The Therapy Business Podcast

Finding Hidden Cash Inside Your Practice

• Craig Dacy • Episode 62

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We share a simple framework to sort every cost in your practice into COGS, investments, overhead, and fluff so you can cut waste and fund growth. We show how to prove ROI with time and money, fix leaky roles, and turn savings into smarter investments.



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*Intro/outro song credit:
King Around Here by Alex Grohl

SPEAKER_00:

Cutting your expenses is really important in a business and making sure that you are as lean as you could possibly be so that you can invest in growth, that you can continue to grow in a financially healthy way. Part of this is understanding your expenses. And what I mean by that is knowing which ones are necessary, which ones maybe you could do without, and how can we identify those? Well, today I'm going to guide you through that and the three easy categories, three three categories that we can easily place these in so that you can get really crystal clear on where your money's going, which ones are vital, and which ones maybe you could just let go. My name is Craig, and I'm the owner of DAC Financial Coaching. Our team is on a mission to make your therapy practice permanently profitable. If you own a solo or group practice, we're here to help you build a business that creates more time, makes more money, and serves more people. This is the Therapy Business Podcast. I know cutting expenses can be overwhelming. I I tried to once a quarter or once every six months or so look at my expenses and trim some fat, see if there's areas of opportunity for me to trim, to remove, to figure out am I getting an ROI from certain things? Maybe I was uh, you know, six months ago, but is it still providing an ROI to the business? That's really important, but the process can be overwhelming. Uh, even for me, when I pull my vendor list or when I look at my bank statement to see what are my expenses, what have I spent money on this past quarter, the list itself can stress me out. And I sometimes just want to avoid that task altogether. What I found super helpful is for me to break it down into three really clear, really easy to understand categories. And in fact, you can use a PL to help support this process if you want to. You don't have to, but you can pull your PL and use some of these categories to identify what's what's key, what's important, and how can we distinguish what needs to stay. So let's talk about those three categories. The first one is your cost of goods, this is your cogs. So if you're looking at your profit and loss statement, the first type of operating expense is cogs. This basically means if you didn't have these expenses, you couldn't run your business. A t-shirt manufacturer, a cog would be the t-shirts. If they print t-shirts, let's let's say they print graphic T's with uh funny memes on the front. If they did not purchase t-shirts, they could not have a business, they would have nothing to sell, right? That seems pretty straightforward. So t-shirts would be a cog. It has to stay. Now, there's obviously opportunities. Maybe we could find cheaper shirts, we could find different vendors, but cogs are the things that you have to have in order to run your business. Now, for therapy practices, you probably don't have a ton of cogs. If you have contractors, that would be cogs because those contractors are not part of your business, they are separate entities, and so you're contracting them out. So they would fall under your costs of goods sold, your cogs, and then supplies. If you're in physical therapy, so maybe disinfecting wipes, towels, bands, tape, all of those things, although those could even fall under the operating expenses, just depends on how you're utilizing them. But if you're gonna make sure that you have a clean environment, you need cleaning supplies. If you're going to, you might need exercise balls, depending on the types of physical therapy you're utilizing, you might need those things. And same thing with um regular therapy, mental health therapy. If there's certain things that you need depending on the style or type of therapy you're doing, there might be cogs that you have in place. Massage therapy, you're gonna need certain supplies in order to fulfill that. For the most part, if you're out, I know a lot of our listeners are mental health therapists, really, contractors is the big one. Now, therapists, even if they're W-2. So if you own a group practice and you have therapists under you serving clients, that could be considered a cog simply because if they don't you don't have that therapist to meet with that client, you're not gonna be making that money. I always think about it this way. If that therapist quit tomorrow, what would happen to their clients? Right? We have to pay them in order to serve that client. So that could be considered a cog. However, I prefer to put them into the next category, which is investments. So our first operating expense type is cogs. The next one is investments, and this is the most important one. And I'm not talking about your retirement or the stock market, we're talking about investments in yourself and in your business. We want a majority of the expenses in our business to be investments. We want them to generate an ROI. We want you to spend money that is going to bring back either more money or more time. So that is key. If we focus on making sure the bulk of our expenses fall under this investment category, that's going to be huge. And so as you're going through this exercise and you're looking at each expense and deciding which category it goes into, this can be eye-opening. You may realize, wow, I got a lot more expenses in these other categories. Whereas the investments one, I don't really have a lot of things that are generating an ROI. Maybe that's why we're struggling with growth. Maybe that's why we have such a cash crunch, is because the money we're spending is not getting us anything back. So it's really important. So, like I said, money or time is the ROI we're looking for. A salesperson, software that cuts your billing time in half. Those are things that provide a direct ROI. A salesperson, you're gonna pay them a salary, they're gonna go out and generate X number a year in revenue. That's really important. If you have a software that's cutting again, billing, let's say you have uh you're you get a software to help you with your note-taking, your billing, that may cut the time down in half. That's time you can now reinvest in something else. Coaches, consultants, I hate to say it as a coaching business ourselves. We are investments. A good coach should provide a direct ROI. And I tell our clients all the time when they come see us, if they are already seeing a coach or if if they're already if they're working with us and they're have other coaches or they're looking at hiring someone else, it's let's look at the ROI. And even with us, when it comes time to renew, did you get your ROI? Did you make more back than you than you put in with us? And typically our clients see a five to 10 times ROI on their investment. And for us too, even if they were to stop coaching with us, the systems we put in place it goes in perpetuity, meaning every year, if they continue to do what we showed them, they're gonna see more money coming in. So they're gonna generate that ROI for the life of their business. That is key. So if you have coaches, consultants, if you're thinking about hiring a marketing coach or a marketing consultant, we want to make sure that there is an ROI. That's a great question to ask, even if you're considering adding this expense. Is what ROI can I expect? How do you get an ROI for your clients? Where do they typically see that ROI coming in? Your coach should be able to identify that, whether it's a ROI in your time or whether it's an ROI in real dollars, how can they provide that for you? Or at least help you get that. Again, a coach isn't always going to hand it to you, but they can at least show you the path, help you get that quicker and faster. So we talked about the two types time and money. So let's talk about time first. So if it saves you time, there's an ROI there. The best way to figure this out is what is your time worth? So think about an hourly rate. If you could pinpoint an hourly rate for yourself, what would that be? And then we're looking at this investment, is that this thing we're spending money on, whatever it is, if it's saving you time, how many hours is it saving you? So, for example, let's say a bookkeeper, somebody to manage your books, reconcile your books. If on average for a therapy practice, um, it takes maybe five to 15 hours per month. So let's just say 10 hours per month for a licensed, certified bookkeeper to manage your books. Now, if you were to do it yourself, it would on average take between three to 10 times longer, just depending on your business. If you do it, if you were to stay on top of it, or if you were just to every quarter try and clean everything up, it can take three to 10 times longer. So let's just go on the conservative side of that and say three times. So three times longer than 10. So that's 30 hours per month of your time that you would be spending on managing your books and doing it correctly. Now, if we were to calculate your hourly rate at$100 an hour, that's$3,000 per month that you would recoup. So if you were spending 30 hours,$100,$100 an hour,$3,000 a month. Now, if we go hire a bookkeeper for$1,000 a month, then we've just recouped$3,000 worth of our time. We're paying them to do it. Now we have those 30 hours back that we can then focus on revenue generating activities, marketing, getting new clients, sales calls, whatever it is. So even more than that$3,000 worth of our time that we got back, we're also going to see more financial ROI on the back end by doing more revenue generating activities during those hours. So you can see right there a direct ROI between what we're getting and what we're paying. Now, with these investments, you can always look to see if I'm getting the best ROI possible. You might even say, is there if I'm not super in love with my bookkeeper, could I maybe save by finding someone who's got a lower hourly rate? And that's fine to do. But where I find is sometimes we look at these these pieces and we see maybe that time factor can feel like it's just an unnecessary expense when in reality it's actually saving you money and time purely just from the hours you would normally spend on it if you did it yourself. Now your therapists, let's talk about financial investments. They should be a financial investment. So they should be generating more revenue than what you pay them. So again, if you're paying them a percentage, if they're taking half and you have a client paying you$200 per session, you give your therapist$100. That just means for every$100 you pay them, the company's making$200, right? So it's an investment. You're making more back than what you're paying them. So that is the key here is we are getting every time they take on a client, it's worth it to us because we are making money. That is the idea here. If you find that you're losing money on a therapist, maybe you're paying a salary, maybe you have bonuses and incentives in place, and you realize, wow, we are actually in the red on this person, then that's a problem to address because they're no longer an investment. This category of investments can be tricky because a lot of times we may have emotional ties to expenses, we may like something, and we often want to say, well, it's it's an investment, you know, it's I feel like I'm getting this back, or maybe it's intangible, but it provides peace of mind or it provides all these things, which can be very, very true. But a good filter for this investment category is data. If you don't have data that can provide a point to a direct ROI number, then let's not put it in this investment category. So it would go into this next category, the third and final one, which is overhead. So that is ex cost that is expenses that are costing your business money, but it helps the business function. So if you have certain things that cost the business money, but help it helps the engine run to an extent, then it's overhead cost. There's a lot of different ways to define it, but I feel like that is the simplest way for us to, in at least in this exercise, to think about it. An overhead cost costs the business money. There's not a direct ROI. This could be your office rent, this could be office supplies, uh, different softwares that you might have. It could be um meals or team meals or whatever, a lot of different things can fall into this category. Things that don't provide a direct ROI. Again, there might be some ROI for feeding your team lunch every Friday. You could for morale, there's a boost. There's a lot of different factors that can come into play, but it's it's an intangible. We can't calculate what are we getting back in return on that expense. So it's gonna fall under overhead. It's costing you money to do it. Doesn't mean it's not important or valuable, but it's costing you money. Overhead is the greatest opportunity to make cuts. We again want a majority of your expenses to be investments, things that are growing the business or benefiting you as the business owner and saving your time and energy. So let's look at different overhead expenses, and it's okay, again, some of them are gonna be ones that are easily you're like, yeah, that's not a necessary one. But some of them, just because it's an overhead expense doesn't mean it's not necessary. Licenses, for example, making sure that you're staying up to date on certifications, those are all really, really important overhead costs. They may not have a direct ROI always, but they are important if you and they might they might even be a cog because you can't really do business if you're not licensed, right? So staying up to date on certain things might even fall into the cogs category anyway. But overhead expenses, point being, some of them are necessary, some of them it's okay to have them. I'm not saying having overhead expenses, you need to go cut them all. You're gonna need or want some of them, they're important. You may want an office building so that you can have in-person therapy because you think that's important. Like I value that, that's one of our core values, so it's important to us and it's worth the money that it's costing us in order to do so. They're also kind of going back to that justification piece of we can easily justify things as being investments. This is where I really try to draw that line, like I said, because that is one where I've had pushback. Well, you know, an office is an investment because you know, some people will only see a therapist if they can see them in person. And so, you know, by having an office, we're opening ourselves to more business and more clients. And that might be true, but again, that data point is hard to quantify. So that's why we look at it as an overhead. It's okay if you want to keep it, it's okay if you consider it a necessary expense. We just want to look at these things. So, some of these, like I said, may provide that ROI. You may have an administrative assistant who maybe provides an ROI that you just can't quite pinpoint. Um, that's okay. Doesn't mean you have to go fire them. It could be an opportunity if you're trying to cut expenses. If you're in the red, you're underwater. Maybe that is something to look at. But again, really pinpointing these things and just becoming aware, I think, is the key here. We're not going about this with any judgment or any of that. It's just I want to be aware of where's my money going. And that doesn't mean I have to change it, doesn't mean that there's anything wrong. Maybe you are in a financially healthy place and you're just trying to figure out where's my money going, and that's okay. So finding these three categories, and then I'm gonna give you a fourth bonus category, which is what we call fluff. This is expenses that are just still floating around. If you have anything that you are didn't felt feel like fitting cogs investments or overhead, that's called fluff. And let's just make things easy on us and go ahead and just cut those because they're not like I said, overhead is something that may cost you money, but it benefits the business. Investments are things that are generating an ROI. Fluff is neither of those things. This might be if you're grabbing, and this I guess wouldn't even be really a business expense, but if you're grabbing uh drive-thru food on the way to meeting a client, right? You see, that's fluff. Those are things that are not benefiting anything or anybody, and honestly, it's not even really a write-offable expense. So getting rid of those fluff pieces, any expenses that are just extra, you don't need them, that is the best place to start. Let's wipe out that fluff. We love working on this stuff. So if you need help, as always, in the show notes is a link to schedule a free consultation with our coaches. They can help you figure out how we can optimize our finances, how can we look for those investments? And if you've been looking to make an investment in yourself and your business by finding a coach who can help you get organized with your money, who can help you create those systems, who can help you grow your business, that's what we do. And like I said, we can generate an ROI for you. We can put our expense into that investment category to make sure that you are making more money back than what you pay us. And our coaches can show you how in that consultation. Thank you so much for joining us again. I'm super grateful for all of our listeners, everybody, all of our practice owners out there who are putting in the time and energy. It means a lot. And not even just on a selfish side of you're that you're listening to me ramble on for 15 to 20 minutes a week. It's that you're investing in your business. And this is a free, you're investing time. It's free to listen, but you're taking time out of your day to invest in your growth, to invest in your business. And I think that's something worth acknowledging. So thank you for investing in yourself, caring about your business enough to listen to this and take action. Thanks for joining us on the Therapy Business Podcast. Be sure to subscribe, leave a review, and share it with a practice owner that you may know. If your practice needs help getting organized with its finances, or just growing your practice, head to therapybusinesspod.com to learn how we can help.

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Craig Dacy

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