I have just completed a very thorough Financial & Productivity Analysis of 150 Physical Therapy private practice clinics throughout the U.S. and want to share what I’ve learned.
THE MAKE-BREAK POINT or “BOTTOM LINE” & HOW TO FIGURE IT.
In business, there’s no such thing as “let’s just get to ‘X’ production level and stay there”.
In any activity, nothing stays the same; it either increases or decreases. When one ignores the required efforts to improve business, it too, will eventually lead to struggle, and result in very difficult times ahead. Why is this? We have regular tax increases, cost of living inflation, times of reduced reimbursements, and every now and then even a natural disaster. Therefore, one must always work to increase production and quality to compensate and guarantee a brighter future.
There are two make-break points in any clinic:
LEADERSHIP – As the owner, one must lead the group and be competently able to increase business; the leader cannot be completely tied up treating patients leaving no one at the “helm”. One must have the will and know-how to drive in new patients, create an organized, efficient group; be factually skilled as an Executive – including public relations and marketing, and ensure all staff are well trained and each functions from their “team hat”.
FINANCIAL MODEL – The financial model must be at least 3 times the cost of delivery staff, (therapists). I.e. – if you pay out $50/hour to render a treatment by your clinical staff, you must make at least $150/hour to “just make it” financially. Ideally, it would be upwards of 5 times or more the cost of delivery/costs to render treatment.
If you are using a therapist and an additional staff to deliver service, you must include both salaries into the overall cost of delivery. You must add in other expenses such as taxes, etc.
How to calculate the bottom line: Take the PT and Aide costs per week, add on the 12% for taxes etc. Multiply this by 3 (or 5), then take that total and divide it by the average collectible charge, (what you’re actually paid per visit after all write-offs/adjustments).
EXAMPLE: The PT and Aide costs you $2,000/week total, x 3 = $6,000. (Your average visit charge is $75.) Divide $6,000 by $75 – This shows 80 visits/week must be done by this team; It also illuminates what you actually pay out vs. the exact level of production required to reap sufficient business health. (Please remember, 3 times will just “get you by” and possibly make a 10% profit. The real deal is 5 times! That amount provides an abundance and room for unexpected costs / situations that may arise.)
A private practice needs approx. 30% profits after the owner’s salary to be viable; this also ensures the ability to expand / recoup the owner’s sweat equity, and allows for decent bonuses.
Your staff, in most cases, will not understand this. Some will think “Oh boy, the owner is making SO much money!” They usually won’t have a clue of all the costs involved to run or grow a business. They usually don’t notice that the reimbursements continue going down either. They can walk from a clinic with little consequence; you cannot!
I also discovered that most PT’s and other staff therapists, will “give away the shop”, adopting a sympathy with the patients. This is NOT a professional attitude, but a welfare-like attitude and is a statement of being a bit disassociated to the realities of business. DO NOT expect it to be understood, but simply establish the bottom line production level and enforce it; you can then work to educate the staff away from their “give away” views.
Bonuses would only be paid when you have decent profits being made. For a therapist you would bonus production above the break-even point, and per the examples above, only bonus production above the 3 times factor. Bonusing higher production also incites higher production!
These numbers fully relate amongst the 150 clinics I have studied.
The job of the Executive must be driving in business, maintaining quality with high efficiency, making the factual bottom line known and enforcing it, (with understanding please), and creating a team that truly understands financial viability and their role in it. The Executive cannot be a full-time therapist and fully accomplish these duties.