Do You Know Your Breakeven Number - How To Find And Leverage It



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Do You Know Your Breakeven Number - How To Find And Leverage It

Introduction

Welcome to the Private Practice Owners Club podcast. Nathan Shields here with my guest, Adam Robin. How are you doing?

I'm doing fantastic. How are you?

I'm doing great, thanks. Starting us off strong, we're going to talk about breakeven numbers. It's a minor thing when you look at the whole financial picture of what you're considering when you're looking at your clinics. I'm finding that most people don't know their breakeven numbers, or maybe at one time they found their breakeven number, but they've grown out of that. They haven't changed it to include the greater expenses, whether it's employees, rent, or other expenses that might come into play to adjust. It's important that we get back to it. Many people don't have it in the first place. I think this is going to be a really important podcast episode to talk about that specifically. Don't you?

Totally. I resonate with that because I was one of those people who had my breakeven at one point a long time ago, and then I was like, I'm not really sure how to use this, and then I didn't for a while. I opened up two more clinics, and I was like, I need this metric that can help me predict how much money I can have. The breakeven could do that. I came back full circle, and I dove back into the breakeven and got more scientific about it. It's super powerful.

How did it help you initially when you first looked into finding that breakeven metric? What kind of guidance, what kind of support, what did it tell you?

I'm just speaking from my experience. I just calculated the breakeven per visit number. That's right. That's where I started, but I didn't really take it to the level of breakeven visits per month that I needed or visits per week because my brain wasn't there yet. I had my revenue per visit. I was like, “Now I know what insurances I can take and what insurances I can't.” That's where it stopped.

You knew your cost per visit.

I knew my cost per visit, and that's about as far as it went. I didn't really know how to use that until I figured out how to use it on a bigger level. I was like, I can actually manage multiple clinics like this. It was a lot easier.

Really powerful, because, number one, it tells you it's a really nice dashboard number, like it is the scoreboard for your clinic. Either we're hitting this number, and things are running appropriately, or we are in the black.

It's guaranteed.

Pretty black and white.

I love that. I love that guaranteed part too.

Importance Of Knowing Your Numbers 

If you don't have that number, you're just running based on feeling, I'm feeling busy. My bank account is either doing good, or it went down. It's not as high as it was a couple of weeks ago. What went wrong? Just the subjectivity comes into it instead of having that objective data.

You have a chink in your armor because not only do you not know your numbers, but you're going to be more cautious and less growth-oriented because you're going to be looking over your shoulder and not really confident about your model. It trickles down to how well you show up to your team, how powerful, how much your leadership skills are in play to have confidence over your money if you're going to show up confidently.

Let's back up a little bit. I have my definition for breakeven, and I've shared it with different groups in the past. What's your definition of the breakeven? What is that?

It's for me now, and I'm sure this is my definition, it's the number of visits that I need to complete in order to ensure that I make a minimum of 10% profit margin every month. I want to know what that number is week by week and what that number is month by month.

Perfect. In number of visits?

You can break that down even further, and we can get into that, but the number of visits per week, that way, I can look at the end of the week and say, we hit blank visits. We are on pace. I know the money's coming because I know I've already calculated that. I've already projected it. I know the money's coming. I feel good about this, or we didn't hit it, and I need to work on something. I need to figure out how to get that number up.



Breaking Down Breakeven By Visits And Dollars 

We can break it down by visits. You can also break it down by dollar figure. The easiest way I found to calculate it is usually when you're looking at your financials. You have your profit-loss statement that shows you all of your expenses, every single expense related to owning the clinic, including your salary and some of the personal/business items that you might expense to the business. It's all incorporated into it, everyone's salaries, all the benefits, plus the 10% profit margin. The breakeven is not just to cover expenses. Eric Miller has told us a ton of times on any of the financial episodes we've done, but it's the expenses plus a 10% profit margin. You build that into your expenses. That's an expense line within your expenses on your profit-loss statement.

Initially, you're going to get that breakeven number as this is the amount of money, on average, that we need to collect every month from the clinic to ensure we are profitable. Having built that in, you ensured a 10% profit margin financially. You can reverse-engineer, do the math because of your average reimbursement per visit. You take that $50,000, and you make a $100 per visit. You need to get 100 visits a month, and so then you can divide that by 4.2 because there's a little over four weeks in a month. Divide that by 4.2, now you know that you need to hit whatever visits per week in order to breakeven. That's huge because we can do that.

We can apply that to the providers. That's how we would establish the minimum expectation that they need to hit in order to cover their expenses, their salary plus the clinic's expenses. That’s how, back in the day, we got to our minimum number, 60 visits a week. That's how we knew. We did this exact formula over and over and over again to figure out what our breakeven was by clinic, by provider, etc., to ensure that we had a healthy profit. Anything over that meant there was additional profit. If they did more than 60, closer to 65 or more, then we knew that we could give them a bonus very easily, and we could justify it and still not cut into our profits significantly.

There could be a dollar figure associated with it. Then you can reverse-engineer and find that visit figure, exactly what you're talking about, and break it down into the weeks and the months. It really gives you a target, really gives you a guideline as to what the clinic needs to produce, what the providers need to produce. If you're above that or below that, that can tell you exactly what to do next. If you're opening a new clinic and you're below that target, you better put extra energy into the marketing.

I don't care how much you care about your patient. You're not going to be profitable.

All you do with your extra time is market and find ways to market, etc. Knowing that number and your team knowing that number is especially huge. Is that a number that you share with your teams?

Absolutely. Every week. This is the Bible of Adam, whatever, in my company. It sounds like it was the same way for you, but the expectations are not at the CEO level. They're set at the financial department level. This is like when you put on your director of finance hat and you're sitting in the director of finance seat. You're reviewing the financials. Through that data, you report to the CEO what the expectations are for the company. That's how you set the intention of the company. So, like 80%, that's just a random number based on what I'm feeling today, but like 80% of all the momentum that you create in your company is based on what you make the priority and what you make the intention.

Setting Financial Intentions For Your Business 

If you have a number, and you write it on the board, and you look at it every day, and you measure it, and you tell your whole team to look at it, and you make them create priorities around it and push the whole company in that direction, you will probably move in that direction. If you don't know what the number is, you aren’t moving anywhere. Otherwise, you're going to be trying to market a little and try to recruit a little and try to drop insurances, and maybe that'll work. You're not really sure what you're supposed to be doing. The power of that is to be able to set the intention because you can set revenue, you can set revenue balance, so now you have expectations that you can set with your billing department week by week.

You can also set visit volume expectations. You can do that at the provider level, and you can do that at the clinic level. If you break down your visits, and you divide it by your visits per eval, now I have an evaluation. I have a marketing goal. I need so many evals to create the volume so that I can create the margin. You can set all the goals for the company with your breakeven metric, which, it's like, that's what good businesses do.

You’ve got to have that. You’ve got to set the standard. If your standard isn't objective, then you're going to be tossed about by the winds of emotion. I love how you shared the fact that you set that standard and shared it with the team because you can imagine, what are they basing their performance on? Are they basing their performance on, “I feel busy, I'm feeling overwhelmed,” or are they doing it off of objective measures? How are you going to assess their performance if you don't have an objective standard to go off of? Because you could say, your patients are doing great, but you're only seeing 45 visits a week, which means we're losing money every time, every week that we have you on board, and that's not going to fly.

No matter how good you feel, no matter how great your patients are doing, if you're not able to meet that metric, then we're not successful, and we're not fulfilling our purpose as a company. It's good to have that objective measure, and I also love what you said, how you can build so many other things off of that. What does our marketing effort have to be in order to hit that number on a regular basis? If we do hit it on a regular basis and we are hitting that utilization metric that we've talked about in other episodes, if we're hitting that 85% to 90% of utilization, or 85% to 90% of all of our appointments are booked at this time, now you know there's that objective measure that we're running hot. We're very productive at this point, and it's time to hire again.

You forecast the new breakeven if you're thinking about bringing on a new provider, and that's what you do with your bookkeeper or your CPA. “I’m looking at bringing on this other provider here, the expenses they’re going to cost me somewhere around the salary and the benefits all included. That’s going to increase the expense line. That’s going to increase the overall expenses altogether, plus the 10% profit margin.” Now, what’s the new breakeven before I even hire them? How am I going to ramp up my marketing machine to meet that new metric, that new breakeven? There’s so much that can be played off of knowing that number, projecting it, forecasting it, holding people accountable to it, and proactively moving forward now that you have a number.

It’s just unlocking so much more for you, and I like how you mentioned, “What am I going to do to ramp up the marketing machine?” Eventually, if you start opening up a few more clinics, that’s going to be what you ask your director.

Like marketing director?

Right, or your clinic director. The clinic director’s like, “I think we need another PT. Great. Let me do my math real quick. We’re here. The new expectation will be here. How does that land for you? Do you feel good about that? Do you have some ideas on how we’re going to hit that number?”

Do we have a space for it?

You have the space for it?

We have the support personnel for it.

How long are we going to go before we pull the plug? Shame on you if you are managing your directors by saying, “You weren’t profitable last month. Try harder this month.” Shame on you.



Period.

Shame on you. They need that clarity. They need to see that.

They need to see the score. “Are we winning or losing?” They need to know that, and that helps so much with the conversation. If you’re saying, “We need to score 100 points this game to win, and we’re at 98,” you don’t have to do anything. You don’t have to say anything. They know that we’re losing and we need to score more points. That really helps the team when you’re able to be that objective and clear with that. I forgot to mention for those who have listened this far into the episode that we have a free resource, a breakeven exercise resource that can help you determine and establish your breakeven point.

If you go into the Facebook group, Private Practice Owners Club, Facebook group, you can DM Adam, and he can share that resource with you. There is a post or two in which those resources are added, but if you’re not able to search and find them, you can always reach out to Adam and DM him. DM him through the Facebook group, and we can get that to you so you can figure that out yourself. It should be happening all along the way. Hopefully, those who are listening that haven’t opened a practice yet or are at the beginning stages, you should know your breakeven point before you open the doors.

If you’ve worked appropriately, like we’ve asked you to with your CPA or bookkeeper, they’ve done some performance with you. You should know how many visits you need to make a significant profit in your organization based on the expenses that you have. You’re going to do that. I’m assuming you can speak to it. I’m assuming you do that before you open each of your clinics.

Before we spend any money, we need to know how that’s going to impact. You have to have an understanding of how the decisions you’re making are impacting your finances, period. You cannot guess. You’re opening the door to, like, you might as well just give all the control in your business away. Part of the reason why I see owners struggle is that they make decisions, but they’re not receiving the objective feedback they need to understand how that impacts the bottom line. Anytime you feel scared, worried, or anxious about your money, it’s because you don’t have enough information. The answer isn’t see more patients. The answer is get more information. Then you can see, and then you can act, right?

Yeah, because where I would come from is I might add $2,000 to my expense line by buying this program or this piece of equipment on a subscription basis, but I didn’t take the next step, which is, I’m knowingly adding additional thousands of dollars per month to my expense line, but I’m not taking the next step to say, “How many visits now do I need to see? How does that bump up my breakeven point?” It’s going to bump up financially, of course. “What’s the visit-per-month or visit-per-week total that I’ve added $2,000 or $3,000 to the expense line?” The same goes with raises. If you do raises all at the same time, bringing on a new front desk person, a tech, even if they are lesser wages, hourly wages, you need to add that in.

Another $2,000 or $3,000 per month could equate to another 20 or 30 visits a month. Are you equipped, and are you capable of adding another 30 visits a month? It’s another seven-plus visits a week. “Where are you going to get the extra seven visits?” That’s maybe a determining factor in whether you actually make that purchase or not.



Using Breakeven To Empower Your Team 

You can just understand what you're getting into because, like, your team is so awesome. They're so talented. They could almost do anything, but they need clarity, and they are not clear unless you are clear. The team meeting looks like this, “Team, happy Tuesday. We need to hit 3,000 visits this month to make this thing work. You guys good? Let’s go.” Very clear.

“Any questions or concerns? Let's talk about now.”

Get to the meat of the conversation, and then it’s like, “I know where we got to go. I see where I got to go.” If you’re just practicing best practices, like measuring things, providing them with training, marketing appropriately, building your culture, and all that stuff, you should be able to make progress toward that.

What’s cool about that is, simply, if you’re able to provide this standard, this metric that they know they need to hit, you can spend more time on the cultural piece and the training piece. You don’t have to spend time focusing on productivity per se. You’re still going to have to do that, but the numbers speak for themselves because it gives them a scoreboard representation of how well the company is performing and the productivity behind it. You can spend more time on arrival rate or, “What are we going to do for National Physical Therapy Month?”

Focus on your people. It happens where you get to a place where you’re not worried about money. It’s not always the most important or the biggest worry. Once you build so much control around it and certainty, you’ve got a good team in place. You can actually not worry about it as much. That’s real. You can actually just care about your people, build leaders, support them, do the National PT Month, celebrate wins, and be a good boss. Hopefully, that’s encouraging, like, you can do that.

There are very few KPIs that we have access to in our industry that are what you would call leading indicators, metrics that will project or foretell how things are going to be in the future. Many times, we focus on lagging indicators, like how many visits we saw last week, what the average number of skilled units per visit that we billed was, how many visits per hour, and what our utilization rate was. These are always looking backward. But using that breakeven metric allows you to say, “We needed to hit 100 this week. We hit 110.” That means, in the next four weeks or so, I’m going to expect more profit. If I know I need to hit 100 and I hit 85, then I know there’s going to be a ding to my collections and also my bank account balance four to six weeks from now.

That holds true even more when you look at the month. “I need to hit 500 visits this month. I got to 460.” We’re going to be in single digits in our profit margin, frankly, probably. But if we’re at 550, it should be a healthy revenue month next month. It can foretell, you can see around corners with this as you’re tracking it and have it dialed in, which is not very common for us to have.

I would say that’s probably one of the biggest challenges to business. It’s probably more unique to our business because it takes so much time to get paid. What happens is you combine this growth with delayed payment. Let’s say you grow by 20% in a month and then you don’t make any money that month. It’s like, just hold on. It’s coming. It’s good. I’ve worked with practice owners who work with us, and they get to that three-to-four-month range in the program. They’re like, “What are you talking about? I thought the money was coming in.” We’re looking at their metrics, and they’re growing.

Their visit volume is growing 20%, 30%. I’m like, “Give me one more month, and I swear to you that money’s coming in.” Then, like a week later, they’re like, “You were right. We’re good. Money’s in.” It takes a little time. You’ve got to trust the process. But once you go through that and you see it and you experience it, you become more comfortable with it and recognize, “I know that money’s coming in.”

The beauty and the power behind it are that I’m not surprised when I lose money next month or when a flood of cash comes in. I can just plan on that and make some plans accordingly. Great. I think we’ve beat this topic up quite a bit. What else do you want to say about it?

Balancing Profit Margins And Expectations 

I think you crushed it. I will say this other thing, do you like 10% margins, or do you like 20% margins?

Of course, I want 20%.

Why not make our breakeven 20%? You could totally do that. What we do in our company is we have a breakeven metric and then we have an expectation metric. So now, we have the number of, This is what we need to hit for 20% margins.

It's an expectation/goal.

Ten percent is rock bottom.

We're not in business if we go below.

Expectation is, “This is what we’re always shooting for. We’re shooting for that 20% margin.”

You can do it.

You could totally do it. It's really not as hard as I used to think it was because I see the number so cleanly, and it's like, I just got to do that, and we'll just do that. You don't even have to push that much volume. You just got to dial it in, and you can hit 20% margins. We had a client in our program. I'm not going to shout her out, but you could probably figure out who it is. She had 29% profit margins in her practice in network.

Huge.

You're talking about a lot of money, like life-changing amounts of money. Not like you're making it rain in the club, but you're not worried about paying your cell phone bill. You're just paying the cell phone bill. You're going on vacation. You're living a comfortable life at that.

By the way, she's not treating.

She's not treating patients. There's so much more possible out there. You just got to get in the right room.

It goes back to the power of questions that we ask ourselves. If you set that expectation or that goal of 20%, which is beautiful, if you can hit 20% in a physical therapy clinic on a regular basis, that's great. Your demographic might be a big hindrance to that.

By the way, that's pre-tax and all that stuff, net, if you will.

Power Of Choosing Possibility Over Limitations 

You put that out there and you say, “What would we have to do in order to reach that?” Some people listening to you might be like, “There's no way I can make 20%.” You're done. You are what you think.

Ben, that's all I'll say.

You set it out there, and the follow-up question should be, “That looks really hard and scary. However, what would I have to do in order to do that?” So now, start brainstorming, and possibilities and opportunities will present themselves.

It goes back to, I had a mentor of mine, and you know Chris Smith. He talks about possibility and limitation all the time. He tells this story, and I've had the same experience of even people on my team or practice owners who get on calls with me or who want to change their life and change their business. It's like, “Nathan, you want to blow your practice up and go big?” And then immediately, it's like, I would, but I'm in network, and I'm treating twenty patients. It's like, immediately, they go to, “Let me tell you all the reasons why this isn't going to work,” because we're so addicted to finding those limitations because of the way that our brain is. We're stressed out.

It takes a different way of thinking to decide, “I'm no longer going to entertain that. I'm going to choose possibility even if it feels unfamiliar or I'm not really sure how to get there. I'm just going to choose it, and let me just do more of that.” The next thing you know, you'll find it. If you seek out those limitations, you'll find them every time. But if you choose possibility, you will find it. I'm living proof of it. Give it a shot.

That's great. I'm glad you have that little bit. That's awesome. Reminder to everybody, go to the Facebook group Private Practice Owners Club to check out that free resource. If you've listened to us, we gave you evidence of how we can affect you in your clinic and help you become powerful, more productive, more profitable owners. You should be reaching out to Adam or me. The link is on the website to book a call with us and talk to us about your business. We can help you out. Anything else we're sharing at this time?

Preview Of Upcoming Episode On CEO Roles 

No, sir. Tune in next time. We're going to talk about the role of the CEO. I don't know if that's the next podcast, but that's going to be the next one.

The one between you and me. The next one with the two of us, we've got that on the hook, is being a CEO and what that job description looks like, what the expectations are. If you listened to our last podcast together, we talked about annual strategic planning. We are here at the end of the year, Q4 2024, taking opportunities to work with owners who want to make and create a successful 2025 and know their priorities right off the bat. They don't have to question what they're focused on every day. They're going to have their priorities up and going, so they can be as successful as possible in 2025. Also, reach out to us in order to schedule that annual strategic planning session.

Let's do it.

Good things. Have a great day.

You too.



About Adam Robin