income is but by stats alone that most of you are paying $20,000 to $40,000 in taxes is more than what you probably should. Whatever the amount that you would pay to someone to recoup that amount would be worth the investment.
If you have to pay him a couple of thousand dollars to save $20,000, that’s a good investment.
It’s a reality. The higher your income is, the more additional tax strategies that you are now eligible for that a lot of people don’t present to you as you get into that $300,000 to $400,000, to $500,000 income range. You become eligible for some cool things.
Thanks for your time, Eric, especially joining the mastermind group. If people want to get in touch with you, how do they do that?
They can go to Econologics.com, or you can email me at Eric@Econologics.com and get my information there. A lot of these things we have are in download form. If you go to our website, I will have the cashflow crunch checklist there, and we have twelve other checklists that were built for practice owners, your experience, and all the things that you go through from beginning to end and exit planning checklists. That would be some other things that you could download that would give you some best practices.
The exit strategies or exit checklist where you asked for things that were good business strategies is good. It is huge.
There are lots of good things on there about what to do to get your practice into a more ready or a better condition so that it’s as valuable as possible when you decide to transition out.
Overall it makes it a better value practice even if you want to exit. Thanks for your time, Eric. I appreciate it.
Take it easy.
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 since 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.