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[00:00:00] Dr. Sharp: Hello everyone. Welcome to The Testing Psychologist podcast. I’m your host, Dr. Jeremy Sharp, licensed psychologist, group practice owner, and private practice coach.

Many of y’all know that I have been using TherapyNotes as our practice EHR for over 10 years now. I’ve looked at others and I just keep coming back to TherapyNotes because they do it all. If you’re interested in an EHR for your practice, you can get two free months of TherapyNotes by going to thetestingpsychologist.com/therapynotes and enter the code “testing”.

This podcast is brought to you in part by PAR.

The NEO Inventories Normative Update is now available with a new normative sample that is more representative of the current US population. Visit parinc.com/neo.

Hey folks, welcome back to The Testing Psychologist podcast. Today, I am bringing another episode about [00:01:00] money. I don’t think we can talk enough about money, to be honest. There are so many dimensions of finances and money in private practice, and it is such a fraught, emotional topic for so many of us.

My guest today is Carla Titus. She is the owner and CEO of Wealth and Worth Within which is a Fractional CFO firm that provides financial consulting and advisory services to group practice owners. She’s a finance expert with over 17 years of combined corporate financial planning and analysis as well as business financial consulting experience. Priorities for the clients that she works with range from growing profits to increasing cash reserves, and paying the owner well, so they can build personal wealth.

This is a great conversation. Carla is a really dynamic individual, as you will tell, I think pretty quickly. We really ran the gamut on financial topics. I thought we were going to spend most of our time talking about profit sharing and [00:02:00] different compensation models, but we actually talked about a lot of different things that I think are helpful for practice owners. We get into typical profit percentages for different stages of practice. We talked about how to back out if you started paying people too much and how to reverse that to get to a better place. We do talk about profit sharing- what that actually looks like in real life. And then we close with a discussion about next level strategies for financial health if you have “mastered basics” and you’re thinking about where do I go from here? Great conversation. Lots to take away from this. 

If you are a practice owner, you know how this goes. I would love to have you consider The Testing Psychologist mastermind groups for some coaching and accountability. Got new cohort starting in mid January, 2025 at all levels, beginner, intermediate, advanced. You can go to thetestingpsychologist.com/consulting and schedule a [00:03:00] pre-group call, see if it’d be a good fit. In the meantime, you can get plenty of financial information from this discussion with Carla Titus.

Carla. Hey, welcome to the podcast.

Carla: Thanks so much for having me. Excited about our conversation today.

Dr. Sharp: Me too. I’m going to tell the audience a funny story right off the bat. We talked about doing this podcast several months ago and we ended up scheduling it for whatever date it was. In the meantime, I’m down at the Wise Practice Summit event in Charlotte, North Carolina in October and a woman sits down beside me. I lean over. I was like, “Hey, what what’s going on so far?” [00:04:00] And then you responded. I look at your name tag and I’m like, “Carla, we’re going to be on the podcast in another month or so.” I had no idea that it was actually you in person right beside me. So it’s great to be doing the podcast after we meet in person. Funny.

Carla: Yeah, it was great to put a face to the name and then get to meet my future host for the podcast in person and get to have a great conversation too.

Dr. Sharp: For sure. So it’s funny. It usually goes the other way.

Carla: Yeah.

Dr. Sharp: I’m glad to be here with you. I love talking about financial stuff, money, and money management in private practice, and that is what you do. Always grateful to have skilled folks to talk about money stuff with us.

I’ll start with the question that I always start with, which is why this is important to you. Of all the things you could do with your life, time, and energy, why focus on this?

Carla: I’m a big believer that this [00:05:00] world will be a better place if people had mental health access to services that they need and the support that they’re seeking whether they practically seek that support or they’re just out of a need for the support to exist. I’ve myself had services in the past, even when doing well in my life and I just believe that we all need support and we all need help in many different ways at different stages of life.

Helping other practices thrive means that the services will be available when someone needs them, they can access them ideally at an affordable price, and that they can use their insurance benefits or the private pay sector can access them where they’re located and that it’s not a problem that there’s not enough therapists to people who need one or psychologists available to support people who need some help. I think the world would just be a better place if everyone had access to mental health services.

Dr. Sharp: I like that sentiment. [00:06:00] I’m biased, but I agree with you. But part of access is that folks are running sustainable practices where they are fulfilled and financially secure, right?

Carla: Correct.

Dr. Sharp: That’s not always easy.

Carla: Yeah. The long-term sustainability of a business is important.

Dr. Sharp: Absolutely. I’ve talked about this a lot, but we don’t get a lot of education around the financial components of running a business and certainly running a mental health practice. I would imagine you see a lot of that in your work. Is that fair that folks come into it with little or minimal knowledge?

Carla: Definitely. They’re an expert at what they do, but that doesn’t mean they have to be an expert in every aspect of running a business. They’re not a lawyer. They’re not a marketing expert. They’re not a finance expert for that matter. But the problem comes when not having [00:07:00] enough education or understanding of it so that you can hire people to support you or delegate it out with confidence.

We always say, it starts with just the base education. You don’t need to know everything. You don’t need to be an expert at it, but you need to know enough that you can see when things are not going well. I see often that people just get away from it by saying, Oh, I’m not good at numbers, I’m shy, or they start to judge themselves in the performance of their business, which doesn’t really serve their purpose of staying in business longer, paying themselves well, having the cash to continue to hire people to support the need of their patients and clients coming into the practice.

And so by not looking at it, what’s happening is they’re perpetrating the cycle of consistently struggling or trying to give away more than they can afford to. This community is so giving and so generous that it’s just a tendency to overextend themselves and [00:08:00] not take care of themselves because they’re like, Oh, we take care of everyone else. While that might feel very noble, and I understand where that’s coming from, it doesn’t always serve to you in the financial side of the business because you do want to look at what is affordable, what is sustainable, how do we make sure that we stay in business so we can now help more people, hire more staff to support the needs of the community out there so that we can give more back because we can afford to do. And so, it’s not all about the profits, but we always say, if you want to have the impact, you have to have the profits to be able to do that.

Dr. Sharp: Yeah, that’s such a good way to put it. I think we lose track of that in the day-to-day, and when we’re in those conversations with employees or contractors, like how much are we going to compensate these individuals? It’s very tempting to try to go higher or as high as possible and we lose track of the big picture, which is, if you [00:09:00] don’t stay financially sustainable, nobody gets help and everything shuts down or you end up super stressed as a practice owner and not making any money and then eventually you get to a pretty bad place too.

Carla: Yeah. And you’re comparing your time where maybe you were solo and making good money. You’re like, why am I stressing out with this big staff or this big impact I’m trying to make when it was maybe “easier” but the thing is that you could not have had the impact you wanted unless you hired and grew your practice. And so it’s important that you do it sustainably, profitably, and we’ll talk about how we can get there to make sure you’re looking at the right areas to identify some of the potential issues that you might be having and how to start thinking about solving those problems. But one thing that I always say to my clients is, it doesn’t happen overnight. It’s something that we have to strategically plan and then take actions towards it and be consistent and diligent about focusing on it. It [00:10:00] always starts with looking at the numbers, which could be the hardest step just to get you started.

Dr. Sharp: Absolutely. I’m really curious, as a financial professional, how much of your work is almost therapeutic where you’re helping people face their fears around money or avoidance around money. Is that true?

Carla: Yes, absolutely. I wish I was a licensed professional in your field because I think that would really help a lot of the work we do. But we also understand that a lot of people bring their childhood traumas around money to their business, or they might bring their personal financial management to their business, whether good or bad, we always say we’re not here to judge. We’re here to help. We just want to make sure we meet you where you’re. That’s the first aspect of it, right?

They’re like, “I feel safe to share that I don’t know about this. Fantastic. We can educate you. We can start to share with you how to look at it. We can show you different ways that this would [00:11:00] resonate best for you and then also take that fear out of looking at the numbers by going through it with you, also helping you not judge yourself in the process, but there’s a lot of mindset that comes with it. We understand that it could be very traumatic for someone to even just think about looking at their numbers, let alone doing that work, and so we’re here to support them on that journey. While we are not a licensed clinician to help them through the trauma part of it, and we will definitely refer that out, we do understand where that might be coming from and are able to then help shape the conversation in a way that feels approachable, nonjudgmental, supportive, and empathetic so that we can start to do the work necessary to shift things over.

I think by the time people get to us, they have already struggled with it long enough on their own that they feel enough is enough. I need to try something different and I need help. Just like your clients come to you for therapy, clients come to us to for us to help them define what are some of the problems and help [00:12:00] them create a path forward to solving them.

Dr. Sharp: Yeah. I’m curious what as trigger points or warning signs, I’m not sure what you might call it, those factors that bring people to you or things that we need to watch out for, like, if this is happening in your practice financially, now’s a good time to seek some help.

Carla: You’re probably running up against payroll cycles, very stressed out that you’re not sure you’re going to make it, and you’re just waiting for that last deposit to hit right before you run payroll in order to breathe. That is very stressful. I know that’s a big burden you’re carrying to have to make sure that the livelihoods of your staff and that their paychecks are going to clear. No one wants to be in that position, right?

So we work with that situation to create a cash runway over time. The problems don’t just get solved because [00:13:00] we want them to. There’s a lot of hard work in both and it starts with managing cash flow and starting to provide that cushion needed. But in order to do that, you’ve got to go back to the root cause of the problem, which at times we see often is a wrong compensation structure; the wrong margins on your business that ultimately lead to lack of profit, which means then you can’t put that cash runway in place because you do not have profit. To generate the cash flow, you need to have the runway to then make payroll.

You see how this is all coming back to a root cause problem that a lot of people are not defining correctly? They’re thinking, Oh, I just need to run payroll more often, or maybe I just need to take a loan to cover payroll and then everything will be fine and then I’ll just pay that loan over time and get back on my feet when profits show up and if they show up. That plan does not serve anyone because now we’re even more stressed out because now you have to pay the loan and the payroll again comes to [00:14:00] you a few weeks later and you still don’t have enough because you have not addressed the root cause of your problem, which was something completely different.

Dr. Sharp: Right. Man, just hearing you talk about that cycle of taking a loan to cover payroll, that makes me talk about a trauma response. That is the scariest thing I could ever imagine is being doubly in debt and not sure how it’s going to resolve. But I know that’s how it goes. I worked with a practice owner two years ago who was in that cycle. It’s a tough one to break.

I’ll ask you a question, a lot of people ask me this question, but I’m always curious from the financial professional perspective. When you’re talking about shifting margins or profits, what is a reasonable point of profit or percentage of profit or amount of profit for different practice stages or types? People ask this all the time. I’m curious [00:15:00] how you’d answer.

Carla: The answer is always, it’s a range and it depends on your size of practice and your type of practice, right? Let’s break that down a little further.

If you have a private pay practice, your margins are going to be higher. Therefore, your profitability will be higher because you do not have the whole insurance cycle, you get to charge heftier fees for the work that you do, and you get paid maybe right away. And so that allows you to have a much higher margin and profitability in your private practice than maybe an insurance-based practice that’s beholden to insurance rates that might go up or might not go up.

And so if you’re on the private pay side, you can have really high profit, anywhere from 20%- 30%. Sometimes it’s seen as high as 40%, but again, it depends on the size of the practice, because when you start to add people, what happens is if you were solo, maybe you’re taking home 40% profit because you only have to pay yourself and you [00:16:00] rent a small office. But once you start to add a rented space with five offices and five staff, those profitability is just not possible because you have so much overhead now to cover, right? So you’re going to be on the lower end, like 20%- 30%.

If you’re lower than this, by the way, this are just data points. It just means that there’s room for you to work towards getting and achieving those goals. It doesn’t mean that you’re not doing it right. You might have chosen to compensate people differently, or maybe your area demanded a higher level of salary, or you hire very experienced people that are making six figures each for the type of license or experience that they have. And those are choices you get to make for being able to command those higher prices. Again, it all works together because there’s no one component that says, okay, because you do this now, your profit is that. You have to look at the full picture and then decide what are the levers we’re going to pull to shift the profitability over time.

In private pay, we [00:17:00] just have a little bit more flexibility I’ll say, because sometimes you can increase prices and the market in the area allow it and your clients maybe are not sensitive because they’re on the higher end of the spectrum. So you’re able to leverage that a lot more than an insurance-based practice. 

On the other side, insurance-based, you’re beholden to whatever rates insurance decides on. Sometimes they decrease them. Sometimes they give you an increase. Maybe it’s an increase every 2 years, not every year. You have to decide what is your compensation structure.

What we normally do with that is we try to forecast the revenue based on session count, and then try to do a percentage of that for salary caps so that we know what can we afford to pay and then we slot in our people and their current pay and how that’s going to work. But again, we want to take a step back and always make sure that our compensation structure is accurate because if we first started and hire people randomly, maybe we don’t know what we’re going to pay them. We just say yes to [00:18:00] everything. And then before you know, you have 10 clinicians and you’re like, Oh, I paid everyone differently and I don’t really have a combination structure. So you sometimes just have to take a step back and realize what you’ve created.

And then how you shift going forward is with every new hire, we start to model a different composition structure that it similar or a little bit different that gets you better margins. So over time, we’re able to shift the margins to get more positive so we have more room for profit. And then wherever possible, we’ll look at expenses and make sure we can tackle some of those and reduce them. The margins on that, especially if you’re scaling, you’re investing some of your profits, so your profitability is going to be probably between 10%-15%, on the highest side 20% after everything is paid for, owner’s compensation included in that. The only thing we didn’t include in that would be taxes because you get taxed on the profit.

And so that’s roughly what you can expect on average. If you’re not at that level, [00:19:00] again, it’s about making a plan to get there and have action steps that you take. Profitability fluctuates in practices all the time, year over year. There’s circumstances, there’s churn and turnover sometimes that affect the profits of the business. So keeping an eye on it’s going to be very important.

Dr. Sharp: That’s great. I love the way you’re approaching this. I hope that some folks are feeling validated. It’s like this profit percentage is the measuring stick that we use for success in a lot of cases, and if you’re not at this level, then that means something about you or whatever it may be. It can be it’s fraught. It stirs up some feelings, for sure. So there’s a huge range. Essentially, there’s a huge range and a confluence weight. So it’s just a data point. I really like that.

Carla: Yeah.

Dr. Sharp: I thought you were going to say something about that.

Carla: Go ahead.

Dr. Sharp: Yeah, it’s all right. [00:20:00] We can reset a little bit and go from here. Were you going to say anything else?

Carla: I was going to say, it changes with the size of practice too. So it’s another thing that I think people hear this percentages and they’re like, Oh my God, I’m so off. Or I need to do something very drastically different and it feels impossible. Or feel like you’re stuck with a cost that you already created. But, the size of practice will also dictate what it’s available to you and based on the decisions you make, a lot of that will be impacted as well. So just something for people to consider, and not beat themselves up over it if the profit is not the amount that they want, but work towards that desirable profit percentage that’s attainable for the business.

Dr. Sharp:  Yeah. Well, this might be a good time to talk about the specific process that you actually go through with people. We’ve dipped into it and you’ve said little things here and there about forecasting or talking with people about their profits and so forth, [00:21:00] but it might help just to provide a frame for the rest of the conversation to know, what does working with a financial person like yourself actually look like?

Carla: It starts with a solid foundation where your bookkeeping and financial data is accurate. If that’s not the case, then we’ll be able to see that and provide some recommendations on how to best address that.

Assuming that is in place already, then the first step we’re going to go through is strategically decide what is the direction? What are we trying to achieve in the next year or 2 or 3 depending on what we’re working on? And that’s where the forecasting piece comes in where we’re starting to take the future and shape it intentionally. So despite what you’ve done in the past, that will inform some of maybe what’s possible, but we want to shape a new future or version of your practice going forward. And so we have to intentionally start to craft goals around that.

[00:22:00] It does not start with a number even though that’s what I do for a living. Most people think that a lot of the work is oh, let’s just jump on the spreadsheet and put some numbers together. And it’s no, we need to take a pause, think about the strategy. What are we going to try to hit for a profitability target? How are we going to go about achieving that? There’s a lot of steps to go into how we forecast and frame the conversation or a strategic planning with our business owners.

We want to take into account what the owner wants and needs out of their business first and foremost, because we are so used to taking care of everyone else that the owner is the last thing that gets prioritized. In my world, the owner is, I work for them, so like I want to make sure that they are cared for because no one else is going to watch out for them. So do you need to make sure you can step out of your practice four weeks a year or take two months off and still have things running and providing profit for you and your family to build wealth? Those are the kind of conversations we need to have now because that will tell us, Oh, [00:23:00] we might need to hire a practice manager and a clinical director to run things when you’re not around and make sure that this is owner optional or independent of you showing up in order for it to produce the results we need. We got to put those costs into our plan if we don’t already have them, right?

So then we have to look at what is the admin support you need. As the practice grows, those demands increase. So we need to make sure we have the appropriate staffing for all of that. And then every time we set a goal to grow the business by, let’s say, 20%, we’re not just coming up with a number from thin air. We’re looking at the historical performance of how the business has grown over time and say, is this possible or not? And if we’re going to make it be a goal, we need to now break it down by number of sessions, number of clinicians, average reimbursement rate. We need to actually make it tangible. So now I can tell you, you need this many sessions, this many clinicians at this average rate for that number to actually be reality.

And then when we look at that and the owner goes, whoa, I don’t think we can do that. [00:24:00] Now, we start to test for it. Well then, 20% growth might not be achievable this coming year and then we let dial it back or decide what is the pace of growth we want to have. So this is where all the conversations come together into the plan that we create. It’s not just about putting numbers up on the wall because anyone can do that. It’s the how do we achieve the numbers that makes the transformation of the business possible and then holding the accountability along the way, month over month, adjusting and overcoming objections and problems because guess what? Just because you said you were going to hire 5 new staff doesn’t mean 5 other stuff are not leaving. Now we have to hire 10. And then that churn that happens and then it impacts the business performance.

And then just because you say you want an accountability doesn’t mean your people are hitting their goals every single month. We have to monitor, coach and track that performance to ensure it’s actually happening. You’re going to have those hard conversations and that is not easy at all, but that’s where the profits hide. And so we want to make sure we’re [00:25:00] helping people through, not just creating the plan, but really what are the steps or actions you’re taking to make it a reality? And that’s the more important part of the work that we do is once we create a plan, can we actually stay on track?

Dr. Sharp: I see. It looks like we froze just a little bit.

Carla: Do we catch everything or do I need to go back?

Dr. Sharp: It catches it. I just didn’t hear it. I heard up to this is where the profits hide and we need to do something. That’s where I got to. 

Carla: Take actionable steps.

Dr. Sharp: Take actionable steps. Okay. That sounds good. Let’s see. Let me think.

[00:26:00] I’ll ask you what that looks like when somebody signs up with you or starts to work with you. Is this a rigid meeting schedule or how often do y’all meet?

Carla: [inaudible 00:26:21] 

Dr. Sharp: That sounds good. When I’ve worked with folks on different things around the business, there’s always an initial excitement when you get started and feel some hope and some relief, but then what happens after that? Are you meeting with people pretty regularly or is it a quarterly thing?  What does that actually look like?

Carla: We have different support levels to meet our clients where they’re at and making sure they have just the support they need for the stage of growth they’re at. And so they’ll meet with us either once a month, twice a month, at a cadence that really makes sense for the plan that we’re trying to achieve and helping them stay on track.

The folks that we’re meeting more regularly with, [00:27:00] which is twice a month, we’re doing one finance meeting dedicated to reviewing all the numbers, addressing any issues that we’re encountering. Are we on track, off track? If not, how do we get back on track and coming up with ideas on problem solving our way to reaching the goals because at the day, we need to know they will reach them or not. And then what do we do differently going forward if we haven’t to get back on track, or maybe we’re exceeding our expectations and the goals, and now we’re like, maybe we need more challenging goals going forward? So those are the kinds of conversations we want to have.

And also the hard ones where we’re like, things don’t look good. We need to do something very different if we want to change the direction or course of these results. And that’s where we come in with that perspective from a CFO to really help them shape what are the options? How do we think about this? What else can we do? And since we know the industry, we’re able to bring in some things that we see working in other areas that we can apply to their business and test out.

And then for the second meeting, we normally do a [00:28:00] strategy meeting where we’re again revisiting our strategic plan, looking at is what we forecast is still achievable. Do we still on track for the hiring plan or have we encounter any issues on maybe availability of talent, what we are compensating on maybe being a challenge because sometimes there’s that you can afford this, but the market wants this. And we have to work through both on what do we do about that?

It’s not just Oh, we want to hire at this level and that’s it. We definitely look for the talent at that affordable price point that we can afford to do for the practice, but sometimes that’s not available. So we have to think outside the box. What else can we do? And in a strategic meeting, it’s all about managing margins, having that composition structure conversation, looking at what else came up as an obstacle or problem that we’re trying to address, and sometimes is maybe the owner’s desire to continue to [00:29:00] work at this. Sometimes it’s like the lack of motivation because you’re like, Oh my God, everything is going wrong, that could go wrong, and you’re just like, is this even worth it? And then like having just that conversation very honest and openly, okay how can we make this worth it? And then are you still in it? What’s your energy level? What support do you need? And how can we take things off your plate to ensure that you get back on track?

So a lot of the work is financial and we do a lot of that looking at the numbers, looking at key performance indicators. Is our Lead Generation healthy, is our conversion rate performing well? Are we getting everyone to capacity? How quickly are we getting our new hires to capacity? Those kind of conversations that go into the meeting the goals piece, but it goes even a step further, more detail and deeper on the problems that we might be encountering and the things that are going right. Celebrating that too.

Dr. Sharp: Yeah, I like that. You have to celebrate what’s going right. You used a phrase a little bit ago that caught my ear, which was something like [00:30:00] places where the profits hide. I wanted to ask you about that. Where are some of the common places that profits tend to hide in our practices?

Carla: There’s some areas that are easier and others that are more challenging. I’ll start with the easy ones. Sometimes if you have a practice you’ve been building for a while, you forget that maybe you have people subscribed to software that you were using, but they’re no longer here and you’re still paying for them. Just go to an audit, go revisit, can we take anyone off that’s no longer here that doesn’t need the access? Again, you’re paying per user, so times many users, that can add up, right? And so make sure you’re addressing that.

Sometimes it’s like, we used to pay for this once a year last year and that worked for us, but this year is no longer working. And guess what? Nobody ever thought to challenge that expense, right? So just browsing through what are you spending money on? Is it still giving us the Return On Investment that we expected before, and it continues to [00:31:00] perform on that level going forward, or are we reshaping the strategy and changing the direction and reinvesting differently as we go into the new year, allocating our dollars to work for us better? So that’s one.

Measuring return on investment on everything you spend money on is important, even if it’s time savings and not direct impact to creating revenue or creating some kind of profit. Making sure you’re evaluating that every year is important because the business changes and the needs change. So we should be dynamic in our spending allocation over time. That’s the easy part.

The more complex part where profits hide is when we make bigger decisions such as the size of office you need for your team now versus what you’ll need in the future. What I often see is, we’re like, Oh, we’re going to grow so fast. So let’s just get double the size of office that we actually need. And now we have all this overhead and we don’t know what to do with it. We haven’t filled it with clinicians yet, they’re coming, and we don’t have the [00:32:00] capacity from a lead generation perspective to get those clinicians higher and filled up. So now you’re carrying all this extra office space and maybe you hire a few people, but they’re not full yet, and then it compounds not only on the rent side, because that grows every year by 3% at least on your lease, and you have a 5-year lease, probably, so this is nothing you’re going to get out of overnight either, versus approaching it like, okay, I will get a five office space now, and I have an alternative to rent an additional 5 offices when I need them. That will be a much better approach. Now, I know that’s not always the case or available, but that is a way to think about the problem versus just trying to eat up the whole cost at once.

And then the other piece of this is around the compensation of your clinicians or therapists or psychologists in their practice because if they’re not performing in a given month, your profit is just leaking away because you’re paying them maybe based on salary, maybe it’s based hourly, whatever your model [00:33:00] is. And for every hour, they don’t work, it’s opportunity costs because your practice could have made that extra session or the extra 10 sessions a month that they’re not hitting. And guess what? Your overhead or your fixed costs in the business do not change just because someone is not performing. Now multiply that by 10 people. Now, you’re actually leaking profit out of your business and you don’t even notice because you’re like it’s just one session. It’s just a few weeks of holiday. It’s just this or that.

What we find is that people are not prepared for the holiday season, even though it’s coming and you’re like, Oh, Thanksgiving week, it was a wash and we didn’t get the sessions we needed and therefore, November is just not performing anymore. And you’re like, wait a second. We knew that week was going to be slow. So why didn’t we use the first three weeks in the month to get ahead to get our average up so that by the time the fourth week hit, we’re fine. People can take time off. It’s not going to impact anything.

But that accountability, holding people to the goals and helping them think through that map out, same with [00:34:00] when I take time off or when they go on summer vacation, those are components of the management piece that will help you capture the opportunity on the profits. I know this tends to be a very uncomfortable conversation. Holding accountability is hard, but if you want a profitable business, these are the kind of conversations you have to be addressing over time in order to be able to capture some of that opportunity.

Dr. Sharp: I couldn’t agree more. Those are, I think, the toughest conversations around compensation and accountability. These are things that we really wrestle with in the mental health business and managing other people.

I do want to talk about compensation a little bit because this is another question that comes up all of the time. I know the answer is it depends. That’s always the answer. But just to get our range, people always ask, what should I pay people, employees or 1099s. And then on the flip side, people are like, what should I expect to make in a [00:35:00] practice? It seems rare that those are aligned. I would love to hear about your thoughts on both of those.

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Let’s get back to the podcast.

Carla: I think they can be aligned, but it takes a person thinking through their needs over [00:37:00] maybe what they can go get somewhere else. From the employee perspective, what we always highlight is the amount of flexibility we’re able to provide an employee, the kind of benefits that they’re able to get here, and the kind of support around supervision or licensing that maybe they won’t get somewhere else where they have to pay out of pocket for those type of things.

Those could be a highlight of things that people are looking for in their life. It might be someone who’s totally okay having a flexible hybrid role that is willing to take a little bit less compensation than maybe the market would bear outside of this role because they don’t want to work a full-time caseload of 40 hours a week plus and be burnt out in three years. They rather do the part-time approach or the lower caseload where they can dedicate quality to their clients and patients and make sure they’re paying attention and able to provide them the best quality of care. Maybe that’s important to them and also feel that they have the team environment to be able to thrive in [00:38:00] that way.

Again, that’s just different because some people are going to go for the roles that is all about the money, the full benefits, the full pay, and that’s fine. There’s nothing wrong with that. But I think a lot of the practices are providing this unique opportunity and they need to be able to highlight that.

From the person doing the hiring side of it, we’re looking at market data. We’re analyzing what is the market bear for this type of roles, for this level of experience, looking at what can the practice afford to do. And that’s the key 1 where we have to compare the 2, right? We have to adjust it for also the hours work because most of the roles are not 40 hours. So we have to make sure they’re commensurate with the amount of workload that we’re giving a clinician or psychologist.

What we do is we take that and run it through a gross margin calculation for that particular role before we hire. So we’ll do number of sessions times average reimbursement rate times number of weeks a year that we are open and see patients, and then we’ll take the cost of the [00:39:00] compensation fully with payroll taxes and benefits included and then do the math on what’s left after all of that is paid out, and then see are we on a healthy margin or do we need to offer lower pay because we can’t afford to do that given our standing with insurances and reimbursement rates. And maybe if you’re private, but you have more flexibility to afford higher salaries too. So there’s a give and take there. I’m being very clear in the communication with candidates that this is the kind of role you’re getting into. These are the type of benefits, including the flexibility we can provide you in your life. That maybe is a highlight and something that someone is looking for that they’re not going to get somewhere else,

Dr. Sharp: Right. When you think about compensation, do you approach it in terms of essentially, a percentage of gross revenue can go toward compensation or do you approach it in a different way? People are always like, a 60% [00:40:00] split or a 70% split or whatever. Honestly, I’m not a huge fan of the fee split model. I just want to provide some anchors for folks who are wondering, again, how much should I be paying people if I’m thinking in the split model.

Carla: I’ve seen the split model work well sometimes but it’s more of a 50/50 split more so than the 60 or 70 people are throwing out there because there’s just not enough room for everything else that you need to pay, including profit. Where we’ve seen more success is definitely been with the hourly or salary models, but again, holding that accountability, because you have to have that in place in order to make sure the profits are working.

Sometimes we’ve modeled situations where if we had everyone hitting their goal, even if their goal was lower, but everyone was hitting it, we would be more profitable than if we [00:41:00] didn’t have everyone hitting. And then that means we could do profit sharing with the employees and give them back some of that benefit by paying out a portion of the profits back to them. Again, that has to be very intentionally crafted. You have to have the right margins.

To answer your question around what is the margin? We look at it high level for the practice, across all roles, what is the salary cap that we’re going to set for the practice? And that can be 60%, 70% of revenue and still have room for everything else that’s happening. Again, it depends very much on the size of practice, but that’s where we’re starting to land in full compensation, including the owner, including the admin team, everything that goes into running the business. Or we look at it from the gross margin perspective by clinician and say any given role cannot have a margin of less than 40%. We want to have as high as 50% percent ideally. And then that starts [00:42:00] to shape up the conversation around compensation, around average reimbursement rate.

Now, keep in mind, if your average reimbursement rate goes down, that equation changes. And so we always have to have room for things that are outside of our control. I hope that not nothing like that’s happening in your practice, but it does sometimes. You get decrease letters from insurance paneling and you have to just deal with it. And so that’s where did maybe the split model can save you because then you’re like sorry, guys, everybody’s getting a pay cut. I don’t know how many people will stick around for that, to be honest. So that’s why the split model sometimes can be a little bit worrisome to people because employees want stability and they want to know that you get them, that you’re going to pay them, that they’re going to be compensated fairly for the work that they’re doing and that they’re getting rewarded for that in some way.

By having the split, unless the insurance gives you an increase, then you’re giving everyone an increase based on that, and then they have to wait until insurance pays. And what if you’re billing team is not [00:43:00] collecting on time, then nobody gets paid that month? There’s just a lot of things that the split model doesn’t address. While as an owner, you would have the stress of, if you don’t collect on payments, you still have to pay payroll, which we talked about earlier, and there’s ways to address that outside of getting into that. Preparing for those new hires, having the cash runway available for three months before you hire someone is going to be an important aspect of scaling that I think a lot of people are not talking about beyond the piece around compensation, some margins as well.

Dr. Sharp: Got you. You threw that term profit sharing out there. I would love to hear how you approach profit sharing in a mental health practice. I have seen theoretical models of this, but I want to know how this actually comes into play in practice and what you’ve seen work well.

Carla: I’ll tell you, it takes time because when we set this goals of holding accountability, again, [00:44:00] you’re moving a ship, right? Not everybody’s going to get on board. A lot of people actually going to exit out of your practice when you start to hold accountability. And that is a very real impact to the business. You’re rebuilding with the people that are committed to holding to their goals, and that might be half your people. It might be more than that. Hopefully, it’s not that many that leave, but at times, we have to deal with that, rebuild and rehire the new people within your expectations.

When you start that journey, it’s like a 12-month process to just shift to the new culture of we set expectations and we expect you guys to meet them based on what we’re compensating you because at the end of the day, you have a job and we want you to perform to the job standards. But if you weren’t doing that before, it’s going to be a hard sell for your current people. And then some people will quickly leave. Some will take 6 months to make their own decisions, and that’s fine. But you got to be prepared for that turn and turnover because it’s not easy and most owners at that point want to quit and we’re like, hold on, because on the other side of this, there’s profit sharing and it’s [00:45:00] it’s fantastic but we got to get through that bottom, essentially.

And then as we start to rehire and set those expectations, we’re able to craft into the plan this incentive of, okay, now everybody hits the goals. You all get to participate in profit share. But guess what happens the 1st quarter. Only 1 or 2 people get it. And the way we model is we take the full profit percentage and we break it down by section. So we’ll do sometimes 25% of profit back to the employees that qualify for the profit sharing, 25% for leadership, and 50% for the practice to continue to grow. Because guess what? You can’t grow a practice if you can’t reinvest back. I know a lot of people are like, Oh, let’s just give them 50% of the profit. I’m like so how are you going to grow the practice? Or what are you taking home after your compensation? That’s just not enough, right? So we like the 25%. It’s worked out well and it creates a nice pool as long as you’re getting the profits, right?

Again, managing performance gets you the profits. And then we see [00:46:00] that 1 or 2 people qualify and then checks get cut out of that percentage profit and people are like, wait a second, I’m actually getting extra money now.

I know that a lot of people are not motivated by money, so I don’t know that this will work for every practice out there for every employee. Some people care about other things. Maybe it’s time off, whatever. But assuming this is the kind of reward that resonates with your people, now we have two people that qualify. And then what happens the next quarter, we actually have more people because they notice that we were real about this profit sharing. And now all of a sudden we have five people qualified for the program. The pool is still roughly the same size and we have more people qualify as low as a percentage of salary anyways, because we want to do the math around make sure everybody’s getting roughly the same portion of it and then the pool keeps growing from both the leadership pool that we maybe eventually pay out, the clinical team that get this eligible for it.

And by the way, to be eligible, there’s criteria, right? You have to [00:47:00] meet your goals. You have to submit session notes on time. There’s certain things you have to do in order to qualify. You can’t be on a performance improvement plan. Those kinds of things get defined up front, communicated in a nice way. We try to keep it simple because honestly, people are not paying attention. They’re just like, Oh, you’re paying me more money. Great. What do I do to qualify?

And then what we see is by the time the second half of the year comes or the third quarter comes, all of a sudden people are like, Oh, I could make extra? This sounds great. And then they start to feel like they’re tied to the practice performance. When the practice wins, I win. Now, they can get bought into that by achieving their goals. Not that we need to motivate people to do their job, but it’s nice to be able to share a little bit of the winning with your employees who are here, dedicated to helping you achieve those results and saying, thank you for helping us. Here is your cut of the piece.

Also people are like, Oh, I don’t know if I want to do profit sharing, because maybe [00:48:00] sounds the wrong signal or whatever. That’s totally fine. I think there’s situations where that could work and situations that where we wouldn’t consider doing that, but when we have done it successfully, we’ve noticed improvement in performance because people are bought into that win model.

Dr. Sharp: I like that. So you said take 25% of the entire profit of the practice for the year to dedicate to the profit sharing pool. So if, let’s say a practice, I don’t know, had $100, 000 in profit, just extra leftover at the end of the year, is that before you pay taxes or after you pay taxes on profit?

Carla: That’s the other piece that always comes into play. And what we do is because we have the other 50% we didn’t allocate between the 25% for leadership, 25% for clinical staff, we still have that 50% where we cover the taxes out of that because we’re not want to penalize people over. Oh, you got a bonus, but by the way, it’s going to be reduced by taxes. So we just have the room to cover that. And we know that it’s coming in. It’s [00:49:00] marginal, honestly, out of the grand scheme of things because now we have more profit.

Dr. Sharp: Yeah, that makes sense. So you take $25, 000, let’s say out of that $100, 000, put it into the profit sharing pool, and then just you like to divide it equally between the employees who qualify just however many there are?

Carla: We do it as a percentage salary. So their full-year salary as a percent of total so we can distribute it equitably, because some employees will get paid more, some will be lower level of experience, place of role. You don’t want someone who is junior to get the same amount as someone who has been in the business for 10 years with experience and maybe more licenses and certifications. So we use that percent of salary to total to help manage the fairness or equity in the business on payouts for that. We think that’s worked well because people know they’re more junior associate level. They’re not going to get the same as a PhD who’s been in the business 15 years.

Dr. Sharp: That makes sense. [00:50:00] I like this. I’m guessing, if people were to talk with you in detail or work with you, there’s a charge or something. You provide guidelines for how to determine tenure seniority or eligibility.

Carla: Yeah, we write compensation. We do the full profit sharing outline of communication to the team, the criteria we work with the owner on that to define it because every practice is different. And then we have a rollout plan on how we communicate that, how often it gets paid out. And that’s the choice also from a casual perspective, where you pay a quarterly, we could pay a semi-annually or once a year. And what we find is when we do quarterly, it just rewards the person faster. So then they see the result and they’re like, Oh, next quarter, I get to earn it again if I perform well, so then they’re more motivated, ideally, and they’re not waiting until the end of the year when they’re like, already forgot. Oh, did I hit it or not? Oh, I got this extra money, but it’s not motivating them in the moment, which we’re trying to reward is the current actions that they’re taking to achieve their goals.

[00:51:00] Dr. Sharp: Yeah, that makes sense. I really like that. I like that it’s concrete and you thought about the equity component. I think this is a nice solution to this idea that we, like you said, can’t really pay people for full time because most of our clinicians aren’t working full time. If we’re being honest, for testing, they might be billing, I don’t know, 30, 32 hours a week, maybe a little more, but for therapy, especially people are seeing 20 or 25 clients and that’s the income. It’s hard to pay that additional 10 or 15 hours to bring them up to full time equivalent for comparing compensation with hospitals or community mental health or whatever. So profit sharing is a good way to add a little money to their pocket but it’s based on performance. It only happens if they reach their hours.

Carla: Yeah. It’s an alternative to consider. I [00:52:00] think it could work great for some practices and maybe not so much for others. There’s also a salary type of model compensation. You can evaluate to see if that works for you. Again, big on accountability for that to work. And then there’s other ways people can feel rewarded. It could be through more time off. It could be through other type of rewards. Maybe they care about childcare reimbursement and you want to have a DECAP plan in place.

There’s things you can do that doesn’t honestly always cost a ton of money that meet your team where they’re at. I think we just have to start to think outside the box and profit sharing is just one of them. We use a lot of these tools around benefits to incentivize our workforce and help them feel like they’re getting something, but you’re right, 20 to 25 clients of clinical work a week, that’s a lot, like it’s a lot of effort you guys put into the work and we’re trying to reward it in some way by saying, hey, there’s more for you here just for doing this work that we know it’s already challenging and hard.

Some practices offer [00:53:00] some wellness benefits or contribute to a 401k. There’s ways that we can help our team feel taken care of. And that’s what we’re going for. And also that’s affordable because we got to watch the numbers too.

Dr. Sharp: Sure. Are there any circumstances where profit sharing would not be a good idea for a practice?

Carla: Great point. If you’re struggling with cashflow, probably not a good idea to roll that out yet. We got to get you healthy first. The thing is, in the journey of getting to profit sharing, we build the cash reserves for the business. So first we took care of the health of the business. The first year we had to turn a profit and get back to a healthy profit before we even decided this was a good plan. We had to hire the right people and that costs money. So making sure you have those reserves in place in that every onboarding goes successfully to full capacity first, right?

Once you have a good solid team in place and the profits are consistently showing up in your business and you’re not [00:54:00] concerned about that anymore and you have the cash runway, now we can start to explore things like profit sharing and additional benefits because now we can afford it put it in the plan.

We always say, we just got to run the numbers before we make those decisions and tell the team about it. So we always tell our owners you can make whatever decision you want but just pause for a second, let’s run the analysis and make sure that yields a good outcome that you feel comfortable and confident in and then you can go do all the things you want to do, because we know we can afford it, we know we have the runway for it, and we know that we’re going to be able to maintain this for long term because sometimes when you make a commitment, decommitting from it is 10 times harder, because now the team feels like you’re taking something away from them instead of adding it and staying with it, you’re like adding in and taking it away and then adding something else, taking it away. They don’t want to see that. They want to see you committed long-term to whatever thing you’re going to roll out.

Dr. Sharp: Yes. As we start to wrap up, I want to ask you two closing questions that are different sides of the same coin. [00:55:00] One of the questions is, you just alluded to it, what if we get into a situation where we figure out we are paying people too much. I would love to hear your approach or how you might coach people to back out of compensation that’s too high. And then the second question, the other side of the coin, just to foreshadow a little bit is, strategies for folks who have mastered this. Like we’ve got these things in place. We’re doing profit sharing. We’ve got a 22% profit margin. Things are going pretty well. Is there a next level in terms of financial health or management? 

Carla: For the first one, I’ll say, it starts with a plan. So before you tell anyone anything, we got to go together a plan of action, a strategy around it. What we normally recommend is that we don’t go to people and just say, hey, we’re going to cut your pay because guess what? They’re just going to go find another job, right? That’s the [00:56:00] worst approach in the world because they’re people, right? People want to feel like you care, and you have the responsibility. You made that decision, whether knowing or unknowing. You made the decision to compensate them that way. It’s not their fault, right? They negotiated and you say yes. And again, we’re very given here.

What we want to do is we want to start by defining the roles and responsibilities and then go look in the market, literally Google salaries for that type of role and responsibility in your area. You might find that you’re actually overpaying. You might find you’re actually underpaying. We have to see where we’re at to even start a conversation around it. Then you have to decide if this will have additional responsibilities, maybe the merit that higher compensation, and that is an intentional decision we’re making to keep it that way.

And then you find the pockets of people that need adjustments, right? So identify whatever those roles are. I know sometimes we get hung up on oh, but I really like this person and I don’t want to change their pay. What I say is take the names out for a minute because we understand you have a [00:57:00] team, but let’s look at this objectively through the numbers lens first. Then we say, okay, but for this clinician that’s been with me for eight years, I want to make an exception. Fantastic. You’re the owner. You get to make those decisions. That decision will cost you X percentage of profit. And that’s what you’re trading intentionally, which is totally okay, by the way. We have a lot of these situations where we’re just saying we know, we’re okay with it, and we’re going to stick to it because we want to honor our commitment to that person. Now you can’t do that with every case. Otherwise, nothing changes.

Also, what we find is when we start this exercise where we’re just exploring, we’re just objectively looking at the data, we find that sometimes we get people that give us their notice. Unexpectedly, something happened. They need to move away. Someone got a new job in a new state. It just happens. And so we take those opportunities to start shifting the compensation model. With every new hire, we’re able to reassess, right?

And then also, if you’re gearing up for [00:58:00] growth in our hiring plan, we’re going to shift to the right compensation model with every new hire. So now, we’re not take changing anything for existing team. We’re just going to do with the new people coming in to say, Hey, over time, this is going to shift because we’ll have people come and go and we don’t want to… We know we made this decisions. We want to stick to that and take the hit for it. That’s fine. But with every new hire, we’re going to correct the issue over time. And so, we start to map out that plan to be like, okay, slowly but surely we’ll get there.

And then on the other side of it is, you have that shift in compensation over a year or two, maybe it takes you longer because you’re not willing to make the hard decisions on right scoping and having conversations that are difficult or maybe deal with attrition in the team. And then you do it over time, and that’s where the plan we put in place is okay, how do we shift? When do we ship? How many roles do we need in order to get us back to healthy? And then are we okay dealing with the problem until then?

[00:59:00] So that’s how we approach it. We’ve found a lot of success in doing that. Sometimes even just holding accountability gets a lot of people leaving for whatever reason. Everyone gets to make their choice. We don’t choose for them. And then it gives us a way to bring in some new folks that maybe have the right expectations that run. So that’s on the first one.

On your second question about, okay, what happens next? Okay, you’ve made the profit. Your team is performing and things are good. I think what comes next, it really is defined by the owner. What do you want next? Some folks tell me, I want freedom to spend more time with my family. Let’s hire the right support team in place that can run the show every day for you so you can be owner absentee or owner optional. And that’s when you really start to have that true freedom of wow, I have a highly performing business that’s profitable and I don’t even have to show up for this to run, right? So we work towards that as the next goal maybe is we want to exit. 

[01:00:00] Folks want to consider an offer at some point. So we want to be ready at all times. And this is something that we always prepare clients for us, be exit-ready, because you never know when an opportunity is going to hit. We want to have top dollar for what you’ve created and took you so long to run that if that presented itself, it’s a no-brainer to say yes. We can help them through that process of successfully exit for the right valuation for their business, but that doesn’t happen if you don’t have the financial results in place.

Maybe is, I just want to keep this for a long time. I maybe want to retire in 10 years, 15 years, and this is just producing the profits I need to build wealth. And then we take the money out of the business into their personal wealth-building plan and start to buy properties, buy a building for the practice to run back to it. So then at the end of the day, they actually have an asset that they can sell at retirement or whenever they need to, or continue to rent forever. And this is something that the practice was able to help them achieve, right? So the idea is the profits go to good use in somewhere building that [01:01:00] wealth journey in their personal life.

We don’t keep all the money in the practice. That’s another piece that we talk a lot about with owners. It’s what’s next. What do you want to achieve outside of owning this thing? It varies depending on the person’s goals in life and stage in life too, because some younger owners are like, I want to grow this 10X. Fantastic. Let’s go. And some are like, I’m tired. I just want this to run well and I will retire in three years. Either I’ll sell it to my employee, I’ll sell it to someone, or it’ll just stay to produce the profits I need as I semi-retire or get out of the day-to-day work more and more over time. So there’s options and it’s just up to the owner to decide so we can help them build that plan for what’s next.

Dr. Sharp: Nice. I like this. It sounds great to be at that place and options are always good. There’s lots of things we can do at that point.

Carla: Yeah.

Dr. Sharp: I’m guessing there are folks across the spectrum who are listening and [01:02:00] I’m guessing that there are a lot of folks who’re taking a lot away from this conversation. So I really appreciate you coming on and talking through all this money stuff because it is scary for a lot of us, or just confusing or unknown. So glad that there are folks like you out there who can guide us through it.

Carla: Yeah. I dedicated my whole career to learning about managing business finances. Obviously, we love to educate and share that knowledge. It should be readily available to everyone running a business. We’re a big believer in that because we would have better businesses that are financially healthy out there that are providing jobs and helping impact the community in positive ways. And that’s not possible if we don’t have the profits to be able to do that. So, it’s very important work. I want people to feel confident in reaching out for help or support where needed, or learning about it themselves, too, because I think there’s a lot of power in that, too.

Dr. Sharp: Absolutely. If people do want to reach out to you, or find you, or start to [01:03:00] work with you, what does that look like? How do they do that?

Carla: They can reach us on our website at wealthworthwithin.com. There’s that Let’s Get Started button you can push to book a call for free. We love to just talk about where you’re at, support needs you might have, and how we might be able to help you through our fractional CFO services. We also offer bookkeeping services in case you’ve outgrown your current team and you’re looking for an alternative that understand this industry. I see a lot of that especially this time of year. And if you want to follow along, we put a lot of educational content for free on our newsletter. You can sign up on our website and follow us on social media. We put two videos once a week to help people just get better at money managing, different topics and things that they need to be thinking about and get better on, and that’s @wealthworthwithin on Facebook, Instagram, and LinkedIn.

Dr. Sharp: Awesome. It’s been great to have an extended conversation with you. Thanks again, Carla, for spending the time with [01:04:00] me. I really appreciate it.

Carla: Happy to be here. Thanks for having me, Jeremy.

All right, y’all. Thank you so much for tuning into this episode. Always grateful to have you here. I hope that you take away some information that you can implement in your practice and in your life. Any resources that we mentioned during the episode will be listed in the show notes. So make sure to check those out.

If you like what you hear on the podcast, I would be so grateful if you left a review on iTunes, Spotify, or wherever you listen to your podcasts.

If you’re a practice owner or aspiring practice owner, I’d invite you to check out The Testing Psychologist mastermind groups. I have mastermind groups at every stage of practice development, beginner, intermediate, and advanced. We have homework, we have accountability, we have support, we have resources. These groups are amazing. We do a lot of work and a lot of connecting. If that sounds interesting to you, you can check out the details at [01:05:00] thetestingpsychologist.com/consulting. You can sign up for a pre-group phone call, and we will chat and figure out if a group could be a good fit for you. Thanks so much.

The information contained in this podcast and on The Testing Psychologist website will are intended for informational and educational purposes only. Nothing in this podcast or on the website is intended to be a substitute for professional, psychological, psychiatric, or medical advice, diagnosis, or treatment. Please note that no doctor-patient relationship is formed here, and similarly, no supervisory or consultative relationship is formed between the host or guests of this podcast [01:06:00] and listeners of this podcast. If you need the qualified advice of any mental health practitioner or medical provider, please seek one in your area. Similarly, if you need supervision on clinical matters, please find a supervisor with an expertise that fits your needs.

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