The Practice of Therapy

Gordon: Well, hello everyone and welcome again to the podcast and I'm really happy to have back on the on the podcast, Carla Titus.
Welcome, Carla.
Carla: Thanks for having me again. I'm pleasure to be here.
Gordon: Yes. And so we're gonna be covering, I think, a topic that's depending on where you are in your journey, but I think it's still something that you have to keep top of mind and when you go into private practice and that's your exit plan.
And so we're gonna talk a little bit about that. But Carla, for folks that might not know you. Tell them a little bit more about yourself and how you've landed where you've landed.
Carla: Yeah, so I actually had a career in corporate finance for 11 years, working for a Fortune 500 company before I started working with small businesses.
And I'm really passionate about, you know, building sustainable, profitable long-term businesses and using finance as a tool and a means to do that combined with. You know, business strategy and thinking about growth and opportunities for a practice to be able to continue to, you know, fight the fight in the industry despite all the things that come our way.
And helping them really navigate and pivot as things, you know, change in the industry to make sure that they stay in business so they can do more of the work that they do with, you know, patients who need their support, as well as making sure the owners are rewarded for taking that risk and compensating themselves well, and ultimately having like.
A goal of either exit or continue to own the business is generating really well, you know, manage profits and they feel confident in their ability to manage their numbers and they're not, you know, scared or feel like it's controlling them. And I know a lot of people, you know, identify themselves as not numbers people, but I think once we show them ways that they can start to get into with their numbers and simplify it, it becomes a lot more attainable.
You know, more comfortable with the concepts, the more we talk about them, and we just strive to be there for our clients to support 'em through that journey.
Gordon: Right, right. Yeah. And that's people that have been, excuse me, people that have been listening to the podcast for a while hear that theme for me all the time about the importance of knowing your numbers and understanding the financial side of your practice.
Because without that, you're not gonna be able to keep in practice, and you've got to got to be profitable, and you have to. Have to do that and the only way you can do that is to pull back the curtain and look at the numbers and under understand how all that works.
Carla: Shift that mindset from just being a therapist to being an owner and a CEO of a company and a CEO of a company knows their numbers.
They, and if they don't, they ask for help. And then they get support where needed to make sure they better understand, you know, what's happening. And what gets measured gets managed ultimately. So if you don't even know where to start and you wanna make progress, you gotta look at your starting points so you know whether or not you're, you know, making progress in the
Gordon: right way or not.
Right, right. Well, you know, one of the things, and, and Carla and I were chatting a little bit about this before we started recording. And I started thinking about this kind of as an afterthought here. Carla was just thinking about the change changes in mental healthcare and private practice since I started into private practice.
I was, I was even prior to that of when I was working for an agency there's a lot that has changed just not only clinically, but just the way in which we. Do business. And when I first went into private practice there were not as many people in private practice as there are now. And I think a big part of it is just because we never learned those skills.
How to be a business owner, how to go into private practice and, and graduate school. I think it's starting to get a little better and hearing a little bit about people, learning more about the business side of running a practice. But even with that, and we talk, we, we kind of alluded to this as well, is, is that.
The industry has changed so much now with tech companies getting into it and big investors and that kind of thing. And I know you've thought a lot about that and been working with a lot of people just around, okay, if I were to pivot and maybe exit my practice, what would that look like? And there's probably a lot of listeners that might be thinking that.
Carla: Yeah, they tend to come to us thinking, okay, I'm ready to sell. And like I, maybe because I'm tired of it, or maybe because I, I'm finally ready to, you know, get that big paycheck, that big payout and maybe I haven't been paying myself this whole time, waiting for this moment. And, you know, they come to us and like, what we see a lot happening is.
You are competing with those big private equity firms who are acquiring a ton of practices that are small, gathering them up, you know, changing compensation structures, paying people more, even though they're not necessarily making a profit, or if they are, is not so big, but they don't care. 'cause ultimately they're gonna flip that for, you know, 10 times the value just because they have.
An aggregate, a conglomerate of small private practices in a different, you know, in a certain area regionally speaking. And so that's what you're competing with nowadays. You're also competing with technology. AI is coming into the field saying, I can be your therapist. Whether or not that's good, right?
Bad, scary, all the things. Yes. People are, you know, probably using it, whether it's good or bad for them. And you as the provider need to be aware of that 'cause that's what you're competing with. That is a very different landscape than when people first started. You know, in private practice, many like yourself or even recently, and you know, you also have a lot of people telling anyone can be a good practice owner and like, go for it.
And it's fine and it's easy and it's simple and build a team and pay all the things and then you just collect the paycheck or the profits, right? Mm-hmm. And that is far from the truth. It's a lot of hard work in owning a private group practice to grow and to where it be. To have it be profitable. 'cause it takes a lot of intentionality and a lot of planning and strategy together.
And you know, compound that with like the feeling of owners are tired, they're working really hard, things are not going their way. You have cyber attacks, you have COVID, you have things that you just like never could plan for. Not even in my wildest dreams as A CFO would have. Thought of a scenario where we had those kind of things come our way and people are still recovering.
Some practices didn't make it, and there's just a lot more competition in the marketplace. So people have choices and they're gonna choose who they're gonna go to for many d different resources. It's really important the practices. Think about how are they differentiating themselves? What are they doing that.
Other practices cannot do. How are they showing up and marketing their services to meet the needs of the clients? Because we know people still wanna do business with people, right? Mm-hmm. You still wanna talk to people as much as technology and other things are out there, and then when it comes to being exit ready.
Your company should always be exit red. 'cause that means that you're financially very viable and desirable to buyers. And this is something we really focus on with clients, regardless of if they're ready to sell or not. Exit Red is always on our to-do list because if we are doing our job right, we should be able to take an offer anytime it comes.
Always, you know, thinking through the lens, is this the right person to sell to or company to sell to? Because that's really important to a lot of my owners. They're like. I don't wanna sell into private equity. I don't want someone take this over and not run it the way I want it with my values or for my community to service the community at large.
And it's important that that alignment is there as well when it comes to planning for exit readiness and also deciding if you're gonna take an offer from another company.
Gordon: Right, right. Yeah. And I, I, I know too, just in talking with a lot of other practice owners, you know, when, when they're thinking about selling their practice, a, a big concern that comes up is just making sure their people, their employees, are taken care of and that they're not, they're not gonna suffer from the, from the change and the move and that kind of thing. And so I know that's a, that's a, a real important piece for a lot of, a lot of people.
Carla: Yeah, that comes with that alignment, right?
To make sure your employees will have a job at the end of it all and mm-hmm. And not necessarily with a guarantee, but at least that they know that they will be cared for and that they will have a good compensation package and benefits and that you will carry on maybe some of the values and the culture, you know, that you created because that's why people wanted to work here.
And you wanna preserve that as much as possible while still, you know, realizing it is a new owner and they can bring their own flavor to it. It might be a little different. They also might have. More resources, they might be able to afford better things for your employees. So it's also an advantage to consider, you know, when the time is right and the buyer's right.
You know, what that could look like for your employees is an opportunity for growth for development. Mm-hmm. For, again, more pay things that maybe you couldn't afford to do before they get to do that for them. So how amazing would that be, as well as an outcome?
Gordon: Right, right. So, yeah. So as, as you think about it, Carla, being in the financial world, what are the things we need to be thinking about in terms of an exit, as exit plan?
I know one thing you, you mentioned is, is that, and this goes across the board, is always to be profitable and, and making sure that you're not struggling financially with your practice.
Carla: Yeah, it definitely starts with profit. 'cause at the end of the day, the valuation is a multiple of profit. For any businesses that are seven figures or bigger than that.
There's other ways to value below that seven figure mark. But for the most part, you know, if you're considering selling and you're at that point, your profit's gonna dictate the value. The other things that dictate the value are also. How much the owner is compensated, like what is the role of the owner in the business?
And I see this often, there's a lot of owner dependency happening and owners wanna sell their practice, but it's really. More like a job. Like they're still seeing clients, they're still doing everything. They have three roles in the company, and when this company approaches them to purchase them, they don't wanna buy a job.
They want a fully functioning running company with a leadership team included. Mm-hmm. And so a lot of the work we do is sometimes we have to build a leadership team that wasn't there before. Sometimes we have to make investments in roles and positions that didn't exist. Before. We also have to look at, you know, the space we have, we have to look at the people we have.
Are they performing like the caseload numbers? Are they hitting those goals? Are they behind? And really start to fine tune all the moving pieces along with, you know, cost, structure, compensation structure. Sometimes we have to touch some of that as well to ensure the profitability is. There because without it, we can't really have the impact anyway.
So we wanna start with profit because we wanna have the impact, right? We wanna be here long term, so we have to have the profit, profit to support it. And then when it comes to exit ready, we wanna be planning a couple years ahead. We don't wanna be saying like, I wanna exit tomorrow. And if you've been doing financially well and things are fantastic, there might be a great opportunity for you to exit, you know, soon.
But often we do see it as a two year aroma because we have to put all these things into place that we're just not there. Got a clean house, you know, a little house cleaning before we go put it up in the market, just like you do for getting ready to sell your own home as a property, you probably put paint on the walls.
You probably put new floors or things that you were like, I've been procrastinating on that, and now it's time. Mm-hmm. Because I wanna show it the best way I possibly can so I can get the most value for it. It's no different in a business.
Gordon: Right, right. Yeah. So what, what are some, again, just to break it down maybe a little smaller, what are the different different components of being exit ready?
As you think about it?
Carla: So you have to have really tight controls on like overall rent and payroll. Those are your biggest costs in the practice, right? So I know a lot of people focus on like the smaller items and they want to nickel and dime their way to savings. And there's those two levers on like the cost side, and then there is the two, the one lever, which is growth revenue.
Like, can you make your practice be a different size and therefore there will be more room for profit? Your profit percentage might not change, but the absolute dollars are larger, right? As a percentage of a higher base. So we all start talking about, okay, what's the growth strategy? How are we growing? Is it different types of services?
Is it the same kind of services where we're just double down? Is there an add-on service, met management assessments, you know, groups? Whatever it is that you're not already doing that we should be considering adding now, not waiting for. The new buyer to add that in, but really adding that value now to grow the top line, and I'm very big on, let's just grow the top line because that feels a little bit easier than trying to nickel and d our way to savings.
Mm-hmm. Sometimes we made decisions around rent and things. We can't get out of five year leases if we're already signed that we're kind of stuck, so, but if we get the top line higher now as a percentage of. You know, rent is a percentage of top line becomes a lot more manageable. So you can make a lot of the numbers look way better if you have a top line growth.
Mm-hmm. Of course it comes with cost on payroll and you know, other areas as well. Maybe marketing 'cause you're trying to grow the firm and such, but those will level out over time. So it's just being intentional about that planning and those moving pieces. Everything else probably doesn't really move the needle in your practice as much as.
Some of those categories I spoke about.
Gordon: Right, right. Really going after the low hanging fruit of either adding clinicians or looking at your pricing structure and that sort of thing.
Carla: Yeah. Getting insurance increases or doing a private pay increase is gonna be critical. 'cause that, you know, times many, many claims, it can make a huge difference in your margins on profit.
Mm-hmm. Also making sure like your billing is keeping up with things. Sometimes I see. Large sums of outstanding balances that could be collected that makes your revenue number look better if you can get that cash in the door sooner if you're not, you know, accrual basis, if your cash basis. So these are things that we could start working through to be very intentional.
You know, and thinking about your co your current contracts, right? Employees are you keeping them happy? Are you retaining them? This is part of the val valuation too. We wanna see the employees call with the, you know, the new buyers. So we wanna make sure that they're. Compensated well that they're treated well, that they feel like they have a place here and they want to stay long term.
'cause those are gonna increase your odds of, you know, getting top dollar for your firm. So those are things we're gonna be thinking about and working through a plan to make sure that we're hitting the mark in those areas.
Gordon: Right, right. You mentioned something that some people might not quite be as familiar with, but that is profit margin.
And so you wanna maybe say a little more about profit margin and what is a good kind of number to shoot for?
Carla: So I would say in general, what we aim to do as far as profit percentage for our practices is between five and 20%. And I know that might not sound like a huge percentage number, but do the math.
If that's like a $5 million business or a $10 million business, it really starts to add up right on absolute dollars. This is after the owners already gotten a paycheck and then now they're, you know, drawing from. The profits and then investing back in the growth of the practice. So it, it is a lot of money.
Mm-hmm. So we wanna keep that as consistent or grow it over time. So if we're at 5%, we're aiming to grow it to 10, to 15 to 20% is our goal. Right. Without doing anything unnatural. There's sometimes a lot of undoing we need to do when we come into a practice to work with them as maybe they just didn't have the right compensation structure.
So we need to start working to shift that over time. And it takes time. It's not gonna happen tomorrow. So that's why we say two year runway to get xray. 'cause there's a lot of things we need to change. And then there's the profit margin. That's the bottom line. That's everyone's paid, everything is paid what is left behind, essentially, right?
Mm-hmm. And you do it as a percentage of revenue, and then there's just. Item at the top, which is gross margin, and this one is the one that we have a little bit more control over. So I'll get into that a little more, which is your clinicians and their compensation. Like once you compensate them, what's left behind to work with before you start to pay your overhead expenses like rent, marketing, admin, contractors, employees, anyone else that supports the operations of the business.
Mm-hmm. And that is really important to also keep healthy. We check for every single employee in the company to see how they are performing. And this goes back to caseloads, this goes back to retention. This goes back to, you know, a number of session counts. Making sure that they are performing to those goals consistently, even when they're taking time off.
You know, because we check in maybe quarterly, but we're managing it monthly. So there's ways that we can improve our gross margin and then filters down all the way to the bottom line of the business. But if you're not even paying attention to those numbers, it's gonna be really hard to know who are my top performers, who are not, who need a little bit of coaching and help to get a little bit better at their, you know, gross margins so we can get better margins overall for the practice.
Gordon: Right, right, right. So as, as a person thinks about maybe selling their practice, you wanna outline maybe kind of the steps about that in addition to getting your practice ready? You want it to the way I like to say it is you want it to run like a well-oiled machine and also have as little owner.
Owner not participation, but the owner, the revenue coming into the practice isn't, all, all hinging on what the owner produces, right?
Carla: Mm-hmm. And
Gordon: so that's a, there's a not to get too far off on a tangent, you might be familiar with this book, Carla. It's it's called Clockwork by, mm-hmm. Mike Mcal.
And he talks about that just being able to, okay, how do you wanna. Not have a job for yourself so that your company self sustains your practice. The self-sustaining. But anyway, I don't want to get too far off there, but what are what are maybe the steps of selling a practice?
Carla: Well, it started with awareness in your numbers, right?
You wanna know, okay, what's my starting point? Like, it might be better than you thought, by the way. So I always tell people, just go check. Right? Right. And then, and, and maybe if you're like just in the early stage of like solo plus maybe a few clinicians, your numbers are gonna look radically different.
So I just wanna encourage you to think, okay, what does that growth look like? And maybe it's, yeah, this is a starting point and I still see clients 50% of my time. How do I get that reduced over time? By hiring more to shift the workload off my plate as an owner into, you know, some of my clinicians doing the work for me.
Mm-hmm. Because again, that frees you up to grow the practice, to do other things, to, you know, get it extra ready and such. And also it increases the value overall. I would say first I would start with an expense audit. Sometimes we just work so hard for our money and we just give it away, and they're like, why are you paying for that?
You don't need, you're not using, or maybe you thought was a good investment but didn't return on investment, and you can change your mind and you can cancel that and you can stop paying for some things. Of course, if there's contracts, we wanna honor them, but just know. Maybe I won't renew that. And looking at expenses is such a straightforward, you know, there's no judgment.
You just go look at your expenses. What are you spending money on today? Is that still aligned with what we need to be spending for the future growth of our practice? And things change, right? Mm-hmm. So we wanna be assessing that. So step one, you can do that yourself, right? You don't need any help. Just pull up your p and l and start looking at expenses.
What's happening there? Then I want you to. Think about what is my plan for next year? How am I growing my practice intentionally? Because a lot of you are waiting until January 1st, and then you're freaking out that you don't have a plan for the next year, right? Mm-hmm. It's not late, but ideally, you're walking into the new year with a plan on hand ready to go, so that you're not guessing your way through 26 or the next year to come.
You're really figuring out, okay, here's what I'm gonna do each quarter to help. The growth of my practice. And what are opportunities you can unlock? And this is where if you don't know how to do this or haven't done it before, it's a muscle, you gotta exercise. So you gotta start small. Mm-hmm. Just think about some opportunities, talk to some friends, maybe get some professional help if needed, to figure out what is your plan and start forecasting out what might your goals be for the next year.
Because when we intentionally plan, we're more likely to hit those goals. Mm-hmm. And then third, you need to assess. Where are you financially? Like what's your current financial health and is that gonna change going into the next year to improve? I mean, again, make progress towards some of the goals that we shared today on where your profitability should be.
And again, by growing, you'll get better odds of achieving that. So those are the first three things you could start doing now. To start getting exit ready. And then the fourth will be obviously owner dependency, which you spoke to right, Gordon? Mm-hmm. Where you are maybe not the one seeing client clients anymore.
And then how does that shift over time? And I would say practices go through ways and sometimes the owner does have to step back in. To see clients. Mm-hmm. To just get the revenue where it needs to be before we get all the clinicians hired that we need to, or you know, we went through a rough patch where we're spending too much and that that happens.
The goal is just to, over time, get less and less owner dependent for the risk. Mm-hmm. Business to run and produce, you know, revenue on profits. Ideally. That's the end stage we want to get to, and we just wanna make progress every year
Gordon: towards that. Right, right. You know, another option maybe you could speak to, and I, I, I think everybody has to kind of weigh this.
I've got a friend of mine that's a veterinarian, and so this is some something you know, kind of similar service industry. But what he, he had a fairly large practice and he sold to a private. Private investors. And so his practice is actually owned by this other company, but he still works in his clinic.
Mm. Yeah. As a provider and and gets compensated, I'm sure very well and also. His retirement's all there and everything, but he's not having to worry about the capital and the numbers as much. You wanna speak to a scenario like that? Yeah,
Carla: I do because I think there's a lot of owners out there that like underestimate the power of not having to own the thing anymore.
Mm-hmm. And getting bought out of their business, but still working in the thing that they love to do, which is maybe being a therapist again. And if there's that passion. Fantastic. What the PE firms are looking for someone to run the business. They don't wanna take it over and then have to run it themselves.
They wanna put an operator in place, and if that operator could be you, because they hire you on a contract basis as an employee of now no longer your firm, but you sold it to them, you got the payout, you got the cash out, okay? Mm-hmm. And now, mm-hmm. They wanna give you a paycheck to stay on and continue to run it.
Now you might not be the boss anymore. You still got away by, you know, like the larger firm desires and needs. You might still have goals to meet, but you're no longer responsible for bringing in business. You're no longer responsible if something breaks. If employees have issues, they have an HR department they can go to.
Like, it just shifts the dynamics to. I'm not just have a job again, but I got that big payday and I'm really happy. Mm-hmm. And I'm a very happy employee right now. Right. And that my retirement's getting funded all of a sudden, right? Mm-hmm. Because you, maybe you didn't, for so many years of building the firm, you just pour everything back in and there was never enough money for you to take care of yourself fully except maybe a paycheck.
And all of a sudden you're just shifting to like. Being an employee again. And you know, some people might hate that idea, right? Like, I don't like to be told what to do, right? And some people will be like, Hmm, that actually sounds very cushy and I might actually want that payday and have the ongoing, know that you have a job, but you don't have to keep it.
Maybe because you got enough of a payday that you can choose to work, but you don't have to uhhuh. That's the ideal scenario, right? 'cause then you could just walk away if you don't like it a year later or two. And sometimes you have contract terms where you have to be a minimum of. So much time, you know, you have to agree to that.
Of course. Right. In good faith. But yeah, that is, I've seen that happen. It is an option, not always. Right. You, you could ask for it, they could offer it. It just depends if that works for the firm. Right.
Gordon: Buying it. Right? Sure. And, and also it's a, it can be set up so that, that, that position that you move into is, is time limited.
So you, you know, we're. Which is part of the deal in buying the practice. You know, you continue to con, continue to work and manage the practice and that sort of thing. They compensate you for it, but there's an end to it as well. Mm-hmm. That that's set up in the contract. So I mean, those are things to consider as well.
Carla: Yeah. There's also an InBetween on the two Gordon where like you just get the paid and you walk away and you're like just happy ever after, right? Mm-hmm. There's that. You get to consult for them for a period of time too. You don't have to be an employee, you just say, mm-hmm here's my hourly fee. Here's, I will consult for you for six months.
We agree to a minimum of hours and I'm just available and you're kind of like. Part-time working in your own terms still. Right. So you're still the boss of your consulting firm now. Right. That is helping with the business success 'cause they wanna see it succeed. So if they're like, Hey, I get access to the past owner to like ask questions and get support when things don't go right, but you're also not responsible if the day-to-day.
That might be a good compromise for you to consider. Mm-hmm. Right. Until you find like what's next for you. Because the other thing we never talk about, Gordon, is what happens after you get that big payday? I see a lot of owners get that big payday and then they go away. They enjoy two weeks off, and then they're bored or they get depressed.
Because they're like, my identity for so long was to build this business, and then they go start another business. That's the typical one that happens, right? Like they're like itching to start. I'm like, but you already had the business, so why do you sell in the first? So it's just like a whole thing where I always tell my owners, what is your plan after exit?
Like, what would your ideal week look like? What do you have? Hobbies? Or you have friends, you have other things outside of work. Mm-hmm. 'cause that has been their life for so long that it's hard for them to ambition. What the aftermath could look like. So I make them go do some homework before we decide if we're gonna sell to make sure that right, that is the right thing for them.
Instead, they just can keep the business and keep running it profitably. If that doesn't fit better,
Gordon: you know the size. And I'll add here to also consult with accounting or tax person to figure out the tax consequences. Because if you get a big landfall of cash coming to you as income, guess what?
You've gotta pay taxes on that. So you wanna look at what is gonna be your strategy around that. Mm-hmm. And how to, how to navigate all of that.
Carla: I had a friend that sold their practice for a lot of money and the first call they made, well, I guess the second, the lawyer was the first, the accountant was the second because they specialized in tax ways to like figure out the tax side of it, to not have to pay so much, you know, legally in the way that it gets.
Framed as the deal goes. So it's really important that you have those professionals, you know, on Yeah. On call, ready to go when this happens. And don't wait until then. Like go start networking out your way to who your mm-hmm. Tax accountant will be for exit, you know, planning so that you have those people ready to go and can consult because they can't save you a big chunk of, and it might cost you, by the way, they're not cheap, but the savings you get from it are far outweigh the initial investment you'll make with them.
Sure. So, yes, that is such a great
Gordon: point. Right. Right. And that's not to get us too far in the weeds, but knowing the difference between an asset sale and a stock sale and all of those kinds of things that can evolve the taxes, so,
Carla: yeah, exactly. Yeah. And this, it goes to the entity structure and like the type, type of, you know, a purchase agreement you have and mm-hmm.
Yeah. You definitely want a lawyer by your side that's done this before. Oh, sure. And an account who can help you avoid the taxes on both of that to make sure they're guiding you through that process.
Gordon: Sure. Well, Carla, I've gotta be respectful of your time and our time and I know we could talk about this forever, but tell folks how they can get in touch with you and if they wanna find out more about what you do and how they can get help with any of these things.
Carla: Yeah, we will love to have you follow us since you're here on the podcast. We also have a podcast, it's called CEO, financial Clarity Corner. And we are just getting started and we're really excited to share a lot of this free educational content. We want you all to get better at managing money and start to make sense of it by giving you that education you never got from, you know, money school that maybe you didn't go too far.
Mm-hmm. Okay. Through the podcast. So make sure you follow us there. Rate and review. Leave us comments and then if you are more of a reader, sign up for our newsletter on our website, wealth worth within.com. We always put in a really great content. Also let you know when we release a new episode on the podcast, and we're also on social media wealth worth within Instagram, Facebook, LinkedIn.
And then if you are ready to hire a fractional CFO or maybe you've been working with a very expensive bookkeeper that said they could be your CFO and that hasn't been working for you make sure you reach out and set up a call with us on our website. Site and let's get started section, and we would love to talk to you about your support needs and how we might be able to meet them as a fractional CFO.
Gordon: Awesome. Awesome. And again, we'll have links and the show summary and the show notes for this. And also go back and listen to the other episode that Carla was on for this podcast. That was episode number 3 22. I looked it up right before we got on the call here today on this, this recording, this episode.
So yeah, thanks again, Carla, for being on the podcast and I'm sure we'll be in touch again soon. Yeah, thanks for having me. Appreciate it.