E726 | Are You Growing Or Cruising?

In this episode, the concept of growth versus profit in the context of running a physical therapy or cash-based healthcare practice is explored. The speaker delves into the key differences between growth and profit phases, highlighting the importance of understanding which phase your business is in to set appropriate expectations and make informed decisions. The episode discusses the challenges that come with growth, such as higher turnover and lower profit margins, and shares examples of growth-related mistakes, emphasizing the need for strategic decision-making.

The importance of choosing your business's end goal, whether it be rapid expansion or a smaller, more stable practice, is emphasized. The episode stresses the importance of aligning your actions and expectations with the phase your business is in, rather than comparing yourself to others. Effective communication and alignment within the business and with important stakeholders, such as spouses or partners, are also highlighted as crucial for a smooth entrepreneurial journey.

Overall, the episode conveys the message that understanding the growth versus profit dynamic and aligning your business strategy and personal expectations accordingly can lead to better decision-making and a more fulfilling entrepreneurial experience. Listeners are encouraged to assess their business goals and priorities to ensure they are on the right track for success.

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Podcast Transcript

Danny: 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 the pt entrepreneur podcast and today we're talking about growth Versus profit this comes off the back of a conversation. I had on a finance call that I did earlier this week In our mastermind group. So if you're not familiar, the PT biz mastermind group is a group of a couple hundred cash and hybrid practice owners that we work with on an ongoing basis to really help them.

This is not to start your business. This isn't to help you get going. This is to help you scale. Okay. So hiring, building into standalone spaces systems. And a lot of this is like heavily understanding finance business finance for the types of businesses that we that we run. And I do a call every month.

The. Deep dives into finance with people that want to dig into, something that they're working on in their business or something we want to teach. And this past week on my finance call, I had an interesting conversation on the topic of growth versus profit. And I want to share it because I thought it was relevant in terms of understanding where you're at in your business and what the goal of the business is at that stage.

First, let's talk about growth, right? So growth would be, the businesses increasing in primarily we're talking about revenue and revenue is your gross revenue. So how much, how many total dollars top or they call top line revenue dollars did you generate? So that's how much the business just generated overall, not including, what you've spent.

It's just the top number before expenses that would be growth is when you're trying to. Grow that top line number quickly. Now in businesses like this that are service based, mostly brick and mortar businesses that probably have, they have an an element of digital to it, but it's not the primary driver of the business they are Mostly cash positive businesses.

You're not going into a significant amount of debt. You're not taking out a bunch of loans. You're not taking on a bunch of funding. Usually you can't grow them as fast as potentially something like software, for instance, right? So let's say you, let's say you had a software platform.

Once you have that thing built, when you add somebody to it, it doesn't really Require much from the business to fulfill on that, right? They use the application. It's a heavy lift on the front end But then from there, it's really negligible one person versus 5, 000 people. There's no difference really besides maybe some support to on the tech side and then just maintaining the actual like software code.

So that's a different business model than what we're talking about with these service based businesses. So these are slower growth, but every time that you add somebody fulfillment has to take place through a service provider, whether it's yourself or somebody else. So you can't scale them as fast. You can't grow as fast.

So most of these businesses are going to grow at a slightly slower clip than something like software, but also in a software company their goal is to grow really fast, grow their top line revenue really fast, have almost no profit. This is exactly like. The blueprint of an Amazon. If you're looking at like high growth companies that are, software enabled or something like that, like this is a good example of it.

Metta was like this or Facebook back in the day. They're like this and they were aggressively growing their revenue, but they had minimal to no profit. And it's because the end result for that is they're trying to sell it, right? They want to build a business. A ton of value to the market and then sell it for a ton of money.

And it's a sketchy game to play because if you're wrong, then everything goes to zero and everybody loses their money. So that would be a high growth strategy or a business to get into on the profit side. Profit is about net, right? It's what you're keeping. It's what you have left after you have expenses and payroll and all that.

Most people within these brick and mortar businesses, like a cash or hybrid practice, they're going to really focus more on profit more so than aggressive top line growth which would be more of a sort of a growth focus. Okay. So there's stages in. Your practice where you're going to deviate towards one or the other.

And when we talk about finance, like we've even built our own internal sort of finance model for these practices where we have estimated profit amounts that we want to see. And, but they can fluctuate significantly based on if you were in a growth sort of mode or if you were in a profit mode and that's what I really want to address is how do you know which one you're in or.

More importantly, which one do you want to be in and build towards that? And then also the expectations of what your profit. Or your take home pay is going to look like. So if you want to grow really fast, for instance, one of the practices that was on the call that we were talking to you about this, they're, I think their third year in in practice, they just hired their fourth physical therapist.

They're trending towards by, by their fourth year in business, they should really be at a a million dollar a year run rate. Range based on where they're currently at, but currently the profit that they have based on their gross revenue is not very high, right? So let's, in this example, let's say this clinic had 50, 000 in revenue, but let's say they had 40, 000 in expenses.

So they were, they're net positive 10, 000 that month, which is a good bit of money. And a lot of businesses, actually, that would be a great margin for them, especially if it involves costs of goods, you're selling something like e commerce or food industry, something like that. Like that would be an amazing margin for them.

For us, it's not so good in these practices because it should be higher than that once you get to a stability stage in the business. Let's say they get there relatively fast. Let's say they're at 50, 000 in revenue, but they have 40, 000 in expenses. That's not the best profit margin for we want to see, but in the same scenario, they're focused on growth.

So they're quickly growing the top line revenue in order to, quickly get to a threshold that they want to be at for a facility that they're in. So when we look at like a standalone space, it's a big move for a lot of people. Day. They go from a sublease space usually to then they're reinvesting money in the business into growing into a standalone space.

So they're bootstrapping this. They're doing this all on their own. They're not taking funding. They're not taking investors. They're using their own money or they're getting like a business loan to grow into a bigger space and that space allows them to bring on more people. And then scale based on a service model, which is fulfillment.

And that's what we have so that they can generate more revenue, right? That's the way to do it. They can't just add more people to their software. They have to fulfill it in a space. So that requires space, which is a cost. But when you move into a standalone space and you're in growth mode, you're not going to be able to completely max that space out right away.

It's going to take you some time to do because you may have a space where you go from you to, then you build a space where you have space for you plus four other providers. And it's just you and maybe one that you just hired. So you have all the overhead for five providers, but it's two of you at this point.

So your margins are going to be lower because you're investing back in the business and growth. So if you're going for growth, think of your business as a stock that you're investing in every single month. So what you're investing back in the business in terms of the space, it's too big for what you need, right?

Immediately marketing administrative, as well as, your staff, that's basically you buying stock in your own company. You are investing in it and it's growing at a whatever clip. Percentage of change that it's growing at. Now, once you go from in this scenario, let's say there's two more providers that can get in there, which would be another roughly 20, 000 per month that a provider can generate depending on your average visit rate and whatever services that you're providing.

But let's just say. On average, that's basically where you can assume, let's say that person can generate 20, 000. You have two more providers that you can add. So you can go from 50 where they're at to now add two more. And that puts you at 90, which is over a million, but your fixed costs for that space stays the same.

Your rent doesn't go up. Your administrative burden probably doesn't go up maybe by a little bit. The only thing that really changes is the payroll. You actually paying for fulfillment of that space. So every provider you add. On up until you hit the threshold, the actual like profitability threshold of that space is very profitable, much more so than the first provider that you hired.

So what's the difference between growth phase and. A profit phase, because you might flip from growth to profit and you say, okay, I'm aggressively grown to this point. And then I'm going to cruise for a bit. And when you do that, you have to look at some of the things that you're doing to aggressively grow.

So maybe you have a loan. In this example to build out a space. So you have this loan you've taken on maybe it's a few thousand dollars a month that you're paying That now, you know you have paid off by the time that you have this space fully maxed out cool that goes down Maybe you are aggressively marketing because you need you know a ton of leads to really grow your Your caseload as you're continually bringing on new people faster and faster okay, you can drop that down.

So now you don't have as much of an administrative burden. Your agency maybe is going to be less because of that, or maybe it's something that, can be a bit more on autopilot and it's going to be less expensive. You have less like actual maybe consulting that you're bringing into the business, things, skills that you're learning, you can dial that back in a little bit.

And then all of a sudden you're in cruise mode. But when you do that, you've put yourself in a place where. You're focusing on profits, not growth anymore. So you're focusing on not top line revenue or the dollars that are coming in, but the dollars you're keeping. So instead of you being at, let's call it 20 percent profit margins, all of a sudden you're at 30, 35, 40 percent profit margins, potentially depending on your business and how you run it.

And that's a completely different ballpark. When you get to a point where your top line revenue is roughly, let's call it about a million dollars in revenue a year. And that's the difference between growth phases and profit phases. So if you're in a profit phase, you are focusing on keeping as much of that money as you can, and you're typically taking it and you're putting it somewhere outside the business.

You're not just aggressively reinvesting in it. This is where people might take it. And this is where they're investing in, I don't know, mutual funds and ETFs or individual stocks or whatever you want, bonds, real estate. You name it outside of the business. And in a lot of ways, you're hedging your bet against your own business, right?

You've got your business to a place where it's stable. It's spending a lot of cashflow, you're taking that cash and you're reinvesting it somewhere outside the business, but here's why it's important to understand. Growth versus profit. If you don't grow, you can't, you won't have as much profit, right?

Like you can go into cruise control mode and focus on profit. But if you do that without growing, you'll have far less revenue that you're going to be able to keep because it's going to be a percentage of whatever the top line revenue of the actual clinic is. So let's say you get your clinic to, 30 percent profit margins.

And it's 500, 000 a year. So let's, that is equivalent to 150, 000 versus let's say you're at 30 percent profit margins and it's a million dollar clinic. That's 300, 000 of profit. Big difference, double, right? Because you went through aggressive growth phase up to a certain point, and then you dialed it back down in terms of maintaining your profit margins.

The challenge with growth is it's hard. It's like growing pains. We might, my kids are growing fast and they're like their shins will be killing them sometimes. Hey, sorry to interrupt the podcast, but I have a huge favor to ask of you. If you are a longtime 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 time and financial freedom. So if you would do that, I'll greatly appreciate it. Now back to the podcast. And it's yeah, you do, you literally are like shooting up.

You're like a, you're growing like a wheat and growth doesn't come without pain sometimes. Like it's going to happen. So with these aggressive growth modes, you can have more turnover. You can have you can be wrong sometimes about some of your investments that you're making, whether it's equipment that you thought you needed agencies or outsourced work that you might be using to help with.

aggressive growth. I've made these mistakes myself. I went through three agencies before I decided that I was going to start to just learn how to really focus on marketing for my own business. And it was a lot of huge waste of money for all three of those. But again, we're trying to get fast lead, lead gen and growth.

And then we bought a big piece of equipment when we first moved into our first space, we bought a a big cryotherapy unit. We thought we were going to have a recovery lounge in the clinic. And it turned out to be a huge pain in my ass to, to run as well as taking up space in an office that we could have put up another provider in and that provider would be able to generate significantly more money than what their cryotherapy unit was generating.

And we took an L on that one when we sold it, we sold it for 20, 000 less than what we bought it for. About a year and a half later. Was a learning mistake and it was a growth move for us. We're trying to add other profit centers and we were wrong about that.

So when you're going into a growth phase, you need to know which one you're in. This is the key is. If you don't know, you're in a growth phase and you're looking at your finances as if you're in a profit phase and you're asking yourself, why am I not keeping more of the money that I think I'm supposed to keep what's going on?

It's because you're reinvesting it. It's not that you're not keeping it. You're just reinvesting it in the business in a different way. Mostly in people in space, advertising and technology. So if you're in a growth phase, know that your profit margins are going to be lower. You can't, they're inversely correlated.

If you're going fast growth of the business, then profit is going to go down. You, it's very hard. I can't think of a great example of fast growth plus great profit. It's, it doesn't really work that way. So you're going through fast growth. It's reinvestment grow, and then stabilize and cruise.

And you might decide that you just want to stay there. That may be what your vision is and the size of the business that you want to be at. But the mistake that I see over and over again is people expecting profit margins to say hi, when they're going through aggressive growth and feels like a letdown, feels like you're doing something wrong. It feels uh, you're missing something, but you're not. That's just the way it works growth versus profit. Then when you get to a phase where you say, all right, this is where I want to be now. All of a sudden you can focus on profit. You can focus on some of these things that maybe you don't need to grow so fast that you can start to You know shed from the business and then all of a sudden that movie that money that you're saving it gets moved into You personally versus back into the business and then you can decide if you want to stay there or not Because you might say all right cool.

I like this office that i've built. It's you know, this is the top line revenue It's got good profit margins but I want to make I want to build another one of these Over here in this part of town or I want to expand again and go through You know another growth cycle and as you do that What's going to happen is you focus on growth profit margins are going to go down And you're not going to take as much money home You Because you're putting it back into the business.

And then when you get to a phase where you feel like you want to, stay, then profit starts to increase growth, tapers down, and that's where you're at, right? So I think one exercise you can do is really look at your business and ask yourself, am I in growth mode? Am I like really trying to grow right now?

Or am I trying to be profit as profitable as I possibly can be? Because there are two different games that you're playing, right? There's two different perspectives that you're playing as well as if you want to, you know, really be able to maintain a solid relationship with your significant other, you need to let them know also which phase you're in.

Because one of the other mistakes I see, and one of their challenges is I see an entrepreneur who's they're partner, Is in terms of like their spouse or their significant other is expecting the business to be able to generate a certain amount of income, but they're in growth mode.

So they're reinvesting heavily in the business, but they didn't communicate that to their partner, to their to their spouse. And they get frustrated. And Hey, why are we working so hard? Why are we, where's all the money going? What's going on? And that can lead to a lot of challenging discussions and frustration on their part, rightfully because they don't know, they don't know what's going on.

So if and you can say, Hey, yeah, we're really growing the business. We're going to have to be pretty lean with how we're living as we do because we're reinvesting in the business. So instead of us taking that money out of the business, we're putting it back in so that over the course of the next, however long it's called a couple of years, we get to this.

This stage of business and we're far more resilient. We're bigger, we're harder to kill at this stage. And we can start to really focus on profit at that point and take money out of the business and put it towards lifestyle or investing outside of the business or whatever it is that you want to do.

So if you're pulling money out of the business, that's money that you can't put back into growth. So you've got to decide which one you want to do and. You may not even know which stage you're in. So take a look at your business and try to figure out where are you? Are you growth phase? Are you profit?

Are you like cruise mode where you're trying to maintain and be as profitable as possible? And really understand where you're at and is that where you want to be right? Do you want to grow big? Some people don't want to do that. Some people want a half a million dollar practice they want to be heavy heavily involved in patient care Um they really want one, maybe two other providers.

They want a small team very much more, like a small cohort of people versus a big team that they feel like they have to manage. And and they want to focus on maybe one very specific niche and just be really good at that and have a wait list, and that's cool too.

If that's what you want to do, other people, they want to grow. Multimillion dollar practices. They want to focus on enterprise value and they want to focus on growth and they want to sell it one day and they want to sell it and have a big exit. And have, multiple millions of dollars on an exit and change their family's financial position for life and potentially just see if they can do it right as a challenge.

That might be what you want to do. So your game can be different, even within the same, even within the same industry, with the same type of businesses, you can have different. Very different and results that you're going for. And this is one of the reasons why we talk to people a lot about understanding what race you're running, because not everybody's running the same race.

It would be like somebody starts a race and it's, everybody lines up. They, hit the starting gun and everybody takes off. But you only know where you're going. It's let's say you're running a half marathon, but the person next to you is running a marathon. All right I'm going this far, but their pace is slower.

Cause they're going to run twice as far as you, or maybe some of these people are running a 5k and they're just going as fast as they can as soon as they start. But you don't know, you don't know what they're doing. You don't know what mileage they're running or how far they're going.

You have no idea. You just got to know which race you're running and hold your pace according to that. And this is where, when you start to compare yourself to other people, this is where it can get very frustrating. And the whole concept of this phrase of the, comparison is the thief of joy.

Yeah. It comes from this and you don't know what other people want to do, unless you've had a conversation with them. Everybody has their own pace. Everybody has their own race. You got to know what you want to do, which phase you're in, what your goals are. And honestly, one of the best things you can do is just know that and communicate that with the important people around you so that they're aware of it as well, and there's no frustration from a communication breakdown, which happens a lot.

So in summary, the reason I bring this up is because you need to understand when you're growing. And when you're stabilizing and if you're growing, expect that you're going to have, you're, it's harder to do. You're going to have more moving parts. You're going to be more time poor. You're going to be, taking a lot on.

There's a lot of momentum. It's exciting. It's exciting for everybody around you on the team, right? It's fast growing. And but lower profit and more problems. So more challenging. If you're in stability mode, You're going to be less less new people getting involved less energy put out for, really driving a ton of new business.

Hey you're going to make a lot more money, honestly, like you'll take a lot more money home. But you may not have as much enterprise value you're building in the business along the way, if your goal is to exit, right? So you just got to know which phase you're in and. Be okay with that.

Don't find yourself doing the wrong thing either. Sometimes people, they really want to be like stable, but they find themselves growing because they think you need to, or sometimes, they want to grow, but they're scared because they don't want to lose some of the profit that they have. And that goes away.

And then it makes them feel stressed out in a, and like they're monetarily not making what they should. So know which phase you're in, know what your goals are and you'll feel a lot better about that because I see a lot of people mixing up what they think they're doing and they think they're doing something wrong or they think their business is doing something wrong when it's not, they're just growing.

And they're not making much money or they're making good money, but they are not seeing the growth that they want to see. Which again, it's very hard to have both at the same time, almost impossible. So are you growing? Are you stabilizing? Hopefully that makes sense. And hopefully that adds or takes a little bit of stress off your plate.

Once you know what you're doing, it feels a lot better.

Hey, peach entrepreneurs, we have big, exciting news. A new program that we just came out with. It is our PT biz part time to full time five day challenge over the course of five days. We get you crystal clear on exactly how much money you need to replace by getting you Ultra clear on how much you're actually spending We get you crystal clear on the number of people you're going to see and the average visit rate You're going to need to have in order to replace your income to be able to go full time We go through three different strategies that you can take to go Part time to full time, you can pick the one that's the best for you based on your current situation.

Then we share with you the sales and marketing systems that we use within our mastermind that you need to have as well. If you want to go full time in your own practice. And then finally, we help you create a one page business plan. That's right. Not these 15 day business plans. You want to take the small business association, a one day business plan.

It's going to help you get very clear on exactly what you need to do and when you're going to do it to take action. If you're interested And sign up for this challenge. It's totally free head to physicaltherapybiz. com Forward slash challenge get signed up there. Please. Enjoy. We put a lot of energy into this.

It's totally free It's something I think is going to help you tremendously As long as you're willing to do the work if you're doing the work you're getting a Information put down and getting yourself ready to take action in a very organized way. You will have success, which is what we want. So head to physicaltherapybiz.com forward slash challenge and get signed up today.