Latest / The Chiro Money Show / 027 | The Difference Between Getting Paid and Being Profitable
Transcript
- Chris: Welcome back to the Chiro Money Show. We're helping chiropractors make better financial decisions so they can build stability in their finances and a lifestyle that they love. We're your hosts Chris Sheal and Scott Campbell, Financial Planners with Align Wealth. Welcome back. Scott: How we doing today, Chris? Chris: Doing well, man. How are you? Scott: Good, yeah, doing great. Doing great. Yeah, I'm feeling fired up today. Usually it's you. Usually it's you. So it's great to get fired up about certain things so that we can turn it into a podcast topic. Chris: Fired up. Good. Yeah, your turn. Yeah, I mean it's all comes down to motivation right like some days we Whether it's working in our practice or Working out building strength some days where we're all in and motivated to be there and those are awesome days and other days we're just kind of Going through the motions, but the end of it. Yeah, it's good to have these days where you're fired up and love what you're doing Yeah So you had a good idea for today Scott: For sure, for sure. Yep. Chris: Let me set the stage here. So if you, if for our listeners here, if you're a practice owner, imagine if you had to hire a chiropractor tomorrow to do exactly the work that you do in your practice. the adjusting work, the chiropractic work, not the business management and and whatever, all the stuff that comes with being a practice owner. Just the hours a week that you are adjusting or whatever those hours are. What would you have to pay an associate to do that work? ⁓ And after would there be anything left over as far as profits within the business? Scott: Yeah, for sure. Yeah, such a great question. think our experience now of working with chiropractors in different stages of their career, like I think this episode is really going to be geared towards the owner who's probably in their probably first five years of practice or you're a new grad thinking about whether or not you want to consider being a career associate ⁓ move into practice ownership at some point. We've worked with practice owners across the board in terms of monthly revenue that equates to like four or 500,000 year in revenue, maybe even a bit less than that, all the way up to million, million dollar half practices with multiple practitioners in the practice, right? And we've seen overhead in the range of 35%, maybe even a bit lower than that, all the way up to 70%, maybe even a bit higher than that, right? And everything in between. And one thing that I've commonly found is that when we start working with a brand new client, It's pretty rare for them to what their overhead is. Maybe they have a rough idea, but they're never like, yeah, my overhead is X. Like I understand my books. Like I think back to our conversation with April a few episodes back, like most don't truly know their numbers the way they ought to know their numbers in terms of what's coming in, what's their overhead after they pay their associates and what's left over for them as the owner. Would you agree? Hey, at ballpark. Chris: Yeah, they might have a ballpark. Yeah, I'd say that the odd time someone's got a ballpark of like, yeah, my, my monthly expenses are about X, but they've never gone through the level of detail to look at ⁓ as what is that as a percentage ⁓ their top line revenue? Like how much are they bringing in? Is that a reasonable amount for expenses? Scott: Yep. Yep. Yep. Yeah, I think the other thing that we commonly see is that in terms of what the owner is paying themselves, it's kind of they're in the mindset that whatever is left over after overhead is what I can pay myself. And they kind of lump their pay into one category of what is left. I can pay myself that from Chris: And that's not immune to chiropractic. That's any business owner. in, I don't know about you, but in my past experience with talking to other business owners, everybody kind of looks at the same. A lot of people do look at it the same way. It's like, whatever's left over is what I pay myself. And we'll figure that out later, basically. Scott: No. Yep. Yep, for sure. When in reality, I think the owner, I it's important to view how you're getting paid in a few different lights. Because ⁓ it's being a being an owner and the responsibility of doing clinical adjustments. Taking on the role of managing a practice, managing staff and making business and management decisions, as well as just taking on the financial risk of being a practice owner warrants the additional profitability of taking on that risk of ownership. So it's almost kind of looking at your overall pay in those three buckets, if you will, versus an associate. Chris: Yeah, and not to just Yeah, and I was just gonna say not to discount an associate Sure, they are still very similar in like the way that they're approaching things right like they have element of running a business still I think the key distinction here is just like that difference between the practice owner that has the lease for the for the space and has all the other overhead and staffing requirements that come with that versus the associate that still is has ⁓ ⁓ they're incorporated, and just don't have that same level of overhead and risk in their business venture. Scott: Yeah, for sure. For sure. Chris: So as you would expect, more risk you're willing to take, hopefully higher rate of return you're going to get. So that same concept can apply here where the practice owner ⁓ should rewarded for the additional risk they're taking of business ownership. Scott: Yeah, for sure. And one of the big reasons why... We like that the profit first cashflow system that we've talked about talked about in the past where we're bucketing cash flows coming in collections that are coming in. We want to split that into its various bank accounts one being owners compensation what you're going to draw from the practice as your pay on a regular basis ideally monthly and then profitability as a percentage of your of your collections as a true kind of separation of like I want to prioritize profit whether you're starting off at 1 % or you worked your way up and grown your practice and grown your team and whatnot now you're you know taking a five ten fifteen percent profit from your practice on a regular basis very separate from your owner's compensation of what you're paying yourself monthly Chris: and very different from the traditional pay yourself whatever's left over with no clear, no clear system. Yeah. Scott: Exactly. Yep. Yep. So you think we should hit this example, like what kind of got me, yeah, what got Scott fired up today about this? Chris: Yeah, yeah, yeah, totally. Tell us, tell us how, because there's different ways to think about this, right? Like what is your replacement cost or what would it cost you to go out and hire somebody to do the work you're doing right now? How tell us, walk us through how you looked at that. Scott: Yeah, it started with a relatively new client that we've been working with, like great ⁓ great practice, Things are moving in right direction for this practice for sure, but it's still early days first year or two in practice Things are growing things are good but when we think about his current we're looking at his his revenue After we did a detailed analysis of his of his cash flow and his overhead and expenses One thing we realized right away was one his overhead was around 60 % So not 70 but definitely not 40 or 45 like a fairly high overhead But when we looked at his overhead expenses, it was fairly lean there was not a whole lot of fat in his overhead. his primary costs, his rent or his lease, plus his staffing costs as well. There wasn't a lot of areas to say, hey, we could cut this and that and get you down from 60 % down to 55 or 50 right away and therefore be able to pay you more. So I guess to paint the story and his example and what got me thinking about this was He shared with us the other day, I'm doing about 120 patient visits per week on average, okay? So let's think about through this light and we'll walk through like an example, hypothetical here. So say you're this doc, let's call him John, not his real name. Say John's doing 120 patient visits per week. And let's assume John ⁓ is 46 full weeks ⁓ throughout year. It's about. He'd be roughly bringing in about $26,000 per month or so of top-line revenue or about $300,000 over the course of a year. Into the practice. Chris: based on about a $55, $60 per adjustment. Yeah. Scott: Yeah, similar in that range. Say average adjustment costs 55 bucks. So he's bringing in 300,000 into the practice. Chris: just from the work he's doing as a chiropractor his adjustments. Scott: Exactly. in John's case, John, after going through his ⁓ and loss and understanding his overhead, John is in a situation where he can only pay himself a hundred K year right now. So he's bringing three hundred thousand into the practice on average throughout the year, and he's paying himself a hundred K in the form of salary. And at the moment, there's no extra percentage being allocated to profit. It's at 0 % right now because his overhead's at 60 % and he needs everything else to pay himself as much as he can to support his personal lifestyle needs for his family right now, which is understandable. So he can pay himself 100K. Well, 100K out of the 300, that's only 35 % that he's collecting from what he's actually bringing in. So that's where it got my brain thinking. It's like, hey, if John was like, you know what? I gotta step away from the practice. I gotta find a chiropractor to come in and replace me for permanently or for a period of time. And he said, hey, Sally, will you come in and fill in my shoes? I got 120 patients per week that you can start seeing right now. Do you want the job? Yeah, what's the split, right? Chris: What's my split? What's my split Scott? 60 right? Scott: Is it 60-40? Is it 50-50? 50-5-45? Whatever it is, it's unlikely that associates gonna say, yeah, can pay me a 35 % split. They're not gonna take that job. And that's just to do the chiropractic work. Chris: Exactly. So just to go through the numbers, I know people can do mental math probably faster than me, but at a 50 % split, that's 150K of a pay. At a 60%, that's 180. So 150 to 180 is what it's gonna cost you, ballpark, to bring in an associate to see that 120 patients a week. That's more than you're paying yourself right now. Scott: Yep, in John's case, right? And John also not only has the responsibility of doing the chiropractic care and the adjustments for 120 people on average per week, but he's also making hiring decisions. He's responsible for paying the bills and the business, being a manager of the business as well. And he took on the financial risk of buying a practice from someone a few years back and taking over a practice. Chris: in John's case. Scott: So things aren't gonna happen overnight for John. Like John's on the right path. But we want to start thinking, we want our audience and our listeners to think about it through this lens where in John's case, it's kind of like, well, whatever's left over, I'll pay myself. It's an okay starting point, but that's not the end goal. It's like, all right, well, if overhead's already kind of, there's not a whole lot of fat to trim, we need to building our revenue. Chris: Yeah. Scott: so that the practice can pay you a reasonable salary for first of all, let's get to the first point where you're getting paid fairly for the work you're doing ⁓ as a chiropractor. And ideally, a larger salary on top of that for taking on the management responsibilities of the practice. And then ideally we get the revenue to a point where you can start allocating to five, 10 % away to a profit account and start paying and generating yourself a profit for taking on this extra risk of running a practice. Chris: Okay. Yeah, exactly. How? And that's this example, like I think that's exactly the trajectory John is on. Like he's going to get there where he's bumping compensation to what he would have to pay to replace himself. Plus building a profitable practice where he can draw profits quarterly, monthly, annually, whatever to compensate himself. So yeah, ⁓ that's goal. in our mind, right? Like that should be the starting point of like, you take on this risk, you should be paid fairly for the work you do as a chiropractor and for the risk you're taking as a business owner. Scott: Yep, for sure. Yeah, that's really the, my opinion, the major takeaway here is like understanding what your overhead is. Like there's reality to that. What do we need to do in the practice to... ⁓ One of two things, obviously, that's a conversation that we're continuously having. Is it a revenue issue? it an overhead issue where there's a lot of fat and stuff that we need to trim down to bring your overhead percentage down? Is it a combination of both? is, ⁓ a lot of cases, but that doesn't happen overnight. There's a lot of work that needs to be done for someone like John and for I'm sure many of our listeners are like, yeah, it's not that easy. Like, yeah, we want to grow our practice and bring in more revenue and whatnot. But you continue to go down that path of growing your practice and working on your systems and bringing down overhead and increasing revenue, I think it's important to start thinking about how you pay yourself from your practice through that lens of I should be paid well for... the adjustment work that I'm doing for the managerial work that I'm responsible for and I want and I should be generating a profit for taking on that risk. And one thing that April mentioned a few episodes back, it's like profit is not, shouldn't be a negative thing. You know, you're not being greedy by having a profit. It's not, what did she say? It's not profit over people. It's not profit over planet. Like if your business is not profitable, what are the chances that your business and your practice is going to be around in five, 10 years from now? It needs to be profitable to be sustainable, to serve the community, to serve your people long term. Chris: Yeah, that's a good reminder. It's not a bad word. Yeah. I think ⁓ this conversation makes me question or want to throw out this idea that like, do you have to ⁓ a practice owner to be successful? And is that, ⁓ that be everyone's goal? Right? Like, I know. Scott: Yep. Chris: Obviously we only have interacted with the number of chiropractors we have. We don't know everyone in the industry, but I get this sense, I'm curious to hear your take on this Scott, I get this sense that like a lot of people are coming out of chiropractic school with this idea being kind of put on them that they need to be a practice owner. Scott: Yeah, I would agree. I guess that's what I agree from just my experience and our experience collectively of the conversations and the people that we've met that seems like that's the path that most should take coming out ⁓ school is that at some point I should move into practice ownership because that's my ticket. ⁓ the path that I need to be on to achieve my long-term goals and to live the lifestyle that I want to live. Chris: Was you? Yeah. Scott: We've also on the flip side of that, we've also worked with a lot of associate chiropractors who are crushing it and doing really well, They're in a great practice. They have no desire of taking on the responsibilities of ownership and management. They just want to do their thing. They want to be a chiropractor. They want to serve the families and the people that they love working with. And they're totally good with the split and walking out of the practice at the end of the day and be like, get my check as a subcontractor. I have my own little overhead in my professional corp and... Chris: Hmm. Scott: We've seen a lot of success go on that avenue as well, right? We've seen the success on both sides, but we've also definitely seen the challenges that come with practice ownership that with any business owner in any industry out there, Chris: Yeah. Yeah, it's interesting that like... I wonder if it's societal pressure too, beyond just kind of we're taught in or what our clients are taught in chiropractic school or if it's family pressure or whatever, there's probably a lot of things that are leading to that desire to be a practice owner. just some, my mind with this is like, let's look at some math. Like if, let's say you start practice right out of school, how years is it going to take you? to have the client base to pay you what you should be earning as a chiropractor. Let's just say it's starting, let's just call it 120K a year as like, how long is it to take you to get there? And then on top of that, how long is it going to take you to be profitable where you're maybe pulling in, you know, a quarter of that, say, you know, 30,000 a year in profits. versus going to work as an associate at an established practice and what are your earnings going to be? What's your growth going to be from an earnings perspective? Like as an associate at an established practice, you're to build your client base that much faster. Is there already an established base that you can draw from and get up to that 120, 180 visits per week, 200 visits per week, whatever that number is. And at what point is the break even? And is that risk worth it? Like if the break even is 10, 15 years where the practice owner starts to outweigh associate then ⁓ that worthwhile? And is it worth all that additional risk and stress and stuff being a business owner? On the flip side, If you love the business side of things as well as being a chiropractor, that's awesome. Good for you. You're probably going to crush it because you're going to want to know what your overheads are and you're going to be in your QuickBooks and talk in your bookkeeper and your accountant and strategizing all of these different options to grow your business. Scott: Mm-hmm. Chris: I think we have to be honest with ourselves figuring out what us. What do we want out of life? Is it ⁓ like, part of our identity being that practice owner and we love business side of things or are we just doing it because we feel like we ought to? Scott: Yeah, for sure. practice owners, they're really it for maybe even more so than being a chiropractor, but to be an owner and to manage a team and to build systems and like that's them forward. ⁓ I imagine for a lot of those individuals that the end goal isn't to be doing the actual adjustments 20, 30 plus hours per week. They're going to slowly transition maybe out ⁓ more the role into a managerial director role of managing the business versus actually being in the business, being the one seeing the Not all, that's obviously not everyone, but for some. Chris: Yeah. And again, I just don't think there's any right or wrong answer. Either path or some version of a bit of both can be extremely rewarding. It just depends on who you are as an individual and what is important to you, what you light and energy Scott: Yep, for sure. So I got my ideas. What do you think the takeaways here are from what we've gone through today on this topic? Chris: Yeah, I think look at your compensation, if you're a practice owner right now, how much are you compensating yourself and what would it cost you to replace yourself? Scott: Yeah, based on your current like clinical hours of actually how many patients you're seeing per week per month, right? Chris: Yeah. Yeah, however you want to look at that, whether it's hours worked or patient visits or a combination of like, there's got to be an easy way to like, like you did to just ballpark generalized. This is something that I don't think needs that intricate detail as a starting point. It's just like, do some napkin math, figure it out. What's the, what's the like Yeah. Scott: Yeah. Yeah, for sure. And I guess it's just being... from well, just add to that. think you're right. Like understanding your numbers. What's your overhead? What are you paying yourself in relation to like what you're bringing in terms of collections or you and maybe you're in a partnership with your spouse, for example, bringing in revenue together at the end of the day, if you're not happy with how much you're getting paid, As long as you have an idea of how you're going to move forward, right? Like, are you moving forward in a direction where that's just going to be this, like, are you going to be in the same spot a year from now, 24 months from now? It's okay to be like, ah, I'm not getting paid what I should be getting paid, but I have a plan to get me from point A to point B where I'm gonna be in a position in 12 months from now, 24 months from now, where my salary is gonna go from 100,000 to 150,000 and I'm gonna bring my profitability from 0 % to 5 % and I see how I'm gonna get there. I see the path forward. And if that's the case, then awesome. Chris: Yeah, ultimately we got to find a path to find a way to map that out. I think is what we're getting at is like, first we got to identify is there a problem? And if you can start by like in the example you shared, problem wasn't the operating expenses being too high. was the revenue not being high enough essentially to support that. So is it a revenue problem? Is it an expense problem? A combination of can we identify that? And then how do we make a plan working forward? And yeah, not to pick on people or like pinpoint where to start here, but like too often we've heard this at like, well, I talked to my accountant about this and you know, it sounds like everything's good or you know, everything was good from what my accountant said. your accountant's probably not looking forward into the future. Let's just be clear, their job usually is to file taxes and look at what's happened in the rear view mirror. So you need to find somebody that's gonna look ahead into the future and make a plan for it with you. Scott: sure. Yep, said. Anything else you want to hit on? Chris: Know your numbers. Scott: That's right. Chris: Know your numbers and yeah, like with all this stuff, it's so personal. Like you don't have to be a practice owner to be a successful person. know, being an associate can work as well. You don't have to see 200 patients a week to be successful. could be your number could be 120. What matters far more than the number of patients you see is how much you're actually taking home out of that. Scott: Yeah. Chris: just understanding your numbers is the starting point. Scott: Such a great kind of final takeaway there is that it is very personal to you and your practice. Whether you're an associate or more specifically based on this conversation as an owner, you're doing three, a year in revenue as a solo doc practice, or you have a team of two or three and you're doing, you Somewhere between half a million and a million plus doesn't like any anywhere in between really just understanding what your overhead is what your compensation structure is You know, it kind of goes back to what that the whole premise of like know your numbers have a system in place Consider something like profit first which we talked on before to help you understand your numbers from a day-to-day operational standpoint of when cash flows coming in am I allocating towards these various accounts and understand my percentages am I and Looking through it from that lens a great starting point. Chris: Yep. Let's leave it there. Good one. Scott: Sure they did there. All right, well thank you for tuning in. As always, appreciate you being here. Thanks Chris. Good chat. Sounds good. See you next week. Chris: Thank you. See you guys next week.