Structured For Success

In a conversation with a practice owner this week we talked about business performance in physical therapy and personal training practices. I made the comment that most practices are not structured for success. That comment raised the question to me, "What do you mean by structured for success?" Good question!


First let's define success... It involves five elements: reputation, profitability, scalability, sustainability, and giving back to the community served. If one achieves those five elements satisfaction will likely also be found.


It seems that too many practice owners are satisfied with making a wage. Too many overlook the need and benefit of earning a profit and a return on investment for their financial and time investments and for the risk they take in launching and operating a business. Profit is that return on invest. It is important and prudent. We focus on the success factor of profit because it is the fuel that makes the the other four elements possible.


"So, how does one structure for success?"


Structuring is multi-faceted. There are matters of the legal structure of the business including, contracts, partners/members, rights, responsibilities, obligations, understandings, tax status, capitalization, governance, etc. There are operational structures related to marketing, utilization, productivity, staffing, billing and collections, communications, etc. There are also matters of financal structures such as budgets, loans, line of credit, leases, fees, discounts, provider contracts, compensation, distributions, and profit.


Profit is too often an after thought, i.e. what's left over at the end of the year. It gets far too little consideration. How little? I find very very few practice owners that know what their profit margin is. And, it is equally rare that an owner can tell me what their intended profit margin is for the year. Here's a simple test for you? What is your current profit margin for the year and what was it intended to be? If your answer is, "I don't know", then you are not structured for success and you are not alone.


Profit is not something one can manage directly because it represents the sum total of all of the decisions one makes. Profit represents your score in the game of business. it tells you how well you're playing, how competitive you are, and what league you are playing in. As a point of reference, 25% of practices earn 10% profit or less. The remaining 75% earn more - the top 25% of practices earn much more!


Why? Because they are structured for success. All of the moving parts of the business are aligned, and integrated toward one end - superior service and profit. Practice owners need to stop making excuses and being embarrassed to talk about profit. Sure service comes first, but service without profit is foolish. Even not-for-profit organizations recognize the need and appropriateness of operating with a surplus (profit). Nonprofits can get by for a while on a smaller margin (profit) only because they have a tax advantage and the ability to accept charitable contributions.


Without profit one can not grow and provide better and better services to their community. Profit rocks!


Here's the underlying insight one must understand. Unless there is an intended profit target and unless one knows whether they are on target or off, they can have no idea what decisions need to be made or what solution to a problem is optimal! And, unless such decisions are routinely being made proactively in a timely fashion one can assume that there is no one managing the business.


The budgeting and managing of expenses are particularly critical since they are the only financial variable that management can actually control. Volume and revenue are dependent on the decisions of others to engage one's services. Bottom line profit is simply the calculation of the difference between one's top line revenue and their middle line expense. Thus, how expenses are structured and managed in relationship to conservative revenue expectations are critical to profit achievement.


It all begins with planning. Planning begins with an honest appraisal of how well the business side of the practice is currently performing in comparison to other practices. How competitive is it? Only then can one learn what is possible. Only then can the practice be structured for success. Only then can one find structured success.


Restructuring can take anywhere from a few weeks to a year or so, but it is the most important thing one can do for their practice, for their staff, for their community, and "yes for themself"!


Back in the 1800's Webster's dictionary defined Success as: prosperous, fortunate, happy, kind. It's important tonot forget the elements of fortunate (blessed) and kind (grateful) in our understanding of success. It is also important to keep in mind that prosperity favors those who are pro-active and prudent in their preparation. And, happy like profit is an outcome that can not be controled directly.



Are you structured for success or just getting by?



All The Best!


Bob


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Performance Builders