E716 | Scale Pitfalls To Be Aware Of

In this podcast, Doc Danny delves into the challenges that practice owners face when trying to scale their businesses. He emphasizes the importance of understanding growth cycles and being prepared for the increased workload that comes with expansion. It's crucial for practice owners to communicate with their partners about the challenges they may face during this phase, as it can help provide much-needed support.

Doc Danny also discusses the temporary decrease in profitability that often occurs during the scaling phase due to new overhead costs. He compares this to "building a house before having a family," highlighting the necessity of investing in the business for future growth. The use of debt financing is also emphasized as a strategic tool to preserve cash reserves and support growth without depleting resources.

Lastly, the emotional toll of providing jobs and income for employees is discussed. While it can be stressful, Doc Danny points out the pride and fulfillment that comes from supporting one's team. Overall, navigating the challenges of scaling a practice requires clear communication, financial acumen, and a sense of responsibility towards employees. By being aware of common pitfalls, practice owners can better prepare for and overcome the challenges of growth.

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Podcast Transcript

Hey, real quick, if you were serious about starting or growing your cash based practice, I want to formally invite you to go to Facebook and join our PT entrepreneurs Facebook group. This is a group of over 6, 000 providers all over the country. And it's a pretty amazing place to start to get involved in the conversation.

Hope to see you there soon. Hey, are you a physical therapist looking to leverage your skill set in a way that helps you create time and financial freedom for yourself and your family? If so, you're in the right spot. My name is Danny Matta and over the last 15 years I've done pretty much everything you can in the profession.

I've been a staff PT I've been an active duty military officer physical therapist. I've started my own cash practice. I've sold that cash practice And today my company physical therapy business helped over a thousand clinicians start growing scale their own cash practices So if this sounds like something you want to do listen up because i'm here to help you

Hey, what's going on? Dr. Danny here with pt entrepreneur podcast and today we are talking about pitfalls that I think are the most common areas Where people screw up or underestimate? challenges when it comes to Scaling their practice. And by scale for me, what I mean by that is to grow it past yourself.

For a lot of people, this is the first sort of stage of doing this, I should say, is the most challenging one. It's the one that I think it's frankly, just the hardest business stage least profitable business stage. As well as, just even the thought of it stops people from trying to grow past themselves.

They have to think about people that they need to hire and systems that need in place. And what if somebody leaves and takes all their clients, right? There's a lot of things that stop people from ever growing past themselves. And if you decide to do it, there are three pitfalls that I would say are the most common errors that people screw up or underestimate that if you're at least aware of these, then you have a better idea of what you're getting yourself into, what to expect.

And. With the number of clients that we've worked with now, like it's interesting. I feel like a lot of the value that we provide people is really helping them understand what. Is coming up next and to help ease some of the stress around the unknown, right? The anxiety of the unknown that's actually the most fear inducing part of the whole thing is like not really knowing what the next step is or what to do next or what not to do.

And this stage when you're growing past yourself into a standalone space and hiring people, this is a really challenging one. So there's three kind of places where we will. The first one is not understanding what growth cycles are. So a growth cycle, in my opinion it's very similar to growing pains.

If you're a kid, right? My son's 12 right now and he'll get these, general, just pain. Pains in his knees or shins and it's like he's growing quickly and he's getting discomfort associated with that. That's normal. It happens to people as we grow, especially if we grow quickly.

When you grow your business and especially when you go stages are worse than others, right? So when you start, there's a lot of growing pains with that because you're getting a lot thrown at you. You're learning a lot of things. You're getting rejected a lot. You're getting used to that. And there's a lot of growing pains there, but the next phase when you grow past yourself, there's a lot of growing pain associated with that because again, you're having to learn all these new things.

But the challenge with this stage is the stakes are a lot higher because you already, you didn't have something to lose when you first started, but now you do. You might have at least replaced your job, if not a bit more. That's a comfortable place to stay for a lot of people.

So understanding that growth cycles are gonna happen and that there's gonna be a lot of learning and there's gonna be discomfort associated with that is is important. And there's a few things that are gonna happen during this stage. Then in particular, if you're aware of these, it's going to be very helpful for you.

So one of these areas of discomfort is going to be being time poor. Now, if you think you're time poor now, and it's just you, right? Seeing patients doing all the marketing the, all the administrative stuff, you are time poor. But you're not as time poor as you're going to be when you stay there, you start there being time poor, and then you add on having to go and look at standalone spaces, talking to bankers about expansion loans, interviewing people to potentially hire both administratively or on the clinical side, then hiring them, then training them on the systems that you want and continuing to mentor them.

Before you can even get some of your time back. You go to this stage where you're like, I just don't think I can do any more. I don't think I could take any more on. And in order for you to be able to get to the next stage of business where you can then scale to, for me, I think this next stage really is for people getting to between 500, 000 and a million dollars in top line revenue in their clinic.

If you want to get to that stage, you have to go through this. There's just really no way around it. Unless your spouse has like a great. Great job and income and you can intentionally not have to work so many hours in order to get to this point and hire earlier. That's possible. It's not the scenario for everybody, but we have seen that happen as well.

Everybody's circumstances a little bit different. That wasn't the case for me. So just being time poor and then you think yourself I can, I can't take any more on it. I promise you, you can. You just don't want to do it for that being said, if you know that, hey, I'm about to go through a growth cycle, it's going to be rough for, a couple of months, let's call it.

And let's say you do have a significant other partner that you have telling them ahead of time is really helpful. So if okay, I'm about to, Like moving to a standalone space and be hiring, I'm already really busy if you can let them know, Hey, this next phase of business, like I have to do these things, it's going to probably last a couple months, I'm going to be taking more on, it's going to be really, challenging, but I want you to know, because I'm just going to be, working more and it's just going to be a, whatever, a short lived amount of time.

But I want you to know, just in case you wonder, like, When's this going to stop, or is this a good idea or whatever? And explaining why it's important to you to do that. And for them to know what the next couple of months looks like. That's really important. That helps them also realize, Oh, this is a growth cycle.

This is what he was talking about, or she was talking about. And. At least your communication is helping them understand what you're going through because the other side of that what we'll usually do is we'll just kill ourself and then We tell ourself. Oh, we're doing it for our family. We're doing it for our spouse We're doing it for whatever but realistically you're just doing it because you want to do it's it's somewhat of a selfish thing.

It's an important thing to you But your family doesn't care really I mean your kids don't care. I remember my kids I was like really stressed out about some business stuff that we were doing sometime. And I remember Ashley had told me this was around Christmas and I'm just like zoning out constantly.

I'm just thinking about business stuff or I'm running off to go work on stuff. And I remember she was like, they don't care what you're doing for the business. Like whatever you're working towards, they don't care. They literally have an empty cardboard box. They just want to build a rocket ship with.

Do it with them, like that's the stuff that they care about So if you're a significant other can understand That you're going to be struggling to go through some of these growth cycles Then they can also help keep you in check too, which is really great And it's so much better to communicate this on the front end then than not it's just I think in general a good idea to to communicate better with the people around you when you're going through a difficult time like this So with these growth cycles, the other thing that is really important to keep in mind is you're going to have a decrease in profitability as well.

So you being aware of that is important. So you might be going from, let's say you're generating 15, 000 a month in revenue in your clinic, but you're at like 80 percent net profit margins because you have minimal overhead. It's just you could be making. Take home 12, 000 a month. If you took all that money out of the business.

Now if you scale where you're adding all this additional overhead and you're hiring people just to get back to that stage, they actually have to be doing pretty well, like that second clinician you bring on has to be seen a decent number of people for you to get to the same net profit numbers, right?

So why would you do that? You do that because you wouldn't just try to scale past yourself, just get to one more person. That's actually probably not a good idea. If you just want to add one more person, you might as well just, Be a single provider. You really need to get to three to four to create some safety.

I think four is a much better number from a security standpoint. If one of your staff members leaves, it doesn't hurt the business nearly as much. Other providers can pick up caseloads besides just yourself. But just being clear that your profitability is going to go down and be okay with that because you, it's almost like you have to build a house for a family before you have a family.

And so you have all this additional overhead and expenses, but you can't do it any other way. Like you have to build into that. Even if you do these stepping stone clinics, cause you might build a smaller one that maybe has three clinic or three clinicians that it can house. And then you move into a bigger one that maybe houses six later.

So you can do these sort of stepping stone clinics. That's fine too. There's a good way to go about it. But either way you take those next steps and your profitability is going to go it's going to go down in the process. The second big pitfall that I see. Is not understanding how to use debt.

So some people are very debt averse. The nice thing with these types of clinics, if you have a cash based practice is you really don't need a lot of money to get it started. It's not a veterinary practice or something. A friend of mine is a vet and he was saying to start a veterinary practice is somewhere between 600 and 800, 000 because there's so much equipment that you need and build out costs and all of that.

You, you could start a cash based practice for two grand maybe even less. So in order to do that it's minimal. But when you go to expand you really can't pay for everything in cash very easily. You could. But it would be similar to if you bought a house, right? Like most people don't save up a hundred percent of the cost of a house and then and then buy the house is it would just take them forever.

And not only that, but Hey, sorry to interrupt the podcast, but I have a huge favor to ask of you. If you are a long time listener or a new listener, and you're finding value in this podcast, please head over to iTunes wherever you listen to the podcast. And please leave a rating and review. This is actually very helpful for us to get this podcast in front of more clinicians and really help them develop better.

Time and financial freedom. So if you do that, I'll greatly appreciate it. Now back to the podcast. The housing market probably just continues to get more and more expensive as you're saving. So you have a hard time catching up. When you look at business, it's the same thing. So let's say you're going to put 20 percent down on a house and you're gonna borrow the rest.

If you're going to buy equipment for your space, if you're going to have construction loans or something like that then you know, you want to save on, save your cash, hold on to your cash as much as you can. And you want to finance the rest because it gives you it gives you time. It spreads it out.

And it's a fixed rate loan. It allows you to have a consistent monthly payment that gets rolled into your overhead. And then you keep the cash you have on hand as a. And that's a huge mistake. Those people make is they just try to pay for everything in cash. I did the same thing.

And it was an enormous mistake because what if you're a little slower than you think, what if what if somebody leaves, what if what if you run into an issue where somebody gets hurt or something like that, these things can happen. And to have that cash on hand, it allows you to delay the inevitable, which would be like, Not being able to be in business because if you run out of cash, you're in big trouble.

You want that cash as a safety net in most cases. So understanding and being okay with taking debt on is a skill. It's something you might have to get used to. I know a lot of people maybe they don't want to have loans. They probably already have some variation of student loans or a mortgage and maybe they don't want any more debt in their life.

But this is a tool and the business debt is a tool to use in order to facilitate these growth cycles without having to save up all the money to pay for everything or even for equipment, right? Let's say you have a piece of equipment you can add to your facility. Let's say it's 50, 000 to buy the equipment, or you can finance it for 500 a month, but that equipment is going to.

Then net your practice an additional 1, 500 a month, right? Like you're better off financing that and then taking the cashflow from that and paying the debt off. And that's a way safer thing, because what if all of a sudden that income stream drops down to zero one month? You still have to pay for it, It's spread out and the payments are a lot lower versus if you're wrong about a piece of equipment and you pay cash for it, you might just be screwed, and you may not be able to get rid of it and, or recoup any of that any of that cost.

So understanding debt, understanding that you need a relationship with a banker. Is important understanding your finances as well the cash flow that you have coming into your clinic this is one of the reasons why I mean in a pgbiz, we wrote our own financial, book where We wanted to go over we call it clinical cash flow and it's literally about like understanding where profit margins should be understanding Debt and how to leverage these things, what you're, you should be paying for staff and what percent of your overhead, it should be allocated to, to your rent and all that.

And it's because this is like a challenging thing that a lot of people really are typically not very good at. So they go cash heavy, they spend everything, they pay for everything in cash, and it can create a real problem for them if they run out of cash. This is where a lot of businesses get in big trouble, because if you can't, if you don't have cash, it's like blood, you run out of blood, your debt.

If you run out of cash, you're in big trouble. And if you can finance it and you can set yourself up to be able to delay some of those fixed costs and pay off over time, then that's a much better place for you as you grow your business. You can always pay it off once you get to a better financial position, but during these sketchy stages where you're going through growth cycles, man, finance the heck out of everything that you can and fix terms and then pay it off later as you get more cash positive.

The last thing I would say it's a huge pitfall with scale is stressing the stress of providing for others. So I didn't actually even think that this would be a problem. I didn't really know, like I managed plenty of people when I was in the army, I got dropped into a clinic when I was six months out of school.

My, my boss ended up with some health complications with a pregnancy. And so she was like on bedrest in the hospital for months. And I was brand new to this hospital clinic that I was at. I didn't know anything about managing people or clinic or anything. And before I knew it, I was managing like 20 something people within this this clinic system.

And I never really felt obligated to take care of them the same way that I did whenever it was my own business. When I hired people, it was almost like I had, added like more Children to my family because the business is what provides their income and their income is what provides a living for their family.

And I felt this enormous sense of obligation for the business to succeed in order for my people to, make The income they needed to be able to live their lives and support the people in their lives. And I remember I had a ton of just sleepless nights and stress over periods of the business where we wasn't, we weren't doing as well as we'd really hoped that we would or that we wanted to.

And you're always going to pay yourself last basically, right? So you know if it comes down to it, you have to pay your staff. You sometimes don't pay yourself and the stress that I felt Over these folks was enormous and I think for a lot of people they have the same feeling they have this serious feeling Of obligation to take care of them And sometimes when your business is not doing well, you can feel like you're failing.

You can feel like you just don't know maybe if you are doing the right things or what are you going to do if you have to let somebody go and they don't deserve it. You just, it's your fault because you can't figure out how to get your business to a stage where it's successful enough to support them.

And you've talked them into leaving another job. You've talked them into doing this. Versus working somewhere else because you sold them on the fact that you could take care of them and that the business was growing And it's healthy and all of a sudden it's not and you feel really shitty about that you know providing for others is one of the biggest stressors As a business owner that i've ever experienced as well as One of the greatest things that you get as a business owner.

It is really odd that it's both and I can tell You know Feeling super stressed about being able to grow a business to where it could financially support the people we hired is a big stressor but you know when a team when one of our staff members Bought their first house. Like I remember we had our first staff clinician that bought our first house.

I was so Freaking proud of this. It was amazing. I felt like it was a big deal for her obviously, but also for us to be able to provide a job where she made a good enough income and had enough stability and felt confident that she could buy a house was huge. I remember when we had a staff member pay their student debt off, how awesome that was.

I remember when a staff member went on an amazing vacation or when they had a baby these are things that are life events that are supported by the state. The job that they have and the income that they get from a business that we've created. And that's a really crazy thing. If you think about it I would also say that even though it is a massive stressor to have the stress of being able to provide for people, your team that you decide to hire and the culture that you cultivate.

It should be one of the best parts of owning a business. Like even for us, one of my favorite things to do with our team every single year was go to Christmas dinner and then we'd get a box of, what's it called? William Sonoma peppermint bark. And then we'd put like thousand bucks in cash in it and give it to them as a Christmas present at dinner.

And. Like I always enjoyed, it's cool that we get to give them a gift or whatever, but I always enjoyed the time that we got to spend together more than anything. I enjoyed meeting their spouses and learning about, their lives outside of that. And just them getting to connect with each other and becoming friends with each other.

That's something that I always really enjoyed the most. So on the flip side, it is an incredible stressor of your of, having a business like that where you do have to support other people. And I think that you get better at managing that. But it is different than managing people for another person's business.

There are some elements that are somewhat similar, but it's not quite the same because it's you one way or another, whether the business is successful or not everything has to do with you. And so it's very personal. But on the other side is the people that you meet and that you get to work with and you get to create these amazing jobs for are the best part of it as well.

So if you're looking at the scale side of things, we're going to get, you're going to get tripped up. It's really going to come down to not understanding growth cycles, not basically not understanding what you're getting yourself into, not understanding how to use debt, how to properly finance things and the right way to look at that which is a skill in its own right.

It's been a decade now for me in different businesses that I've owned. And I would say that's maybe the number one skill that I've learned is really understanding finance applied to these types of businesses. I'm sure there's plenty of people that would run me, under the table with understanding finance in lots of.

Different business vehicles that I know nothing about, but when it comes to practices and in particular, performance based or cash based practices I have so much, so many reps with it that it's very easy for me to start to look at things and understand what people should or shouldn't do on the financial side.

Because it done, I've done so much of it, but initially I felt very uncomfortable with it. And, a month for me, cashflow was just, did we have, I would look at the day. So let's say it was February 1st compared to. March 1st, did we have more money in the count on March 1st than on February 1st?

If so, then we were doing great. And if it was less than we were doing bad, but that's a terrible metric by the way, because there's so many other variables that are associated with that, that could skew it one way or another. So really you're gonna have to learn. Finance more as you grow past yourself.

It's a great skill. But understanding debt and how to effectively use that during growth cycles is a really big sticking point for most people. And the last thing I would say is understanding the stress that comes with providing for other people. Whenever you hire them, you're going to feel that you should, as assuming that you're, like you care about your people, you'll feel that.

And that can be a big stressor for you. So making sure that you're communicating with people around you, that you're going through these big growth cycles is important. Otherwise they're just gonna think you're a dick. They're like, why is Danny being such an asshole to everybody? It's because he's stressed and he's going through a bunch of shit.

He doesn't know if he's going to be able to make it work. He doesn't know if he's let somebody go that doesn't deserve it. He's spent all his cash on equipment instead of finance it. So he has very little cash in case something terrible happens or if they're slower than expected. And then he's got to pay payroll.

Like these are the things that you'll go through. Hopefully understand what you're going through and be able to avoid a lot of those because you're listening to stuff like this. But for me as I went through a lot of these, I didn't know shit about it. I had no idea. It's a very scary time to go through a growth cycle especially when you're growing past yourself because you're, you do have something to lose.

Which is which is a good and a bad thing if you really look at it, but that's it understand growth cycles, understand how to leverage debt, and then really come to terms with the fact that you're going to have stress around providing for others and find a healthy place for that to to be.

And also understand that it's the best part of what you're going to build is the people, it's the culture, it's the relationships, the time you spend with them, and it's what you're helping them be able to do in their lives through the vehicle of your business. That's like the most amazing part. It's worth that part alone.

Is worth everything else I talked about that is a negative. That's how much it's, it should mean to you. That's how much it meant to me and how much it means to me to this day. That's just part of it. You got to bear the burden of being able to build a business that can employ others in order to get to that point and be able to really enjoy the people that you get a chance to hire and help build their lives up.

Hopefully this helps you if you're going through a growth cycle. I know it's a. It's a challenging thing to grow past yourself, but in the end, I think it's very much worth it.

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