E441 | Why Profit Is So Important

One of my favorite topics is profit and finances and today I am talking about why it is so important to be ultra clear on your business numbers. This will help you be very clear on where to put your efforts within your business. Enjoy!

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Podcast Transcript

Danny: So as a cash-based practice, you have some unique needs. Even more so now in our current economic environment that we found ourself in. This is why. We switched over to PT everywhere for my practice Athlete's potential look all in one place. We can manage patient schedules, home exercise plans, telehealth, and communicating back and forth with our clients, which has saved us a ton of time every single week.

Every single month and every single day, not just myself, but my staff, and right now you might just be a single practitioner, but eventually you want to grow into having multiple people in a true business. And what we wanted was a platform that could hold up. To multiple practices, multiple clinicians, and scale with us as we go.

So if you're just getting started, this is a great platform to take a look at. If you are growing and you're adding other people, this is a great platform that can grow with you and you won't have to worry about switching later. So if you're interested in saving some time and having everything in one place, head over to pt everywhere.com and check out what they have to offer for your business and with their.

So here's the question. How do physical therapists like us who don't wanna see 30 patients a day, who don't wanna work home health and have real student loans create a career and life for ourselves that we've always dreamed about? This is the question, and this podcast is the answer. My name's Danny Matte, and welcome to the PT Entrepreneur Podcast.

What's going on guys? Doc Danny here with the PT Entrepreneur Podcast, and today we're talking about profit. One of my favorite topics. I love the numbers. I love finance. I know that's weird, but I do, and I'm gonna explain to you why and why I think it's so important for you to be ultra clear. On your numbers and on your business model as well, and what you're deciding to put your effort towards.

So I'll tell you a, a quick story about sort of two businesses that, um, you know, one that, that I've had a chance to work with, uh, as a consultant. And the other one, um, who's actually, uh, it's a business owner friend of mine that's local, uh, here in Atlanta. And she's, she's had a business for, for many years, but I'm intimately familiar with her business and her numbers, and so, Here's the backstory.

So the first business is a in-network business. An in-network physical therapy practice should say that I, uh, that we've had a chance to work with within our mastermind that has moved to a complete cash-based practice. So, scary step, very scary, uh, to go that direction. And what's interesting is, you know, they have all their numbers for, uh, when they were in, in, in network practice and their gross revenue.

If we just look at their gross revenue. So gross revenue is how much money you. Make but profit, profit is how much money you actually take home. Like you get to keep, right? So you could have a million dollar business and it be net negative, you know, and it lose money. This is very common. You could have a hundred thousand dollars business that's very profitable and you know, it has 90% profit margin.

So 90% of that money you get to keep, but. This individual in particular, um, you know, he was telling me his numbers and, you know, his, this, uh, this year they're probably gonna be $200,000 less in gross revenue compared to their best year in an in-network practice. The difference is they have more profit, they have more money that they're keeping with $200,000 less.

Of gross revenue in a model that is a better business model, a more predictable, less overhead, less headache based business model. So with $200,000 less of gross revenue, so total money made, they have more money to keep. And bring home as well as many less headaches. Dealing with a insurance model that is constantly trying to pay you less, constantly dictating if you need more of your time and trying to frustrate you so they don't have to pay you.

That's the reality of how they win. Now, my other friend, the business that she owns, It's been around for I think 15 to 15 to 20 years, somewhere in that range. It's a fairly big business. Um, they do about a million dollars a month in revenue, and the difference is her profit margins, um, are about 10%. So 10% profits of what she's making is what she keeps, right.

So she's making about a hundred thousand dollars a month. Which is a lot of damn money. Like she's very wealthy. She's done very well for herself. And, uh, it's, it's a pretty impressive feat that she's accomplished, that she has a eight figure, you know, plus business. But when I, when I've talked to her about this, her business is stressful and she has to keep a massive amount of cash on hand because if she's making a million dollars a month and 90% of that is going.

To fulfill the business, the overhead of the business, that's $900,000. So if she wants to keep three to six months of cash on hand, you're talking three to $5 million that she needs to keep on hand in order to have. Cash reserves to be equivalent to three to six months, which is what we recommend. Most businesses are gonna carry at least three months of cash reserves.

So for her, it is a somewhat sketchy business model because of how quickly her business could cannibalize her cash reserves and, and how much he has to keep on hand. Now, if she's running at a 10, Margin, 10% profit margin. So she's keeping 10% of every dollar she makes. She's going to profit about 1.2 million per year, which is a ton of money.

Like, no, no doubt about that. But what I want you to think about is, The profit and how important that is. And which model would you rather have? Would you rather have a $12 million a year business that has a 10% profit margin or a $4 million business with a 30% profit margin? Because if we do the math on it, a $4 million business with 30% profit is $1.2 million in profit.

A $12 million a year business with 10% profit is a $1.2 million a year business of actual take home one looks really good on paper. You could tell all your friends, I got this eight figure business. It sounds so cool, but in reality it is a difficult, difficult business model to to. And it has to be at scale in order for that to work at, at those profit margins versus a $4 million business is is very big business as well.

Very achievable though, by the way, for people to have practices that they scale up to the $4 million range with solid margins, like a 30% profit margin, and you have the same amount of take home profit, the same amount of actual income. But which is the whole point of a business is to have impact and to have revenue, to be profitable.

It's not necessarily just to have a business to grow and hire a bunch of people and have a bunch of headaches like and stress and overhead. It's not necessarily about that. It's about, it should be a vehicle that satisfies what you wanna do in life and builds the ability for you to have the life that you want and that dictates that you need to make money to be able to pay for the things that you want.

But if you have. Business model that is incredibly thin as far as your margins go, which is what a lot of these in-network practices are dealing with. You got a few bad months and you're out of the game. And if you have healthy profit margins, you can sustain yourself during challenging times. Like for instance, 2020, we didn't have a single business, not one go out of business in 2020 with the people that we were working with.

And I know many in-network practices and many other business owners, gyms in particular, which got put in one of the worst positions of all businesses that were out of. Because of thin margins, low margins, uh, as far as their profit goes. So ask yourself, you know, do you want to have a 4 million business with 30% profit or a 10 million or a 12 million business with 10% profit?

For me, I'll take the smaller business that's more profitable, less people, less overhead, less headaches, and it's less carrying cost as well. Cause we, if we think let's, let's take three months of cash. On that business. So I'll have to do some math real quick. You're talking probably $500,000 to $600,000 a year, uh, of actual caring cost to have three months of cash reserves for the overhead that you would have with that versus millions of dollars in the other business with the same amount of profit.

So think about the business model, but don't forget about your profits. So easy to look at how much money am I making and we track gross revenue within our Mastermind. The reason we track gross revenue is because it's the easiest thing to. It's super easy, but it's not what we actually care the most about.

We care about profit, we care about the business model and the profitability of it. But when we're trying to track hundred, you know, over a hundred businesses, uh, to keep track of where they're at on a monthly basis, the easy thing for us to do is gross. But we know profit is really what matters the most.

So hopefully that makes sense. Hopefully you realize profit is the most important thing to track and this helps clean up your business financials, and now you start loving numbers as much as me, as always guys, thanks so much for listening. We'll catch you next.

Hey, real quick before you go, I just wanna say thank you so much for listening to this podcast, and I would love it if you got involved in the conversation. So this is a one way channel. I'd love to hear back from you. I'd love to get you into the group that we have formed on Facebook. Our PT Entrepreneurs Facebook group has about 4,000 clinicians in there.

That are literally changing the face of our profession. I'd love for you to join the conversation, get connected with other clinicians all over the country. I do live trainings in there with Eve Gigi every single week. And we share resources that we don't share anywhere else outside that group.

So if you're serious about being a PT entrepreneur, a clinical rainmaker, head to that group. Get signed up. Go to facebook.com/groups/ptentrepreneur, or go to Facebook and just search for PT Entrepreneur. And we're gonna be the only group that pops up under that.