The Practice of Therapy

Gordon Brewer: Well, hello everyone and welcome again to the podcast and I'm really happy for you to get to know today Gretchen Roberts from Red Bike Strategies and Gretchen, happy to have you with us.
Gretchen Roberts: Thank you. It's really great to be here. Car.
Gordon Brewer: Yes. Yes. And so today we're gonna be talking about finances, which is always a big topic here on this particular podcast, the importance of knowing your numbers. But particularly with us heading into tax season, that's is something that it's probably on a lot of people's minds.
But Gretchen, as I start with everyone, tell folks a little more about yourself and how you've landed where you've landed.
Gretchen Roberts: All right, thanks Gordon. So I'm Gretchen Roberts, CEO of Red Bike Advisors. We were previously Adam Shea, CPA. We've been in practice since I think 2009, end of 2009. And our big focus is serving clients in tax, tax advisory accounting and bookkeeping.
Business advisory. So I would think of this as business financial advisory. And then we also have a, a specialized department for what we call financial medic, which is appropriate for this audience a little bit. And that's our tax resolution and our fraud and forensic department. So if you get into tax trouble, or, you know, on the fraud and forensic side, we have a lot of people who come in, they're, they're in a divorce dispute or a business dispute, or they've, an employee has stolen from them.
And so our forensic accountants help them deal with that nightmare and get it cleaned up so they can move on.
Gordon Brewer: Mm-hmm. Well, good. Well good. Well, I know, I know again, like I've said with theme people here. For me all the time is you know, the importance of knowing your numbers and really just making those sound financial decisions with the, particularly running a, running a, a small business running a practice and knowing all the d the different nuances of that from what you pay people to.
All the, all the different things. But I know one of the things that you had mentioned before we started recording is just, just being able to look at your numbers in terms of a managerial tool. So you wanna say more about that?
Gretchen Roberts: Yeah. This is one of my favorite topics and so I'm just gonna climb right on my soapbox and talk about it, if that's okay.
Gordon Brewer: Sure.
Gretchen Roberts: Yeah, so, you know, I think a lot of practice owners. Are almost accidental business owners, and I'm sure you've talked about this as well. You know, you're, you're probably good at the thing you do, so in this case, therapy. Then you decide you wanna go out on your own and all of a sudden you're, you're doing HR and IT and operations, and you're managing people and you're doing payroll, and you're doing all this stuff.
And that's not really how you were trained or your area of expertise. And we find that a lot of our clients, especially in the medical dental field do not, were not trained on accounting. By the way, that's okay. I mean, I always say that I'm a business owner like you and I don't do my own books either.
I don't wanna do my books. Mm-hmm. I want somebody else to do them. But I do think that as a business owner, and by the way accounting practices are called practices as well, but I'm in a mastermind and the, the leader of our mastermind finds us if we call it a practice. He wants us to call it a business.
And the goal is, it's, it's a mindset thing. I'm not a practice owner. I'm a business owner. Mm-hmm. And so, you know, whether you're saying practice or business, it's the same thing that I think that the person who owns the practice or the business. Is not necessarily responsible for the day-to-day bill pay and invoicing and you know, doing the accounting and bookkeeping, but they absolutely are responsible for the financial health of their business, and that really is always gonna fall on you.
It's not gonna fall on an external resource. The problem is most practice owners don't really understand how to read their financial reports. They don't know what they're saying. So, you know, I feel like this is why I said soapbox. I feel like it's my goal in life to get them to to get practice owners to, to understand how to read those reports and understand that the finances actually tell a story of your operations and the overall health of your business.
And if you can, if you can crack that, then you actually know what actions you need to take next to improve the business.
Gordon Brewer: Right, right. Yeah. So when you, when you think about looking at a, a profit and loss statement and you know the story, it tells what, what are the things you generally look at first? I mean, most of us can look at, you know, okay, we're bringing this much money in, which is your income and then your expenses, and, I think it's always good if your, your income is larger than your expenses always. Yeah. Yeah. So yeah. So what are the things that you generally look for when you're looking at a p and l?
Gretchen Roberts: So, I like to think of it as, let's go to the 10,000 foot view to start, because I think that's always the place to start.
So it's easy to get caught in little line items, right? So maybe you have an expense account for insurance or something like that. But what we really wanna look at is the big buckets. So the first, so these are percentages that should, should roll up to a hundred percent revenue, right? So if your revenue is a hundred percent.
How much should you be spending on cost of goods or cost of service? What percentage as a bucket, and then what percentage on running the practice or operational expenses what percentage should you be sent spending on sales and marketing? Those are the big buckets. And then what percentage should your profit, your target profit be?
Again, all those, those four buckets should add up to a hundred percent. And this is a little twist on profit first, but what we really wanna look at is, okay, what should the net profit margin be? And then we need to adjust the other categories to, to meet and beat that benchmark. Mm-hmm. So,
Gordon Brewer: mm-hmm.
Gretchen Roberts: You know, in this industry, and, you know, you can, you can do research on this and it varies, but like, if you're a solo practice, you're going to do way better on net margin because you just have very few expenses.
So it might be like 30 to 40%. Once you start growing and you've got some clinicians under you, it is gonna drop. But hopefully you have a, you know, a, a bigger piece of a smaller pie. Or is it a smaller piece of a bigger pie? Right?
Gordon Brewer: Yeah. Yeah. Right,
Gretchen Roberts: right. So there might be like 15 to 20. But you know, let's say you're, you're running a small practice.
You've got a couple clinicians and your profit's under 10%. That's a big red flag. That tells us, Hey, we need to look at your sales and marketing expense. We need to look at your operational expense, like, you know, your building you know, your software, all the things that it takes just to run the business.
Mm-hmm. And we need to look at your cost of goods or cost of service and your employee cost to see are these in line with the industry? Where is it way too high as a percentage? And then that's where we dig in to say, okay, we need to reduce this because the profit is not enough.
Gordon Brewer: Right, right. Yeah. And so when, when you think about the places where I, I guess I like to think of it as like a leaky bucket.
What do you find are the places where people can cut their expenses? The easiest.
Gretchen Roberts: Well I'll start with impact because mm-hmm. It's easy to cut out your Starbucks or whatever, but let's, let's go to Impact. So probably the biggest line item if you have employees is your salary expense. And you know, it depends on how the practice is run, but I will say that I've seen quite a few of them where they're paying a percentage to basically contractors and the percentage is way too high and they haven't really thought it through.
So the percentage is super high, and then they still have the office and admin and the sales and marketing expenses on top of that. And when you add that up. You're not making a profit or you're making very little. And so let's say the profit goes down to 10. Mm-hmm. So what needs to be reduced? Do you need to reduce your building expense?
Do you need to reduce what is it? Or do you need to renegotiate your contracts with your biggest expense, which is your team members?
Gordon Brewer: Right, right. Yeah. Especially for you know, the therapy, therapy practices or as you pointed out, therapy businesses. We, we tend to, particularly if you've got a group practice your employee cost is gonna always be your largest cost.
Yes. Because there's not a lot of equipment that we use and that sort of thing and, you know, other than a, you know, an office space, that kind of thing. There's just not a lot of overhead really.
Gretchen Roberts: Yeah, exactly. And so whether, so, and, and then it's two different questions. If you're paying 'em a percentage, you have to figure in your other costs.
Then you have to figure out what your net profit is and what it should be, and maybe that needs to be renegotiated. If it's on salary, then, then it's a different question. Maybe it's a utilization question, you know, are, are they being utilized? If they're on salary, are, do they have enough bookings? That becomes a sales and marketing problem.
You know, we need to bring in new clients so that they are properly utilized so that we can realize our margins correctly.
Gordon Brewer: Right, right. I think another area too that I, I know can be kind of a, I guess maybe sticking point for people or whatever is just thinking about how they well, like you mentioned, pay, pay their people and they do it just kind of arbitrarily contrarily rather than really basing it on what's realistic and what's sustainable.
Gretchen Roberts: And, and this is always a hard conversation because you know, you're hearing as you're, because the labor market has been tight for a little bit. And so you go, well, you know, I've gotta bring this person in, and they're asking for this much. And you don't even know if you can afford that, but what else are you gonna do?
You have to bring them in. Mm-hmm. And so again, this is how the financials tell the story though. So if you're bringing somebody in and you go, okay. I need them to be at a healthy utilization rate of let's say 70 to 75%. Mm-hmm. And now, now the next question is how do I bring those clients in so they are properly utilized and we are realizing the revenue that will allow me to pay them a nice salary, but also allow me to have a nice profit because.
You're the practice owner, the business owner, and you're taking on all the risk and you deserve the reward of that, not a pittance at the end.
Gordon Brewer: Uhhuh. Right, right. And I think that's, that's one, one area that a lot of people have difficulty with is just, I like, like to refer to it as their money mindset.
Most, most of us in the therapy world are, are genuinely nice people and we're empathetic and we want to be generous and that sort of thing. But yeah, in, in the end, if you're not making a profit, you're not going to be able to keep the doors open
Gretchen Roberts: a hundred percent. And I mean, I, I quote this stat all the time, but you know, 83% of businesses fail because they have cashflow problems.
They run outta cash. And it's not that they don't, and, and going back to what, what you said, I mean, therapists are genuinely nice people. They want to serve people and mm-hmm. They have a tendency to bend over backwards to do that, but, and that's where it goes from being a practice owner to being a business owner.
Because if you think of yourself from a mindset perspective of being a business owner, you think about it a little differently. You can still be mm-hmm. You can still be really kind to your team. You can still create value for your clients and for your team, but you also hold them to standards that you need to hold them to as a business owner because.
If you think about it this way, it is your job as a business owner to run a sustainable, healthy business that can continue the employment of your team. And so if you're overreaching on, on the team and those numbers. You go out of business, they're out of a job. So that's not good for you and it's not good for them.
Gordon Brewer: Right, right. Yeah. It's a, yeah. And that's such an important, important piece is, is that you've got to and I think it helps being able to communicate with your people. Just the fact that, okay, you, we are running a business and. Yeah, if you were, you might be able to get paid more somewhere else or by being out on your own, but you're also assuming a higher risk by doing that.
Gretchen Roberts: Yeah. You know. The owner should know better than anybody else what it really takes to run a practice,
Gordon Brewer: right? Oh
Gretchen Roberts: yeah. I mean, and that's not to say team members won't occasionally go out and do that, but a lot of 'em are employees for a reason. They don't want the headache and the stress and the hassle.
The, I always think of, you know, being a business owner, you know, if, if you're an employee, you have these little rollercoaster ups and downs, but if you're a business owner, they're like this, you know? Right, right. They're much bigger and much lower, and not everybody has the personality to take that on.
Gordon Brewer: Right, right. Yeah. I had a, a good friend of mine and who's been on this podcast several times, Dr. David Hall, and he said being in private practice a lot of times takes a lot of intestinal fortitude, is how he put it. Just to, to be able to kind of manage those ups and downs that that, that you can go through.
And and, and that might be a good segue about just, you wanna say something Gretchen, about just being able to be prepared for those ups and downs or low periods and that kind of thing?
Gretchen Roberts: Yeah. So let's go back to cash flow. Cash. Cash is king. Profit is queen, I think, but
Gordon Brewer: mm-hmm.
Gretchen Roberts: Again, you know, the sustainability of your business depends on you being able to pay your payroll and pay your bills.
And the way you do that is you have the appropriate amount of revenue coming in, you're thinking ahead of it, but really it, it comes down to cash reserves and as the, these are super general rules of thumb, but I personally think that you should have at least one month expenses in your checking account.
I think you should have a plan or an actual up to three to six months in an interest bearing savings account for those rainy days.
Gordon Brewer: Mm-hmm.
Gretchen Roberts: Mm-hmm. Mm-hmm. And you should also, if you can get it, have a line of credit and a line of credit should not be for operational use. So, and what I mean by that is if you're funding payroll through your line of credit, you're doing it wrong.
And you've gotta get out of that because that's like funding your living expenses or, or like paying your mortgage on your credit card or something. It's just not sustainable.
Gordon Brewer: Mm-hmm.
Gretchen Roberts: A line of credit should be for emergencies, like your HVAC breaks or your you know, your, your biggest client leaves and leaves a huge hole and you literally can't pay that month.
But you're, you have a plan to get that revenue back,
Gordon Brewer: right.
Gretchen Roberts: And, you know, emergencies. So it's good to have a line of credit sitting there because that helps you not wake up at 3:00 AM and wonder if you're gonna make payroll, but it shouldn't be used for operations.
Gordon Brewer: Right.
Gretchen Roberts: So, you know, one month's expenses in your checking account three to six months in an interest bearing account.
Most people don't have that. And one of the things we do is we work with you to, to say, okay, what do you really need? And then let's come up with a plan to get you there, because mm-hmm. When you have that, you can sleep at night and you can make a lot more empowering decisions. You can take a few risks, you can do a lot of like, and by risks I mean things like, maybe there's somebody on your team who's just not a good cultural fit and you're, you're worried they're gonna, you know, something's gonna, the rest of the team is gonna revolt. And so maybe you have to get rid of that person, but then you have a client problem, or maybe you have some clients that you really, that are harmful to your team and the practice overall.
And they, they're not really what you wanna do or who you wanna stand, what you wanna stand for. And, you know, it's always, it's always scary to go, I'm gonna fire a client. You know, where that, how do I replace that revenue? But if you have cash in the bank, you can make decisions like that. And not again, lie awake at 3:00 AM
Gordon Brewer: Right?
Yeah. Fretting about all those things. Yeah.
Gretchen Roberts: Yeah.
Gordon Brewer: Yeah. So, well Gretchen, just to pivot a little bit, I know as this episode will be coming out, we'll be in the middle of tax season, and I know as a, as you and I were talking about before we started recording, you know, that's everybody's tax situation is different, and so there's no.
Probably no real universal rules around taxes, but what what would be some things that people need to keep in mind, at least things that you've seen where they've made mistakes along the way?
Gretchen Roberts: I think one of the biggest mistakes business owners make is thinking that tax season is a once a year event.
And it's like, okay, my CPA reached out. Now I have to gather my documents and if they're not doing my books, I have to give them my financials and then they're gonna tell me what I owe. And that's always a nasty surprise. Right, right. So. I really believe in you know, part, so we aren't official profit first collaborators, but one of the, one of the great takeaways from Profit first is, is saving for taxes all year.
Mm-hmm. So there's no surprise at the end. Right. Another thing we do is we'll do, we'll do a tax projection toward the end of the year when we have a better idea of what the net income will be. So if you think about, now we're in tax season, right? So let's say we do a business return and the personal return for the owner.
And we know what their tax liability is for the previous year, and then we spit out vouchers for the next year. Those vouchers are based on their income from the previous year. Now if, if you're growing rapidly, or unfortunately if you're shrinking or something happens in the business, your tax liability is going to be different.
And so right at the end of the year, we like to look again at the p and l and go, okay, where are you really at this year? How do we need to true this up? So you again, so you don't have a big surprise at the end of the year and a bunch of penalties for underpayment.
Gordon Brewer: Right, right. I know one thing that I've always heard is, the importance of having your, your tax situation. So at the end of the year when it's tax time is that you don't owe anything and also you don't get anything back, and that you want to just kind of be at a net zero for your taxes. That is definitely
Gretchen Roberts: ideal.
Gordon Brewer: Yeah. Yeah. But yeah, but you know, and I've experienced it this way as well in my own practices, is that you.
You get to the end of the year and you realize, oh, I've done better than I thought I had. Yeah. And so then you end up having a, a larger tax bill than other. Our worst case scenario is people not paying their, their estimated taxes throughout the year. And that's just a, that can get people in just a really big, big trouble.
Gretchen Roberts: I will say about that though, so, so going back to what you said about you wanna be at net zero for sure, but I actually just got off a call with a client and I was telling them, you're never gonna be perfect on this tax thing because things are changing all the time and you can pay your estimates and then pay them later, but you're either gonna be over or under, I mean, it's almost impossible to be at zero.
Mm-hmm. What you don't want is to be so far over that you've lent the government money for. For an entire year when you could have been using that cashflow. Mm-hmm. And you don't wanna be so under that you have this big tax bill with interest and penalties. And so if you get close to zero, that's the goal.
Mm-hmm. I will say, and this was more true when the interest rates were lower, so a couple years ago before the interest rates really went up, we had a lot of clients who. Would not pay their quarterly estimated taxes because the penalties were low enough that, you know, the interest penalties that they would, they were like, you know, this is better than a bank.
I'm just gonna keep this cash and reinvest it, and then I'll just pay the penalty at the end of the year. But that's becoming less common because the interest rates have gone up and so it's no longer advantageous to let the government fine you with
Gordon Brewer: mm-hmm.
Gretchen Roberts: Penalties and interest fees. Right,
Gordon Brewer: right.
Yeah. Yeah. So, yeah, and I like, I like your reference to Profit first. I'm a big fan of that. In fact for folks that maybe are newer to the podcast, if you'll go back to some of the early episodes, I had the privilege of interviewing Mike Michalowicz for Oh, nice. Couple of episodes. So but it's a great way, I think for people to get their head around the financial side.
In terms of thinking of percentages and just really looking at your finances through that lens, because I know one of the things that's always hard to do is if you're, you're thinking of making a budget for your, for your practice percentages just makes it easier. And I think being able to also just.
Like he, like the, the term implies is you take your profit off the top and then everything else underneath just kind of falls in line with that. With that, hopefully,
Gretchen Roberts: I'll say it's a little bit easier said than done. I mean,
Gordon Brewer: yes,
Gretchen Roberts: and you know this because you're also practicing on our, so if you go, okay, I'm at 10% and I need to get it at least to 20 this year, and then you have to look at your expenses and go, where do I cut?
Well, I can't cut sales and marketing, or We can't grow. I can't. I can't cut my team's salary. They're, they exist and they're here and they're not gonna take a pay cut. And then you have a couple operational things you can cut maybe, and that's not really gonna do it. So you really need to go, oh, actually I need to spend more to invest in sales and marketing so that I can, I can get that profit up.
But I mean, so, so yes, I, that is the goal. But you know, when you're running a live business, I always like to think of it as building the plane while you're flying it.
Gordon Brewer: Yeah.
Gretchen Roberts: And so there you are, you, you're flying the plane, it's, it's in motion. Your business is running, but you're also constantly trying to rebuild it.
And so, you know, some, sometimes it takes time, but if, if you, I think it starts with benchmarking, right? So you go, where am I compared to the industry standard? Mm-hmm. And the goal is not to get to the industry benchmark. It's to beat it. So,
Gordon Brewer: yeah.
Gretchen Roberts: You know, first you meet it and then you beat it, and that's a process.
It takes time.
Gordon Brewer: Right, right. From, from what you have experienced so far, Gretchen, what's a good this is kind of getting off on a tangent here, but what's a good profit margin percentage for most practices, would you say?
Gretchen Roberts: Yeah, so again, you, you can do some research online and it's gonna vary, but typically if you're, if you're a solo practice owner.
It's a lot higher, but it's, mm-hmm. Again, like it's a, it's a lot higher, but it's a smaller amount of revenue. So that would be like 30 to 40% is pretty typical for a solo practitioner. Once you start adding team members, it's gonna go to typically 15 to 20. Mm-hmm. There's just more overhead, more expenses.
You've got payroll, but again, the goal there is you're expanding your revenue and so even though the percentage is smaller. You should after the initial rough period where you're investing, but not reaping all the benefits yet once you get over that hump, you should be getting, even though it's a smaller percentage, a bigger total amount of net profit.
Gordon Brewer: Right, right. Yeah. Well, I know there are, are a lot of different things we can talk about Gretchen, around this topic, but I've gotta be respectful of your time and just and, and that sort of thing. But what are some maybe some kind of closing thoughts you would say of just about finances and being, being prudent and with, with all of this.
Gretchen Roberts: So I think I'm gonna go back to something I said in the beginning, which is that you can outsource your accounting payroll, like all of those back office functions. But you as a practice owner, you do have the responsibility for the financial fitness of your own business that falls on you. And so, even though it's.
Probably not something you learned in school, and maybe you haven't taken the time to learn on the fly, but it is essential that you learn how to read your financial reports, understand the story they're telling you, and make the operational changes that you can see in them. Mm-hmm. So, you know, I, I think that's it.
And, you know, we work with, we work with a lot of business owners and practice owners who who need some help in this area because they're not quite sure what they're looking at or what to do. And that's a lot of fun for me, you know, doing that kind of coaching, but
Gordon Brewer: mm-hmm.
Gretchen Roberts: You can do it yourself. I mean, there's so many resources online, you know, it's, it's really just about saying, I am committing to this this year, and I'm going to educate myself and I'm going to start doing these things because they will make a huge impact on
Gordon Brewer: mm-hmm.
Gretchen Roberts: Financial health of your practice.
Gordon Brewer: Right, right. Yeah. And I've learned a lot, as I tell people, a lot of times I've learned a lot the hard way with with my own practice. And I think one of the big learning things that I mistakes I made early on when I started my group practice is not really understanding.
The importance of not just doing a ad hoc or at random kind of percentage of what you pay your people because yes typically if you're, you know, I was trying to be generous, but I was overpaying. And what I found really quickly is going back to the ca cash flow. I was having to work harder with the clients I saw in order to pay people.
My business, whereas it should have been quite the opposite of, of that, and that that should have been profiting on what they were making. And so, and
Gretchen Roberts: I think I
Gordon Brewer: made that
Gretchen Roberts: adjustment. You know, that's
Gordon Brewer: a,
Gretchen Roberts: yeah, I mean, that's a, I think every business owner does that in the beginning, right? It's mm-hmm. That's your pattern.
And then you realize, I am on the road to burnout.
Gordon Brewer: Mm-hmm.
Gretchen Roberts: And that's not why I started this thing. I started it for time freedom and financial freedom, not for burnout,
Gordon Brewer: right?
Gretchen Roberts: Yeah.
Gordon Brewer: Right.
Gretchen Roberts: Yeah. And, and, and that goes back to, you know, with the percentages, you know, that that's definitely a rookie mistake when you're starting and you wanna be generous because therapists are inherently generous and they wanna help people.
That's, that's like, that's what you do, so
Gordon Brewer: mm-hmm.
Gretchen Roberts: It makes sense, but eventually you have to pull back and go, does this make financial sense?
Gordon Brewer: Right, right. And if you get, if you're not making a profit, you can't stay open and that helps. No one.
Gretchen Roberts: Exactly.
Gordon Brewer: Yeah. Yeah. Well, Gretchen so glad you joined us. Tell folks how they can get in touch with you and learn more about your red bike advisors and all of that.
Gretchen Roberts: Yeah, so we are@redbikeadvisors.com. Like I said, we do tax financial. Accounting and bookkeeping. And then the financial medic side of the business, I hope nobody's, nobody who's listening is in any kind of financial trouble or tax trouble. Yeah, red bike advisors.com. We have a free strategy session form, so that's where we look at.
You know, we'll take a look at your business, your pain points, kind of where you're at, and and just see if there's any way we can help you.
Gordon Brewer: Awesome. Awesome. And we'll have links here in the show notes and the show summary for people to find that easily. And I guess one, one other quick question, and this is a, a big switch.
I love the idea of the red bike. So tell us the story behind that.
Gretchen Roberts: So the, the the, how the sausage is made story is, I had a different name picked out. We had to rebrand because my name is not Adam Shea and I acquired his practice Uhhuh in 2023. And I, I had a different name and my husband hated it.
And then he said, well, what about Red Bike advisors? I have this red bike behind me. It's been on my wall for a long time, and I love bike riding. I always have. I said, oh no, the domain won't be available. The trademark, nothing social won't be available. It was all available.
Gordon Brewer: Mm-hmm.
Gretchen Roberts: That's great. But I'll say from a branding perspective, the way we think of it is this, like our tagline is Break away from the pack.
And, you know, our goal is for the business owners we work with, that you're not just in this big pack of people, like in the, in the middle. And that that refers to your financial KPIs, how you run your business, everything. You know, we want you to break away from the pack, and that's a biking term where somebody pulls out in front.
And you know, the, the other thing about bicycling, I don't know if you, if you're a biker, but. You know, especially if you're going up and down hills, there's, there's headwinds, there's tailwinds. You have to pedal furiously, then you can coast for a little bit and you know, at the end is victory. But you're really on it for the ride, not for the end.
And I think business is the same way. You're not there to get to a destination. You're there for the journey and you might as well have an amazing time with it.
Gordon Brewer: Yeah. Yeah. Oh, I love that story. That's great. That's great. So, well, Gretchen, thanks again for being on the. On the podcast and again folks, if you'll check out the links and the show notes and the show summary and get in touch with Gretchen.
Gretchen Roberts: Sounds good. Thank you so much, Gordon, for having me. I appreciate it.
Gordon Brewer: Glad you were here.