Managing cash flow is key to your private practice business success.
By Sturdy McKee, PT, MPT, CEO
Running a practice involves learning many new skills outside of our clinical and academic training. As we embark on that journey, we are forced into situations where we must learn new things, often the hard way, but there are alternatives. Learning from the experiences of others is one way to plan better, acquire skills before they are needed, and be prepared for the challenges to be encountered. And this is true no matter what stage a practice and owner are at. There are new challenges at each stage of growth, not just at startup. At every stage of your practice, managing cash flow and money, as well as communicating value, are critical skills to be mastered.
Managing cash flow is the job of the founder and CEO of any small business. It is a necessary skill that all founders must master in order to remain in business. I was once told that another crucial job of the CEO is to create a space between income and expenses, to protect your profit margin. This is also crucial to your long-term survival and your sanity. One has everything to do with timing, and the other shows up on your Income Statement or Profit & Loss Statement (P&L). They are two distinctly different things that often get confused.
Outpacing your cash flow is a serious potential problem for successful businesses. Expanding too fast without thorough and adequate planning and resources can put you in a precarious position, even if your P&L looks healthy. Tim Spooner of Spooner Physical Therapy in Arizona shares, “Without cash, you have no business. I outgrew my cash once and that was painful.” Ironically, and partially because we realize income on a delay, adding staff, equipment, and locations in order to accommodate robust demand can put you in a position of having a great deal of business and no cash on hand. Planning for success is crucial to ensuring you can cover expenses when they are due.
Cash and money have to be considerations in making strategic decisions around your business. I separate the two because money means revenue related to the P&L and the potential for recovering any outlay of cash and generating a return. Money shows up on your P&L. But even with a healthy P&L, timing of cash flow can harm your business if not done well. Your plan for positive revenue may be solid, but the cash may have already gone out the door in order to hire that new Doctor of Physical Therapy (DPT), buy the equipment, invest in marketing, or hire a business coach. Jim Hoyme of Therapy Partners in Minnesota puts it this way, “While money can’t drive your decision making and behavior, you have to always respect that it is necessary.” He goes on to share that “Though money is a critical factor, you have to balance it with clinical excellence, patient engagement, and employee engagement.” There are other considerations in play, and as providers of health care, we have to balance these considerations when making decisions. If we disregard the cash and money aspects, we may not survive to continue to help people when they need us.
And don’t confuse activity with results. “Neither effort nor activity always equals money. Focused effort and value yields money. Money may not be the primary driver, but expenses, salaries, and more education expenses [for those entering the profession] make it necessary,” says Spooner. It’s simply the reality of running a practice. As independent practice owners we don’t have a safety net if we run over budget. There is no hospital or state agency that will cover the shortfall. It comes out of our pockets, until we don’t have any left.
So, money matters. Cash, while not king, is critical to the survival of your practice. Having cash on hand, and a plan to continue to generate more revenue than expenses, provides freedom and the flexibility to pursue new projects, initiatives, marketing efforts, and strategic planning.
Justin Carson of Jackson County Physical Therapy in Oregon says the most important cash and money lesson he has learned growing his business is having cash on hand. “The importance of being debt free and building a reserve so we can respond to changes and take advantage of opportunities” is most important. In an ever-changing health care environment, his lesson is well taken. Having cash on hand, a reserve, will allow Jackson County Physical Therapy to adapt to external changes and innovate change without being constrained by a lack of resources that might be holding back others in his area.
And remember, you can only spend it once. Whatever resources you have, once you’ve spent it, it’s gone. This goes equally for time and money. Planning and being deliberate about your efforts, activities, and where you spend your resources can help assure positive results.
In the interviews leading up to this article, the idea of value came up on several occasions. It is directly related to the money matters theme in that the perception of value is directly related to what patients will pay for. Making sure we, as physical therapists, are effectively communicating the value we provide is critical to the ongoing success of our concerns. People will spend their time, energy, and money for what they value, what they want. If they do not see value in your offering, they will not pay.
Though there are many steps to the customer life cycle, and they all impact your cash flow and revenue, communicating the value you provide is one of the first to be mastered; otherwise the patients won’t come and there will be no life cycle. And the easiest way to start or improve on this part of your process is to ask your patients. Ask them what they value and how you can do better. Ask them why they came to see you and what their desired outcomes are. What do they want out of coming to your practice? It may seem obvious, but by being open to their answers and truly listening, you create an opportunity to learn new things that will lead to making your patients happy, improving your value proposition, and ultimately increasing your revenue.
Sturdy McKee, PT, MPT, CEO, is a business coach and adviser at www.SturdyMcKee.com and the chief executive officer and cofounder at San Francisco Sport and Spine Physical Therapy, ScheduleDoc.co, and Major League Orthopaedics. Sturdy is a member of PPS and serves on Impact magazine’s editorial board. He can be reached at firstname.lastname@example.org.
Bringing clarity and focus to how your team contributes to the success of your practice can enhance overall results and attainment of your business goals.
By Sturdy McKee, PT, MPT, CEO
Not enough employees in general, and especially in our industry, understand exactly what it is they are responsible for producing. They know their job title, schedule, and may understand some components of what you expect them to deliver. They know they are responsible for taking care of patients or administrative tasks, but they lack the specificity to be able to tell you what the two most important things are in performing their job.
Begin measuring value, not time.
By Jerry Henderson and Doug Schumann
We have had the opportunity to speak around the country on the transition to value-based care. Frankly, it is not top of mind for most physical therapists, and given a choice, most of us would much rather talk about something else: the latest clinical techniques, performance-based tests, patient management, our favorite beer, almost anything else.
Better branding for a sustained competitive advantage.
By Mike McTague, PT, DPT, OCS
In the competitive market of physical therapy, private practice owners and managers are trying to differentiate themselves from their physical therapy competition. In any competition, your goal is to win, and quite often other physical therapy practices in your area are trying to win the same way you are. You likely have the same service offerings of manual therapy, exercise, balance programs, and so on. If you are one of the lucky ones to have a successful business in a market where competition is scarce, you likely won’t be alone in that market for long. Other competitors will want a piece of that market.
But competition isn’t always bad—it can even be a good thing as it creates better business strategies and focus. Here’s why:
- It creates innovation. You won’t have success if you are like all of your competitors.
- It improves customer service, since you may be competing for the same customers.
- It minimizes complacency or mediocrity.
- It forces you to understand your core market. If you are targeting a specific geographic location, which is very often the case with physical therapy, your competitors will force you to understand your market’s population better.
- And last, it fosters education. Understanding what your competitor is doing well will help your business understand what works and what doesn’t.1
So if you understand competition is inevitable, and competition has its benefits, how do you beat them, and not only how do you beat them, but how do you beat them over the long haul? When you are attempting to grow a business, stability is important. You want stability for your employees, your customers, and a comfort and understanding that your business will be around for a long time. This has significant value for operational confidence. This operational confidence is called sustained competitive advantage.
So, sustained competitive advantage . . . how does an organization get it and how does it get it fast? What it takes is a hard look at the business and its brand. What is the brand? Simply put, your brand is your promise to your customer. It tells your customer what they can expect from your products and services, and it differentiates your offering from your competitors. Your brand is derived from who you are, who you want to be, and who the customer perceives you to be.
McKinsey & Company is a world-renowned global business consulting firm that produced a ground-breaking article in 2003 called “Better Branding”; its goal was to really drive home the concept that in order to beat your competition you have to know how you are different and what really matters to the customer. A tool for this process has been called the Ante diagram.
This tool is used to analyze (1) how relevant your services are to the customer, and (2) how different those services are from your competition. In order to focus this business analysis, you have to determine who your “customer” is, and this should be more widely defined than the customer who is simply “buying” the service. Physicians, medical practitioners (those that refer to physical therapy), are customers. They aren’t buying, but they are utilizing the services for their patients.
Also, for better or for worse, insurance companies are customers in an insurance-based practice. An insurance company cuts a check to a contracted facility or business that has seen a patient who is insured by that insurance entity. Now, do we shape our clinics and build business strategy to appease an insurance company? The answer to that is usually no. But we do follow insurance guidelines, and at times a patient will choose a practice because of its contract with an insurance company. So the insurance company is a customer.
In the world of workers compensation, the employer is also the customer, and our role here in rehabilitation and physical therapy is to get that injured worker back to work as quickly and safely as possible. On the financial side, every day that injured worker is out of work, that company is losing money—as that employer is likely still paying a portion of that employee’s salary while they are out of work. Our goals are to get that patient back to work safely and to reduce the financial burden on the employer.
With this better understanding of this variable customer base, let’s take another look at the ante framework as it applies to a physical therapy private practice with the focus on the patient as the customer.
Antes (features that are important to the customer or patient yet not unique to the market): location, licensed staff, cleanliness, and convenient hours. All of these are important, but your competition will likely have these as well.
Neutrals (customers don’t care about these traits and neither does your competition): American Physical Therapy Association Private Practice Section (APTA PPS) membership might be placed in this category. This is not to say membership involvement and supporting our professional organization are not important, but it may not have meaning for your customers. This chart and strategy force you to look at what is important to the customer. Patients don’t care about our association membership. We should still all be active and contribute but for other important professional reasons.
Fool’s Gold: This is my second favorite section because it really pushes a business owner or manager to move past their own biases of “if it’s unique and important to me, it will be important to the customer.” For example, a specialist certification or an alphabet soup credential such as FAAOMPT (Fellow of the American Academy of Orthopedic Manual Physical Therapy) would qualify in this section. I know some of you are thinking that this is such a prestigious designation, demonstrating advanced knowledge and years of direct mentoring under an expert, and these professionals are the true specialists in the orthopedic physical therapy. Patients and customers often don’t care about this distinction. In the years I have been practicing, I have never heard from a satisfied patient that they will recommend all their family and friends to our business because I have an advanced certification. It’s unique, but the acronym is not important to them. Here’s the key: The acronym is not important, but the training is. This advanced training will hopefully create an amazing experience and superb outcome for that customer, and that will be what creates the enthusiastic fan.
Drivers: Last and, most important—and likely the hardest to understand—are the drivers. Drivers are what every business needs to be focused on to sustain a competitive advantage. Drivers are traits of your business that are both unique to the market and important to the customer. This is where clinical excellence created by the clinical specialist should be placed. Amazing customer service is something that can also be a driver. And I say amazing, because being courteous to a customer is average customer service. For example, always using the customer’s name when you address them for the first time and walking a patient out to the car with an umbrella when it’s raining. Those are examples of amazing, not average, customer service.2
So as you analyze your business and build customer-based strategies targeted at beating your competition, remember your brand and your promise to the customer should be focused on what’s important to them and not what’s important to you. Check your biases at the door. Focus on those drivers and you’ll have a winning brand.
1. 5 reasons why competition is good for you. www.forbes.com/pictures/emjl45fhdh/5-reasons-why-competition-is-good-for-your-business/. Accessed May 1, 2016.
2. Aufreiter N, Elzinga D, Gordon J. Better branding. McKinsey Quarterly. November 2003. www.mckinsey.com/business-functions/marketing-and-sales/our-insights/better-branding. Accessed November 2016.
Mike McTague, PT, DPT, OCS, is a team leader at Texas Physical Therapy Specialists in Austin, Texas. He is also a faculty member in Evidence in Motion’s Executive Program in Private Practice Management. He can be reached at email@example.com.
6 key areas to focus on to grow your practice and increase its net profit and overall value.
By Shaun Kirk, PT, MHS, MTC
Effective Promotion Leading To New Patients
From our own survey, over 90 percent of private practice owners say that they suffer from less than an ideal volume of new patients yet spend less than 5 hours a week actively trying to solve this problem, either by their own actions or via a staff member’s actions.
If you do not have someone who has the full-time job of driving new patients to your door, then you are, in fact, decreasing your practice value. If this full-time marketer was only effective enough to increase your new patients by just one per week, you would be able to pay for this staff member. Getting a real pro in this area could make you millions.
You can increase your practice value through effective promotion via direct mail, visiting physicians, delivering workshops, and much more. If you do not have a full-time staff member who eats, sleeps, and breathes new patients, you may be decreasing your practice value. Your full-time marketer should be your third or fourth hire in your practice if you want to maximize value.
I call effective promotion and marketing the “insurance policy” for your practice. An insurance policy is there to protect you against loss. Effective marketing actions that actually get more new patients can protect you against the loss associated with the other 5 key areas. That increased new patient volume can protect your practice while you work to get a fast handle on the other 5 areas of lost income.
Excellent Schedule Book Control
This area is the first to address as it is the easiest to get control over and it makes money quickly. My clients arrive to their appointment as scheduled, 95 percent of the time on average. The industry average is 82 percent. How much of a difference does that make? I’ll show you.
Here is an example for a practice that sees 500 patient visits a week, has an 82 percent arrivals rate, and collects $90 per visit:
At an 82 percent arrivals rate, 610 patient visits would need to be scheduled to end up with 500 patients who actually show up. If we took the 610 patient visits and were able to improve the percent of arrivals by just 10 percent, we would see 561 patients instead of just 500 patient visits a week. At a reimbursement of $90 each visit and an additional 61 patient visits, the practice would make $5,490 more per week or $285,480 more annually, and you wouldn’t have to hire additional clinicians as there is still plenty of room on the schedule.
Achieving a higher percentage of arrivals requires training the staff receptionist and physical therapists on how to manage this “Percentage of Arrivals” statistic, and showing them that it is a key performance indicator (KPI) for quality both in the practice and among clinicians. You just have to know what to say to each patient to drive into the patient’s mind the importance of keeping appointments, and the practice will inevitably expand.
A practice that averages under 92 percent arrivals may be decreasing its value. If you aren’t sure how to handle this area, I would recommend as a good start to begin keeping a daily and weekly Percentage of Arrivals graph for the practice as a whole and each clinician individually. It is odd, but true: When you measure the statistic daily and give attention to this area, it tends to improve.
Case management requires sales skills, but most practitioners hate sales, because they don’t know how to sell the value of their services. Truthfully, when a patient has more pain in their “wallet” than their back, they will discharge themselves—unless you know how to avoid self-discharging and the associated lost income.
Being able to adequately address the real issues that patients have when having to pay more and more out of pocket is a vital skill to acquire in this ever-changing health care environment. A clinician can see only so many patients in a day. When the clinician’s efficiency approaches 90 percent or more (meaning greater than 90 percent of their available schedule is full), the clinician may begin to self-regulate their own patient volume by reducing services. This can be accomplished by their discharging patients too early or by seeing the patient less often per week to keep their schedule manageable and also by providing fewer codes per visit. Each one of these adds up to lost income. When a clinician’s schedule is very full, that clinician will also stop asking for patient referrals, because they feel they are already too busy.
What looks like a busy practice could still be reducing its value if the quality of case management is poor. If the practice were to simply hire another clinician and encourage everyone to keep their case management metrics in an acceptable range, it would be maximizing value.
Billing And Collections Procedures
There are 8 areas in billing and collections where money can slip through the cracks: patient registration, insurance verification, collection of copays and deductibles, the proper coding of services, timely billing, accurate posting/handling of the Explanation of Benefits (EOBs), account follow-up, and the collection of patient balances.
By statistically managing these 8 areas to catch the dropped balls, any manager, at any distance, can know procedurally if the area is under control and precisely identify what area to direct one’s attention to in order to maximize reimbursement or to speed up the process.
Getting Referrals From Current and Past Patients
An average size practice will get just a few referrals per month from current or past patients. I know, that is terrible. It is such an untapped goldmine. There are practices that have 50 percent or more of their caseload represented by referrals from current or past patients.
The unfortunate thing is that most clinicians are real softies when it comes to sales and so shy away from asking for a referral from their patients. These people don’t realize that the word sales comes from the Old English word sellan, which means to give, offer, or lend a hand.
Helping as many people as possible should be the main purpose of any clinician. Happy patients want to refer to you. Any practice or clinician who fails to recognize this or capitalize on it is dramatically reducing their practice value.
Getting the patient into a positive frame of mind to refer, starts immediately during the initial evaluation. By working out a simple series of questions to ask during the initial evaluation, one can quickly guide a patient toward better overall compliance with their treatment plan. Your well patient, who is happy with their outcome, can simply be asked to refer someone else into the practice and with the trusted relationship that you built with them, they usually will.
If the value of a new patient is $1,000 and you are not asking for referrals from happy patients, then you are losing up to $1,000 for every happy patient you have failed to ask. If you are a successful clinician, that can be a lot of money left on the table.
Managing A Productive And Efficient Staff
Ideally, there should be one administrative staff member for every clinician. When you have 7 physical therapists and 3 admin staff, there are holes in the organization with bucket-loads of money pouring through. With a 1:1 ratio, you would have the key administrative positions filled and less money falling through the cracks.
There are 3 main functions in a clinical practice: Get the patients, treat the patients, and get paid. You strengthen your practice with these 3 major functions.
Ideally, every staff member should operate with a statistic that accurately measures his or her production value. This statistic is determined by defining exactly what the position produces for the company for which the company exchanges a paycheck. For example, the staff receptionist would keep statistics on how to keep, graph, and plan around how to keep the company in a high range of Percentage of Arrivals and Percentage of Front Desk Collections. From there it is important to train that staff member on how to better that statistic, while maintaining or improving quality.
In conclusion, as an administrator, private practice owner, clinician, or staff member, you can best raise the value of your practice and prevent loss of income by focusing your attention and activities to improve on any or all of the 6 key areas, so: Promote your practice effectively, increase your percentage of arrivals, manage caseloads, keep an eye on billing and collections procedures, actively encourage referrals from current and past patients, and keep a productive and efficient staff.
Shaun Kirk, PT, MHS, MTC, is the chief executive officer and owner of Measurable Solutions, Inc., a management training and consulting practice for private practice physical therapists in Clearwater, Florida. He can be reached at firstname.lastname@example.org.