Tariffs, trade wars, recession headlines: it’s enough to keep any practice owner up at night. But the uncomfortable truth is that almost none of it touches the day-to-day financial health of a local clinic. What does move the needle is squarely within the owner’s control.
In this episode of the Practice Marketing Podcast, host Neil Trickett talks with Eric Miller, Chief Financial Advisor of Econologics and author of the Amazon best-seller How to Become a Financial Beast. Eric lays out what PT owners should and shouldn’t do when the economy feels shaky: where to focus, how to manage cash flow, what payroll ratios to watch, and how to expand with confidence instead of fear.
Episode Highlights
- → Why external headlines barely touch a local practice’s finances
- → Diversifying patient acquisition so one lost referral can’t sink you
- → Cash flow is king: knowing your monthly numbers
- → The payroll ratio to watch
- → Why you can’t cut your way to solvency
- → Expanding with purpose: capacity, debt, and acquisitions
Featured Expert
Eric Miller is the co-owner and Chief Financial Advisor of Econologics, a firm that provides financial advice to practice owners, and the author of How to Become a Financial Beast, which became an Amazon best-seller in November 2022. He specializes in helping healthcare practice owners strengthen cash flow, profitability, and long-term business value.
Key Takeaways for Practice Owners
- Control the controllables. Marketing, cash flow, and patient acquisition determine a practice’s financial health, not national headlines.
- Diversify referrals. A single physician relationship can disappear overnight; it cost Neil Trickett half his business once.
- Know your monthly number, profit included. Build it into the target instead of hoping it’s left over at month’s end.
- Watch payroll as a share of revenue. 55% is strong, 60% is a caution zone, 70%+ leaves nothing on the table.
- Don’t cut marketing in a crunch. It’s the lever that gets a practice out of trouble, not a cost to trim.
- Expand from strength. Fill current capacity first, borrow judiciously against a profitable operation, and a proven practice is often worth paying up for.
This is Eric Miller’s professional opinion and experience advising practice owners, not personalized financial or investment advice.
Don’t Panic — Focus on What You Control
External pressures like tariffs, trade wars, and recession headlines create more of a mental strain on practice owners than an operational one, Miller explains. “I don’t know that some of those outside economic factors… are going to ever have a direct impact on a physical therapy practice,” he says, though he’s quick to note they can still affect behavior indirectly: owners sometimes get too conservative with spending exactly when they need to be more aggressive.
“99% of the financial condition that you’re in, in your business, in your household, has nothing to do with external factors. It’s an inside job.” — Eric Miller
The things actually within an owner’s control, marketing, sales, new patient acquisition, cash flow, and managing a team, are where Miller says attention belongs instead of the news cycle. That extends to mindset, too: “you got to be tough,” he says, cautioning that owners who can’t hold their teams accountable, or who keep chasing the next shiny object (a new EMR, a hot investment tip, a trendy tactic) instead of executing the fundamentals well, are the ones who struggle most. His advice: pick three or four priorities a year and do them “extraordinarily well” rather than spreading thin.
Diversify Patient Acquisition
Depending on a single referral source is a hidden fragility. Trickett learned this firsthand: when a physician who’d been sending him a steady stream of patients opened a competing PT practice of his own, “I lost 50% of my business overnight.”
“If you’re going to listen to anything we say today, it’s this: do not rely on one of anything.” — Eric Miller
Miller’s broader point is that this applies to any single point of failure, one referral source, one marketing channel, one big account, not just physician relationships. Build more than one way for patients to find the practice, before something forces the issue.
Cash Flow Is King
Knowing the practice’s numbers, precisely, is the foundation everything else sits on. Miller says too many owners drifted back into loose habits once the post-COVID cash cushion faded: owners “allowing the cash flow to get uncontrolled… because they don’t really have a good grip on what their numbers are.”
“Make sure that you’re accounting for your profits to be part of those numbers, so that you’re not just hoping and praying that money is going to be left over in the account.” — Eric Miller
His framing: run the practice’s finances the way a CFO would, with a real monthly revenue target that already has profit built into it, not a number owners hope to beat.
Watch Your Payroll Ratio
Staff costs (including benefits) are typically the single biggest expense in a PT practice, and Miller is specific about where that number should sit. Keeping payroll under 50% of gross revenue “used to be” the gold standard, he says, but isn’t realistic anymore. In the 55% range, a practice is “doing incredible.” At 60%, it can probably still function, but that’s where he starts to get cautious. Once a practice is operating in the 70 to 80% range, “there’s just nothing left over.”
“If you can keep it in that 55% range, you are doing incredible.” — Eric Miller
His advice isn’t to simply pay people less: “pay them $200,000 a year if you want to,” he says, but that pay has to come with a return that justifies it for the business.
You Can’t Economize Your Way to Solvency
When cash gets tight, marketing is usually the first budget line owners cut, and Miller calls that exactly backwards: “that’s your throttle for your business… that’s just the wrong thing to do when you need to make more money.” Instead, he says, look first at staff performance (there are always some A, B, and C players on a team) before reflexively pulling back on the lever that actually brings revenue in the door.
“You cannot economize your way into solvency. You cannot do it.” — Eric Miller
On what to actually spend: Miller pegs a healthy marketing and promotion budget at 5 to 8% of revenue for a healthcare practice, not the 10% Trickett guessed on air. He adds that it’s common to see practices spending 2% or less, which he calls a direct explanation for why they’re struggling.
Expand With Purpose
Before opening a new location, Miller’s first rule is to confirm the current one is already operating at or near capacity. “A lot of people… say, hey, I want to get into this other area, it would solve all my financial problems, while they’re running 40% at capacity at their current clinic” — expansion just spreads the same problems into a second location.
On debt, Miller says lenders will typically finance up to around 80% of a practice’s revenue if it’s profitable, at roughly 7 to 7.5% currently, and seller financing is worth exploring with an owner willing to carry a note. He leans toward acquiring an already-established, profitable practice over starting from zero: it comes with referral sources, patients, and staff already in place, and he’s comfortable paying a fair premium for one that’s genuinely performing well. The caution is narrower than “don’t overpay”: don’t overpay for a practice whose only real problem is a burned-out, disengaged owner.
He’s also specific about how profitability drives value at sale. Using a $2 million-revenue practice as an example: at a 5% profit margin, that’s about $100,000 in profit and roughly a 3 to 4x multiple; at 10%, closer to a 4 to 5x multiple; at 20%, 6 to 7x.
“Profitability is what’s going to determine value.” — Eric Miller
About Econologics
Econologics Financial Advisors is a registered investment advisory firm that helps healthcare practice owners, physical therapists included, connect practice profits to long-term personal wealth. Co-owned by Eric Miller, the firm is also behind his Amazon best-seller How to Become a Financial Beast and the related Financial Beast Training course for practice owners.
FAQs
What financial strategies can physical therapy owners use during economic downturns? Focus on what’s actually controllable: marketing, cash flow management, and patient acquisition, rather than reacting to national headlines. Miller’s own framing is that 99% of a practice’s financial condition comes from inside the business, not outside forces like tariffs or recession fears.
How can PT clinics adapt to financial uncertainty? Know the practice’s numbers precisely, including a monthly revenue target that already has profit built in, diversify patient acquisition so no single referral source can sink the business, and keep payroll in a healthy range relative to gross revenue (Miller puts that around 55%, with 70%+ leaving little room to operate).
What lessons can physical therapists learn from past recessions? Clinics that did best through COVID and prior downturns doubled down on treating patients and delivering good care rather than freezing up. Miller also points to a common post-crisis mistake: once cash flow improves, owners can slide back into loose financial habits instead of maintaining the discipline that got them through.
What financial mistakes should PT owners avoid in challenging times? The biggest one, per Miller: cutting marketing when money gets tight. He’s blunt about it: “you cannot economize your way into solvency.” Other mistakes include relying on a single referral relationship, not knowing real monthly numbers, and expanding to a new location before the current one is near capacity.
How can PT practices optimize their finances during a recession? Keep payroll costs in a healthy range (around 55% of gross revenue, by Miller’s benchmark), budget 5 to 8% of revenue toward marketing rather than cutting it, and build a monthly number that already accounts for profit instead of hoping money is left over.
Related Episodes & Resources
- Related episode: Should I Outsource My PT Billing? w/ Motaz Ebeido, DPT
- Related episode: Build a 7-Figure Practice w/ Darryl Yardley
- Related episode: 5 Steps to Add Cash Pay Services to Your PT Practice w/ Steve Rapposelli, PT
- Resource: Free Revenue Ratio Calculator
View Full Episode Transcript (click to expand)
[Music]
Neil [0:18]: Hello and welcome to the Practice Marketing Podcast, highlighting successful strategies from North America’s fastest growing clinics and experts so you can learn from their wins and power your practice growth. Hi, I’m your host Neil Trickett, CEO of Practice Promotions. And today’s focus, we’re going to talk about financial advice for PTs and rehabilitation specialists in uncertain times. And our featured guest today is Eric Miller with Econologics Financial Advisors. And he’s been on our podcast a whole bunch of times giving fantastic advice. Eric is the co-owner and Chief Financial Advisor of Econologics, and he helps practice owners get the financial advice they deserve, because in private practice, it’s a little bit different than in some other industries. And he’s also the author of How to Become a Financial Beast, which became an Amazon bestseller in November of 2022. And today, Eric is going to give our audience some advice on what to do and what not to do during uncertain economic times in your practice. So, I think by the end, you’ll feel a bit more in control and optimistic about your practice, where you need to go, and your finances. So, Eric, welcome back to the podcast. And from one author to another, now that you have an awesome book out, congratulations.
Eric [1:26]: Thanks, Neil. Appreciate that. And I’m ready to roll.
Neil [1:32]: Awesome. Let’s do it. So, let’s start with the big picture here. We know it’s definitely been a very turbulent economic year so far, and we’ve seen different impacts in different industries. So I’m just curious from your side: how do economic factors like tariffs and trade wars and these recession fears impact a PT or rehabilitation clinic, even though they’re a local service business?
Eric [1:56]: Well, I think it impacts them more from a mental perspective than anything else. And look, I don’t know that some of those outside economic factors like tariffs and some of these other things are ever going to have a direct impact on a physical therapy practice. But what you hear, and those outside influences, can sometimes have a negative impact on how you allocate money and spend money and manage your cash flow. You may get too conservative when you actually have to get a little bit more aggressive at this point in time. So, I think it messes with you a little bit more from that perspective. But I’ve been saying for a long time, look, 99% of the financial condition that you’re in, in your business, in your household, has nothing to do with external factors. It’s an inside job. And all the things that you have control over, your marketing, your sales, your getting new patients, managing your cash flow, dealing with your employees, those are all things that are under your control. So, try not to listen too much to the noise and the stuff out there. That is the job of the politicians and whoever’s out there, to create financial uncertainty. I still love this industry, still love health care. It’s not going anywhere. And people need that physical touch that healthcare owners bring, even more so than ever. So, just keep doing what you guys are doing.
Neil [3:35]: Yeah, that’s great advice. I mean, when you think about it, as a local business, there’s really not a lot nationally that impacts you, especially in what we’re doing, right? It’s not like you’re importing widgets from China and having to worry about your business. Now, I mean, that could, if you’re in an area where there’s a lot of construction or manufacturing, things like that.
Eric [4:01]: Yeah. Industries that are affected by tariffs could have a trickle-down effect, so to speak, on the people in that area and their ability to pay, or whatever it would be.
Neil [4:12]: Yeah. I mean, that could happen, but again, it’s going to be how smart you navigate those things. There’s always problems. Every year there’s a new set of problems we have to deal with. Is that the trick? Just get used to it, that’s why we signed up to do this thing. And yeah, I was talking, well, my team was talking with a Canadian clinic, and they had a big logging industry in their town, and steel and stuff like that. So they had a lot of concerns at the beginning with the tariffs and trade wars happening between Canada and the US, like that was going to impact the ability of the steel mill and the logging mill to be able to do stuff, and then how was that going to impact the workers there. So there was obviously some legitimate concerns with that. But I think, again, what I’ve learned from you over the long haul is just that you can’t ever put all your eggs in one basket. You’ve got to always be looking at how we can diversify and make sure we have ways of bringing people to our business to service. And there’s plenty of times where, a really good example is if you have a great relationship with a physician and he’s sending you a lot of patients to your clinic. Well, you have all your eggs in one basket, right? And if something happens to that physician, that’s exactly what happened to me. You know, overnight that physician opened up their own PT place and I lost 50% of my business overnight. So that kind of stuff happens when we don’t pay attention when things are good, right? We’re just going for it, and then we don’t think about, oh, I’m kind of setting myself up for more risk here because I don’t have diversified ways of getting patients to me.
Eric [5:58]: Yeah. If you’re going to listen to anything we say today, it’s this: do not rely on one of anything.
Neil [6:04]: Yeah, good point. And so speaking to that, what mindset can a practice owner have to make or break the business during tough times?
Eric [6:11]: Hey, look, you got to be tough. You really do. You have to be tough. I think you have to kind of adopt a mindset of, I’ll say, unreasonable. It sounds bad, but I think you know what I mean. It’s like, I’m not going to accept excuses all the time. At the end of the day, I need people to get their jobs done and do their work, and I can’t accept unusual solutions or excuses or anything like that. Which, look, I know a lot of owners are not comfortable with that because they got into it to treat people and help people and see patients get better. But, you know, as an executive and as an owner, you do have a responsibility to the organization to make sure everyone is doing their job. And sometimes you’re going to have to be tough to do that. And when we’re in a situation right now where, look, reimbursements are going down, but that’s been happening for a long time, and staff pay is going up, but that’s been happening for a while now too. So, I think the key is you don’t have to think too far outside the box. You just need to do the really basic actions of running a business. You just have to do them extraordinarily well. And if you can focus on that, and not just think you have to come up with a new solution all the time, I think that’s a good mindset as well. Let’s just focus on those things that we know will work, but let’s do them really, really well. Let’s do them extraordinarily well, or find people to help me do them extraordinarily well.
Neil [8:01]: Yeah, that’s great advice. And I think that’s one of the hard things of being an owner, an entrepreneur, is you’ve got a lot of options. You got a lot of things introduced to you all the time, whether that’s in marketing, whether that’s in operations, the new EMR solution that’s come out. There’s lots of things coming at you all the time, and it’s so easy to chase the shiny object. Oh my gosh, I’m sure you see a lot of that. “Hey, my buddy just earned 700% on this investment, do you know anything about it?” I mean, it happens all the time.
Eric [8:39]: Yeah. You got to look for consistency when you’re choosing people. I think you got to choose people that understand your industry, that have a consistency of working with people in your industry, that are like-minded and have gotten actual results. And when you start trying to just chase something, I think that’s just a big mistake to do that. So, I think that’s part of what I see really successful entrepreneurs, especially in the rehabilitation space, do really well: they’re actually good at saying no to a lot of stuff. They listen, and they listen to their team especially, and they keep a good observation of what’s happening in the industry and where they can take on opportunities. That’s what I think they do very well. But they’re also very good about saying no to things that could take them off the planned paths they’ve already figured out.
Neil [9:38]: Yeah, yeah, yeah. And the amount of money and attention it’s going to cost you to learn something new, is it worth it to save a couple pennies? I saw that somewhere the other day, I think it was Alex Hormozi, right, kind of a big marketing guru guy, business acquisition guy, and he was talking about the cost of change. You know, like, EMR is a very frequent example, electronic medical records, where you’re like, okay, I don’t have all the features in this one system, but I see them in this other system, but that other system doesn’t have some other features, but I’m going to transfer everybody over to this new EMR because it’s the hottest thing. And so then I jump over to that, but I don’t realize all the hidden costs in labor and time and people having to train and figure it out, it’s enormous. So before you start an endeavor like that, it really better have a big impact on your bottom line. If it’s just going to save you a couple of pennies, it’s not worth it. It really isn’t. And have you seen that in practices, where they’re looking at their growth of revenue, but they’re wondering why they’re flat, but maybe they’ve tried to change so many things during the year that they haven’t really been able to have the growth of revenue they should?
Eric [11:04]: That’s why you have to have some kind of strategic plan that says, this is what we’re going to focus on this year. We’re not going to focus on 10 different things, we’re going to focus on three or four things, and we’re just going to do those. And you know what, maybe next year we’ll add that to the list. But I think those owners that can stay focused on the things that are working well, and strengthening them, and stay away from some of the noise that they hear, and that means not always listening to your colleagues, because all you’re going to hear from your colleagues is how terrible everything is, and blocking that out. I think I’d like to see more owners do that. I see so many big groups out there with big groups of PTs, but then they just become complaint sessions, and that’s no good. I think COVID was an interesting time where we saw some of that with practice owners, right, like, it was, okay, we’re shut down, we’re still essential, we need to get people in here and treating. It was like, get people in here and treat. So, okay, I got to get masks, I got to do this, figure out the policies of social distancing, whatever it was, but the main focus became: treat people, and keep them coming in the office and treat them. So, I think yes, there was a lot of confusion and trying to handle things, but the ones we saw be successful during that time, I think that was one of the things, those successful clinics really just doubled down on getting people in, treating them, and delivering good care.
Neil [12:42]: Yeah, 100%, 100%. Now, when there’s uncertain times, we know that cash flow is king. So what would you say are some of the steps that clinic owners should take now to protect or improve their cash flow, now and looking into the future here, where there could be some more turbulent times?
Eric [12:59]: Yeah, I mean, the first thing, you have to know your numbers, and you really have to understand what that means when I say you have to know your numbers. We see too many of them, I’ve seen this happen especially post-COVID, where because there was a lot of assistance they were getting, and there were a lot of patients, and they had to get rid of staff, you know, actually for the first time I started seeing balance sheets improve for PT owners. They had more cash, they saw higher profits. Now it’s been 5 years since then, and now I’m starting to see people revert back to bad habits again, where they’re allowing the cash flow to get uncontrolled, they’re allowing the organization to spend wildly. And they don’t mean to do that, but it’s because they don’t really have a good grip on what their numbers are. So I would say, most importantly, guys, just know what your numbers are. When I say know your numbers, know exactly how much needs to be brought in every single month. Make sure that you’re accounting for your profits to be part of those numbers, so that you’re not just hoping and praying that money is going to be left over in the account, because I got news for you, if you operate that way, it never will be. So that’s to me, from a cash flow perspective, you guys got to think more like a CFO when it comes to that, and that’s the priority.
Neil [13:34]: Do you see a lot of that transition happen, the needed transition, as a practice approaches a million and tries to go beyond a million, those kind of financial rudiments you’re talking about?
Eric [14:46]: Yeah, I mean, look, there’s things that are going to break along the way, it seems like. And, you know, as you start crossing certain thresholds, I guess when you first start up, you’re just trying to see as many people as you possibly can, and then, oh, I probably should hire some people that can actually deliver, and then, but I have no administrative lines, there’s no policy, everything’s just like, hey, you go do this. So now you got to bring in people to create stability in the organization. And these phases along the way, you know, you can find other people that have had that similar experience and learn from that, part of the benefit of growing is just kind of going through them on your own, and just be okay, let’s figure this out, how do we do this. But yeah, along the way, especially from a financial perspective, you are going to have to pay attention more to the different areas that an organization spends money on. Really, in a PT practice, there’s three big buckets, I guess you could say. You have your practice facility expenses, which is just like your rent and utilities and such. You have divisional and overhead expenses, which is like marketing and certain overhead expenses. And then you have your staff pay, which includes benefits. And you know, these three, you got to keep at a percentage that allows you for that fourth bucket to have a 20% margin. And if you can’t control these other ones, then that fourth piece, the profit margin, is not going to be there.
Neil [16:23]: So what do you typically see there? Because we know that payroll is obviously the biggest expense typically in a business, right? And so where do you like to see a practice operate as far as a percentage of payroll to their gross revenue?
Eric [16:37]: Well, you’re going to ask me, I’ll answer that in two different ways. I’m going to answer what I would like to see, which would be inclusive of benefits as well, and all the expenses of an employee, which obviously are going to include payroll taxes and other things. If you can, you know, god, it used to be like if you keep it under 50%, that’d be awesome. That’s not probably real anymore. If you can keep it in that 55% range, you are doing incredible. I see more people in that 60% range, which, you know, you can probably still function, but it’s got to be below that, when I start seeing PT practices operating in that 70, 75, 80% range, there’s just nothing left over.
Neil [17:28]: Yeah, that’s hard.
Eric [17:28]: Yeah, so there’s no money to do anything else. So you really have to make sure you keep that number in that range. And before everyone’s like, well, you don’t understand, these people want more and more money, it’s like, I don’t care how much they want, pay them $200,000 a year if you want to, but they’re going to have to produce, in excess of that, to justify that pay. I mean, I know you do too, I’d love to pay everyone $200,000 a year or $100,000 a year, but there has to be an exchange for the organization to warrant that kind of amount.
Neil [18:06]: Okay. So I think that’s where practice owners kind of feel squeezed today, is that they feel trapped by, you know, reimbursement models, with the insurance companies, where the revenue there is not changing, and a PT maxed out treating a certain number of patients, they’re only going to bring in a certain amount of revenue, but the cost of keeping that PT on board, they want to make more money. That’s, I think, where people get squeezed.
Eric [18:41]: So to me, I don’t see us decreasing pay for therapy, that’s not going to happen, that’s only going to increase with time. And then the other solution is get them to see more, which, you’re not, in today’s market you’re not going to get a PT seeing 20, 25 patients a day like you used to in the HealthSouth days back in the 2000s. So what’s your solution? You got to make more money, right? You got to make more money. So I think that’s where you have to be really smart in how you’re working your insurance contracts, your negotiations. Know your rate that you need to get. And if you’re not getting that from the insurance companies, how can you market yourself better so that you can add in cash service lines to supplement that? How can you go out and network with someone? If you’re so well known in the area and you’re able to market yourself better and sell the services better, there’s clinics out there getting $200, $300 a visit, like in New York City and stuff, right, because they are commanding themselves at the top of the market. So you got to promote yourself to the level that you want to be at.
Neil [19:58]: Yes. And look, there are practices out there, PT practices, that are doing 15 to 20% profit margins. I’ve seen them, you’ve seen them too.
Eric [20:05]: Yep. So it can be done, it is not a pie in the sky, it absolutely can be done. And so when I hear people that are happy, “oh, hey, we made a 5% profit margin this month,” or “10% profit margin,” I’m like, okay, great, but guys, that’s not enough to expand. That’s not enough to pay everyone well and yourself well as well. So we have to make sure that bar, let’s not accept that scarcity as normal. I think we’re in a big pivot, big transition now in our industry, where we have such an opportunity in the health and wellness market. It’s a massively growing, even in these times, people are paying way out of pocket for massage and stretch services and IV treatments, I mean, you name it, right, like people are spending money out there on themselves and taking care of their bodies. What, how can you get that piece of the pie, right? And we’re in that transition period where we’re trying to figure it out as an industry. But I’m really excited to see, and we’re trying to bring more of these people on our podcast, I’m really excited to see practice owners out there who are bringing in all these different cash service lines, and they’re figuring it out and doing really well. You know, they’ve figured out, I can get paid more, or the rate I should be getting paid at here, to obviously pay my staff well and have that percentage of profitability carried over at the end of the day. But you got to raise your rates, basically.
Neil [21:40]: Yeah, look, I mean, you can sit there and complain about the soulless, blood-sucking insurance companies, or you can have a plan to fight them.
[Mid-episode ad break: a Market2Grow book promotion, omitted here — “The top 10% of PT owners aren’t just surviving, they’re thriving… Visit practicepromotions.net/book to claim your free copy of Market2Grow… And now back to the show.”]
Eric [22:32]: Yeah, you know, and I choose to encourage people to fight back. And we had a hard time fighting back like 10, 15 years ago, because a lot of states didn’t have as much direct access as they have today.
Neil [22:49]: So I figured you’d like that blood-sucking, soulless thing, that was perfect.
Eric [22:55]: Yeah, the vampire insurance companies. But, you know, it’s kind of one of those things too, when I’ve seen it, where, and this is where you see a lot of physician groups, right, physician groups have gotten bigger and bigger because they’ve kind of banded together, and from an economic model, say, “hey, you know what, we’re much better here, we can have a harder negotiation with the insurance and get the reimbursement that we should be getting,” when you can’t, as an insurance company, offer physicians in the area because they’re out of network now, right? And we’ll do that eventually in the PT industry, as baby steps.
Neil [23:32]: Yeah, we’ll get there. But so, we were talking a little bit here about expansion too. So, what advice do you have for clinic owners who are carrying business loans at this time, or considering taking on debt in the near future? Because you work with clinics that are expanding, you know, they take on debt to open a new location, or expand, or acquire other clinics. What do you see there?
Eric [23:57]: Well, I mean, look, the first rule of expansion for me is always make sure that your current facility is operating at or near capacity before you decide to do that, which I think is one of the basic laws of expansion. A lot of people that’ll come to us, maybe you as well, say, “hey, I want to, if I could just get over into this other area here, it would solve all my financial problems,” while they’re running 40% at capacity at their current clinic. Okay? It’s just going to spill new problems into a new location. So, I think first and foremost, make sure you get up to capacity at your current practice, and if it’s not there, then obviously you need to increase your marketing and production to be able to do those things, and that’s where I would focus. But when it comes to borrowing money, look, lenders aren’t awesome for PTs. They don’t love you guys, they don’t hate you guys, but it’s kind of a neutral relationship when it comes to lenders. They’ll probably let you borrow up to maybe 80% of the revenue of a practice, as long as it’s profitable. And I know this because I’ve been talking to some of these lenders recently. It’s possible, without having to go the SBA route, or using all your other things as collateral, as opposed to just using the practice that you want to purchase or acquire as collateral. So anyway, that being said, when it comes to borrowing money, I’m all for it, as long as you guys have confidence that you know what you’re doing, and it’s not just to solve a problem of under-capacity. It’s like, “I’m busting out at the seams right now, I need to go somewhere else,” that’s when I would start looking at borrowing. But, you know, borrowing money rates aren’t great right now, it’s probably seven, seven and a half, somewhere around there. So, if you can find some seller financing deals out there, owners willing to do that, where you can find an owner of a practice you want to buy, and say, “hey, look, rates are kind of high right now, maybe you’re willing to carry a note for a period of time,” you know, you can always do something, to negotiate. Lots of ways to spin a deal, right?
Neil [26:33]: For sure. I think it comes down to, it was so perfect what you said, right, in that if you have all your ducks in a row in your clinic and you’re operating really smoothly and being profitable, can you take what you are doing well to another area, maybe that’s a de novo, brand new clinic, or maybe it’s smarter to acquire clinics, and you got better processes, and you could work with the people already in place there. I’m kind of curious from your end, as you work with clinics on acquisition exits, things like that, what do you see as the better way of doing it in today’s market? Is it going to a brand new, starting something up brand new, or is it acquiring clinics?
Eric [27:05]: Obviously it might depend on the situation, but, I don’t know, I just always like someone that can find a practice that’s already established, and maybe you just have a burnout owner, but it does have some semblance of a business there, it has referral sources, has patients coming in, has a staff, and just being able to kind of imbue some life into that one, put some systems in place, and you can really get it up and going quickly because it’s already been established, and you know, you can probably get a good deal on the practice in that way. So I’m kind of partial to that.
Neil [27:45]: Okay. You know, would you say, here’s an interesting question: would you say that if you’re looking to acquire another clinic, or clinics, a clinic that has a burned-out owner, maybe they’re doing okay, but the profitability isn’t great, or a clinic that has their stuff together and has a great profit already, and you’re going to pay more for that clinic, but it’s already rocking and rolling, what do you see there as an opportunity?
Eric [28:20]: I kind of like the latter one, where a practice is already doing pretty well, and okay, so what, I overpay, I pay a little bit more for it, what does that mean, doesn’t mean anything, it means I already have something that’s producing cash flow, I’m going to add that onto what I’m already currently building right now, and in 5 to 7 years, I’ll have it paid off, and I’ll have this practice now that’s part of my little empire that I’m building, and I’ll be able to maybe double my EBITDA by doing that. And with the values I’m seeing right now on good practices, that could be in that 6 to 8 multiple of earnings. You can see what a good practice would, there’s nothing wrong with buying a good practice and paying fair market value for it, like I wouldn’t be afraid of that, let’s look for the good ones. You know, but if you find something where the only thing that’s missing on a practice is that we have a bad owner that just isn’t really engaged anymore, then just don’t overpay for it. That’s all I’m saying.
Neil [29:29]: Got it, yeah, just don’t overpay for it.
Eric [29:29]: Yeah. And I mean, you kind of see this in the market, the way acquisitions are, that there’s clinics that have that model of acquiring to build, and then once you hit a certain number of EBITDA, or general revenue, your values go up even further, the valuation rate goes up further.
Neil [29:48]: For those that are trying to figure out when is the next step up, you know, I don’t know, there’s really not a hard and fast rule.
Eric [29:55]: Typically what I’ll see is, let’s say I took a $2 million practice, one that had a 5% profit margin, one that had a 10% profit margin, and one that had a 20% profit margin. Well, $2 million revenue at a 5% profit margin is only like $100,000 of profit, that would probably only sell for maybe a 3 to 4 times multiple. Okay, which kind of sucks. Then you have a $2 million that’s doing 10%, maybe that would go for a 4 to 5, just because of the volume there. But you’ve got a $2 million practice that’s doing a 20% margin, especially in today’s environment, you could see a 6 or 7 multiple on that. So, three very different outcomes on the same revenue practice. Don’t always focus on revenue, revenue doesn’t equal profitability, profitability is what your practice is mostly valued on. So that’s why I’m always a little bit more, I kind of like to focus more on profitability than just the volume itself. They’re both important, but I think profitability is what’s going to determine value.
Neil [31:07]: Gotcha. And so speaking to that, let’s talk about staffing, right? How should clinic owners think about payroll, hiring, or even letting people go during some economic uncertainties, or how the practice is doing generally, you know, patient volume starts to dim?
Eric [31:24]: This is definitely the difference between, and I know we all have our own disdain for corporations and big corporations and private equity groups coming in, but one thing they do extremely well, though, is they will not tolerate unproductive people on the staff, and they’ll get rid of them very quickly. Whereas, you know, we’re kind of softies at heart, we love this person, we think maybe he can recover, we’ll see, we don’t want to let people go. But look, you got A, B, and C players, right? Not everyone’s going to be, you’re not going to have a whole staff of A players, you’re going to have some B’s, you want A’s and B’s, you don’t want C’s, right? And I think everyone knows what I mean when I say a C player. So, the more you can kind of move the C players off, the better the organization’s going to be.
Neil [32:23]: Yeah, makes sense. And you know, we hear this when a clinic is, for whatever reason, having some struggles, the first thing they want to cut is marketing, right?
Eric [32:36]: Which is absolutely the wrong thing. Boggles my mind, right, that’s your throttle for your business, so you’re going to cut back on your throttle, that’s just the wrong thing to do when you need to make more money. But they will hold on to the staff, right, because it’s that fear of, I can’t get another person in here, or what if it picks up and I can’t get another person in here.
Neil [32:53]: So we see that quite often, where they should be cutting back on some staff, or cutting hours, or really evaluating, is this an A, B, or C player, or sometimes those C players are causing the business to struggle, like if you have a poor front desk person, and they may not, maybe they’re a nice person but they’re not very productive or good at the front desk like they should be, and that person is costing you patients, not coming in for visits, or cancelling, or not getting reschedules, and so the rest of the staff suffers because they have holes in their schedule, right, and that’s costing you a lot of revenue too. Sometimes those things are a little hard to see, and then you’re like, okay, I don’t want to let her go at the front desk because, you know, I got to get someone to fill that, train them up again, all this kind of concerns that they have.
Eric [33:55]: Yeah, it’s a roller coaster, but I mean, we have to, you have to hire on competency, can people do the job, can they follow orders and follow through to complete a cycle so it gets done, and that’s how people are measured, and if you don’t measure that way, you’re going to continue to have struggles with cash flow. But yeah, I think that’s always the biggest struggle for a lot of owners, to be able to do that.
Neil [34:20]: But yeah, going back to your marketing point.
Eric [34:26]: Yeah, I mean, almost every book I’ve ever read on what you do when there is a cash flow crunch, you cannot, you cannot economize your way into solvency. You cannot do it. What I mean by that, you can’t cut enough expenses to become solvent, it will not work. So you have to make sure that your promotion and marketing are at the forefront when you’re feeling the pinch of a cash flow crunch. It’s numero uno. If it’s not numero uno, it’s in the top five, so to speak. So, I mean, if you do that you’ll get out of it, and if you don’t, then you won’t.
Neil [35:13]: Yeah, I guess it’s that black and white when it comes to that. Well, we see that time and time again, helping people turn their business around, when you just get some good marketing in place, right, and then the patients will come in, the revenue will come in, and you can get back on track with things.
Eric [35:32]: Yep.
Neil [35:37]: So I’m curious here, as far as, obviously we’re talking about expenses here, and looking at things like that, and in an uncertain market, what should owners be kind of looking at or tracking in their P&L, the profit and loss, or the balance sheet, to stay ahead of trouble?
Eric [35:49]: Well, I think we talked about the staff pay percentage, and certainly that’s going to be a big component to look at. You know, how much are people spending on marketing and promotion right now? I mean, not having a high, that could, because to me your payroll would include having someone on there that’s doing those functions, but then how much are you just spending on straight marketing and promotion as well?
Neil [36:23]: And I think you’ve always told me it should be about 10%, so I just believed, you know.
Eric [36:32]: Well, it’ll be, yes, it depends on your growth, but typically for healthcare, it’s like 5 to 8%.
Neil [36:38]: Okay, that seems fair. But it’s shocking how many clinics I run into that are like 2% or less.
Eric [36:44]: Oh, no, okay, you spend 2% of what you make on trying to get new business in the door, like, why do you think you’re struggling?
Neil [36:52]: Yeah, right, yeah, 2% is way too low. I mean, yeah, that’s pretty rare that I see that.
Eric [36:57]: But 5 to 8% sounds about right. And again, you cannot view it as, “geez, this is an expense,” it’s a necessity, like getting new patients in the door is a necessity. It’s going to do wonders for the staff morale, it’s going to do wonders for the value of the practice, all those things, it’s going to do wonders. So you have to put a priority on that. You cannot go sideways, you’re either going up or you’re going down, and we tell people that all the time, just don’t try to get into a point where “I just want to stay steady,” like it’s not going to happen. So, and not only that, but who wants to buy something that’s going sideways or down, or no one’s going to pay top value for something going sideways or down? If you’re not seeing more new patients, if you’re not growing to that end, then they’re going to ask that question, I mean, you ask any buyer of practices, what do they look at, of course they’re going to say profitability, of course they’re going to say staff, but they’re also going to say, is there growth, what’s the growth rate? And they’ll pay for that as well.
Neil [38:06]: Yeah, definitely. And so, you look at, when you’re helping a practice owner, obviously there’s the business aspect and then the personal side of things too. So, for you, where do you like to start with someone? Do you usually say, “hey, let’s look at your personal financial flows here,” or “let’s go to the business financial flows”? What do you typically look at there?
Eric [38:35]: Well, I always start at the household level, because that’s where all the goals and purposes are. We try to start there, and we’ll say, “hey, look, what do you want your life to look like in 5 to 7 years?” And everyone will kind of say the same thing, well, I’d like to have enough money coming in where I can have passive income, I’d like to have no debt, I’d like to be able to take some time off and be able to enjoy aspects of my life. Great, okay, well, how much is that? What’s that look like? How much is it going to cost for us to be able to build that life? That’s a number. It’s going to be different for everybody, but how much money is it going to take for you to live the lifestyle you want to live right now, allocate money for future income sources, and have discretionary income to do the things you want to do? I mean, most people have zero idea how much that is for them. All they know is how much their lifestyle costs. So we figure that part out first, and then what that does, it says, okay, this is how much I need, what does my business now need to do for me to provide for that lifestyle I want? Okay, so that’s how we do it, we start at the household level, figure that out, and then we go to the business and say, okay, your business, which is doing a million right now, which is fine, but for you to have everything you want in your household to do what you want to do, you need to be doing a million five. So, how do we figure that out? And then I’ll give the problem to you to figure that out for them.
Neil [40:20]: Nice, yeah, that’s good, that makes sense, right? You start, I think a lot of times we get it backwards, right?
Eric [40:26]: We all do it backwards. The business, we got to do the business, everything works with the business, and then you’re burned out and you’re like, “oh my gosh, you don’t have any money left over at the end of the day.” The household never gets addressed, and we have to keep the household in the equation, because, I mean, you like to fly, man, that’s an expense, right, but that gives you enjoyment in life.
Neil [40:46]: Got to factor that in, definitely, and all these things you want to do with your lives and experiences you want to have with your families, and the fact that you don’t want to be working when you’re 75 or 80 years old.
Eric [40:59]: So how do we accelerate this process? And the good thing is, everyone, most owners, they have a business, they can utilize it, they just have to learn how to utilize it better than what a lot of them are doing right now.
Neil [41:10]: Yeah, and I think that was one kind of eye-opening thing, working with you guys, as being a PT, because I started with you guys when I was a PT owner, just transitioning from being a lonely PT owner in Florida, back in 2011. So, but yeah, that was that concept for me, what you taught us, which was the household is the parent company, right, and that still stuck with me to today. So, like, it’s so easy, as we’re taking care of our business, our practice, our baby, we’re putting our blood, sweat, and tears into this thing, and we don’t take time to look at what’s more important, which is our household, right, and all our financials around our household, and how secure that is, and are we protecting our assets there, are we building our assets there in our house, and is the business providing me the income I need for the lifestyle I want to build for myself and my family? And so it’s just a different mindset, a different shift in your thinking, because we can get so trapped in that practice day-to-day finances.
Eric [42:17]: And getting stuck with that. So I think that was, it’s just a great model, the way you change your thinking. And you set your systems up based upon that, and once you do that, things just start to change a little bit, and it does start to create not only freedom from the practice, but financial freedom, financial independence as well, because you set these systems up. And it’s really important that people do that, I just can’t emphasize that enough. Your life will be so much happier in 5 to 7 years by starting those things right now.
Neil [42:51]: Yeah, because the finance, the money, is there to provide you freedom, right, and peace of mind, and power for the future. And so it’s such a critical thing to think about and put your attention on.
Eric [43:06]: And they always say money can’t buy you happiness, but it could buy you a jet ski.
Neil [43:12]: Damn, you’re right. It can just go jet skiing and have fun. Well said, my English friend.
Eric [43:19]: Love it.
Neil [43:19]: So, Eric, thank you, you’ve given us some great insight here today. And I love what you said at the beginning, like the outside forces don’t really matter that much, we can do so much focusing on our own practice, our business, serving our area, serving the people in our area, and the people that work for us. So, there’s a lot of opportunity definitely in the market right now for the PT and rehab industry.
Eric [43:42]: Oh, I’m super high on the industry. I think, as bad as everyone wants to seem to make it, and of course there’s going to be struggles, but I mean, I don’t see, in 10 years some of the industries that are not going to be there anymore because of AI and some other things, physical therapy will not be one of them.
Neil [44:06]: Right, yeah, that will continue. Unless we’re all hooked up to like Neuralink, and we’re just operating out of a little machine box or something.
Eric [44:20]: Yeah, we still got to keep the bodies going.
Neil [44:25]: So that’s true, right? But cool. Well, thanks, Eric, I appreciate all your insight and input here today. What’s the best way for people to learn more about what you do to help clinics?
Eric [44:31]: Well, they can just go to wealthforpts.com. You can do that, or just go to our website, econologics.com.
Neil [44:36]: Great, awesome. And they’ve got some great resources on there, some good books there you can get for free.
Eric [44:47]: There you go, the Financial Beast book, How to Become a Financial Beast.
Neil [44:52]: Very nice. Yeah, get that Financial Beast book, it gives you great ideas in the direction of financial stability for you and your practice. So, thanks, Eric, I appreciate you being on the podcast with us here today.
Eric [44:57]: Our pleasure, bud.
Neil [44:57]: Yeah. And to all our listeners out there, thank you so much for being on the Practice Marketing Podcast. We appreciate you, don’t forget to subscribe so you can listen to future episodes. And then don’t forget to check out our YouTube channel, where we’ve got tons and tons of free advice for you there on marketing your clinic, as well as other great stuff, that’s right on our YouTube channel. And then don’t forget to go to practicepromotions.net, where we’ve got great free downloads, you can get our book and all kinds of great stuff to help you market your practice. This is Neil Trickett from the Practice Marketing Podcast, wishing you much success in your practice.
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