You can't run your business from an iPhone app
Martin Holland Part 1
[00:00:00]
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Kate Grandbois: Hello everyone. Welcome to S L p Nerd Cast. I'm without my co-host Amy Wonka today, but I'm not alone today. I have the pleasure of welcoming Martin [00:03:00] Holland. Welcome Martin. Hi Kate. How are you? I am wonderful. I'm really excited for today's conversation. I have a little story to tell about how we met and how you came to be a guest on our podcast.
But first I was wondering if you could tell our listeners a little bit about
Martin Holland: yourself. Well, thank you for that opportunity. First of all, I'm thrilled to be here. I was telling you beforehand, I have a passion for numbers and a soft spot for speech language pathologist. My wife is a S L P and has a clinic.
Uh, she now has 26 therapists. She's magnificent. So this is melding two of my favorite things. And I hope, uh, do a good job and, and useful to people. Um, about me. Just quickly, uh, I've been in business for 49 years. I started eight companies, two of them failed, sold four of them. Still work with two. I'm currently a business coach because after selling my last company, I thought, I don't want to do [00:04:00] this again.
And this is really, really hard, right? And maybe I can be useful to other people through my experience in, in what I've learned over the years. Took a couple of years to learn how to be a coach. Uh, but it's worked out just the way I thought it. It is also melding a couple of my passions, which is helping other people.
That's my entire purpose in life, particularly business people, because that's where I'm suited to help people. And also it's, I'm passionate about helping people, but I'm really thrilled when I get paid to do that. Right? And that happens too. So, um, That's kind of quickly my background. My eight companies are across a broad range of industries, from biotechnology to chemicals, to manufacturing, to contracting, to agriculture.
And now, uh, with my wife's practice, I'm working, uh, with a speech language pathology practice.
Kate Grandbois: And that's one of the things that I love so [00:05:00] much about your experience is the range of industries that you've worked in. Um, and before we get in today's, into today's material, I wanna tell this little story about how I came to know your work and how we came to be introduced to one another.
Um, as our audience knows, I'm a small business owner. I run this podcast. I have a private practice here outside of Boston, and I have always struggled with several aspects of running my business. I've never really struggled with being a speech pathologist because that's what I was trained to do, but all of these other additional pieces that go into running a business, marketing, looking at my financial statements, trying to make a budget, trying to stick to the budget, financial forecasting, using my, using my business information to make good decisions, planning ahead, all those things, it's always been very overwhelming to me.
And about a year ago, a little over a year ago, we're recording this in June of 2023, so this was probably [00:06:00] April, 2022. I was at a family dinner and I was having a conversation with my brother-in-law who was also self-employed in a totally different industry than me. And we were talking about work, and he said, oh my, you have to, you have to read this book.
I just finished reading this book and it completely changed the way I look at my business. And my brother-in-law is brilliant and he reads, he's probably read like hundreds of business books. So when he tells me I have to read this book, I'm like, all right. So I haven't really read a lot of business books in the past.
So he gives me a copy of his book and I read it. And the way I describe this book, which is your book is, it's like a beach read for numbers. This book, I understood it. I understood for the first time so many components of running my business, and I had my own little nerdy fan girl moment over this book.
And so I bou, I looked you up and I I connected with, I did. I looked you up. I connected with you on LinkedIn as an as a human does, I suppose. And to my [00:07:00] surprise, you wrote me back within like a day you wrote me this nice little message that said, I thank you so much for the connection. I, are you a speech language pathologist?
And I thought, oh, I felt so special. I thought, oh my goodness, this brilliant person who wrote this amazing book knows what speech pathology is. And then of course, you told me about your wife and you were so generous with your time and we had a few phone calls and I've just learned so much from you. Um, and you have a podcast too, don't you?
Why don't you tell us a little bit about your
Martin Holland: podcast? Yeah. A large part of, uh, my business is, uh, dealing with what I call industrial clients, manufacturers, contractors, home builders, things like that. So we have a podcast called the Cashflow Contractor. Um, we've been on, we've got 162 episodes up, and I was telling you this morning, Kate, that, uh, what did I call it?
Listen, our, uh, technical person found this, but we're ranked, uh, in the top [00:08:00] 10% globally for podcasts. Listen to those.com, and I'm encouraging you to look it up because you're gonna be way up there too. I know you will be. So, um,
Kate Grandbois: I hope so. Yeah, my fingers are crossed.
Martin Holland: It's been a lot of fun. I mean, I learned more probably from our podcasts than I, anybody.
I mean, we get to interview all kinds of people. We do some internally to explain concepts, but thanks for bringing it up to Cashflow Contractor
Kate Grandbois: and, and, you know, podcasting is, its, is its own whole world that we could talk about for a million years. Um, and I'm really excited to dive into what you've put in your book and what, how it can be applied to the field of speech pathology.
Um, so let me get into covering some of our boring housekeeping things. I need to read our learning objectives and then our financial and non-financial disclosures, and then we'll just dive right into it. All right. Learning objective number one. Describe why keeping accurate accounting books is important to building a private [00:09:00] practice learning objective.
Number two, list at least two strategies to improve bookkeeping without a background in accounting and learning. Objective number three, define breakeven and how it is relevant to private practice financial disclosures. Martin Hollins Financial Disclosures. Martin is the author of a book titled The Profit Problem.
They Say, I make money, so why don't I have any. Martin also runs a business coaching firm called Ail Business Coaching Martin's Non-Financial Disclosures. Martin has no non-financial relationships to disclose my financial disclosures. I am the owner and founder of Grand Wa Therapy and Consulting L L C and co-founder of S L P Nerd Cast My Non-financial disclosures.
I'm a member of Ashes SIG 12 and serve on the E a C advisory group for Massachusetts Advocates for Children. I'm also a member of the Berkshire Association for Behavior Analysis and Therapy. All right. Boring stuff is over. Let's jump right in. Why don't you start off by telling us a little bit about what accounting [00:10:00] even is?
Why should, and why should we care?
Martin Holland: Well, let me answer, ask, answer why you should care first. Okay. Begin with the why. Makes it a lot easier. Jim. Jim Rowan says, if the prize is apparent, the price is easy, right? So if there's a reason, maybe it won't be so hard, but I suggest that anybody listening to this who's in in business already understands why they need good books.
They may not recognize it as such, but those sleepless nights where you're wondering, I thought, can I hire somebody? I rented this building. What do I have to do to be able to pay for it? We've got a lot of sessions, but I don't have any money. Uh oh man. There's a payroll deposit due. I all these questions that people keep people awake.
That's what, uh, business accounting and bookkeeping is intended to resolve. And I like to throw this in there because I like history, [00:11:00] but the problems that you confront concerning those types of issues are timeless. Bookkeeping was invented in the 12 hundreds. That means that in the Christmas story, Dr.
Scrooge Crotchet was keeping books, right? That's later in the 12 hundreds. But in the 12 hundreds, the original bookkeepers were keeping books while their neighbors were dying from bubonic play. That is how old it is, and it's unchanged. The processes are unchanged. We now do it with a computer instead of big old books.
But it is unchanged. And that's because, um, it resolves these questions. So what is it? It is the faithful, timely, and accurate recording of transactions. That's what it is. That is very essential. Now once you've done that, there are all kinds of things we can do with the information that make it useful.
But that's really at its basis what, what bookkeeping and accounting are. And that's why it's [00:12:00] difficult because it's basically attention to detail, assiduous, detention to detail. And a lot of people, most people don't like to do that. So, but that's what accounting is. It's recording transactions faithfully and accurately.
Kate Grandbois: So you've already mentioned a few questions that I've wrestled with, what can I afford? I need to buy a new test. Is there enough money in it for my, in my budget? I need to hire someone. How do I, how do I do that? And what do I pay them and what can I afford to pay them? And all of those kinds of things.
How does accounting help us to answer those questions? Okay,
Martin Holland: let's jump back just a little bit. Um, Because the original questions that accounting answers, um, which take back to the 12 hundreds, is first, am I making money? Okay. That, that would be nice to know. I don't know where your listeners are, stand in that equation, but if they don't really know if [00:13:00] they're making money, they're not alone.
I would say 80% of businesses that I, and I've dealt with over 500 directly in my coaching business, they don't know, had a guy in here the other day and I said, how you doing? He's a new client. He says, great. My sales rep 50%, 54% last year. And I said, do you make any money? He goes, got no idea. Right? So that's the
Kate Grandbois: number one.
I laughed cause I, I totally sympathize with that perspective.
Martin Holland: Oh, people don't know. So I hope there's comfort in that because, uh, people trying to take a guess, they open up their cell phone and look at their bank account and they kind of realize maybe, uh, Medicare owes me this much and Cigna owes me this much.
And maybe, and then kind of, maybe I'm gonna owe that much and. Anyway, they're trying to do it in their head, right? Middle gymnastics. But the first thing that they do is answer the question, am I making money? And that's not as simple as a question as a lot of times people think that's why it's hard to do.
But that's number one that you have to know that, and you have to be making money. If you are not making [00:14:00] money, um, I'm not gonna say it. So you need to fix that because otherwise you're going away. Right? Second question, what do I own? Right? What assets do I own? It's not as big a deal in SLP as it is in contracting and things like that, but you need to know what you own.
Part of what you own is accounts receivable. Okay? Accounts receivable, are all those, uh, payments you haven't received yet from the insurance companies, right? Okay. The third question is, what do I owe? So am I making money? What do I own? What do I owe? And that's what do I owe the government for payroll taxes?
What do I owe my credit card? Maybe I got a loan to open my practice and buy computers and so on. Maybe I've got my vehicle chart. What do I owe? Then the, the next question it answers is, what, what is left over for me? This one isn't that big a deal, but it's if you take what you own and you subtract what you owe, theoretically that's what's left over for you.
Okay? And then the last question that books answer is, where [00:15:00] did my cash go? The fact that you make money has almost nothing. They're related, but almost nothing to do with whether or not you have cash. Okay? I will just say if you bill a hundred thousand dollars worth of insurance, um, payable or receivables, which you haven't received any of it, your books might show, Hey, you made a hundred thousand dollars, which you did.
But I don't have a hundred thousand. Why not? Because it's tied up in accounts receivable. And so the answer to that question, uh, we can dive into that. If, if it's of interest of where does your money go, but am I making money? What do I own? What do I owe? What's left over for me and where do I cash goes?
Those are the foundational questions that are answered by books I'd like to point out. Those are all rearward looking questions. They're all looking to the past. That's important for taxes. That's important for you to understand how well you're [00:16:00] doing to learn from it, but it's past, to me, the most exciting and useful use of books is to answer the question, what should I do?
Okay? If you don't have information to guide your decision, you're going to make your. Decisions based on your gut feel a lot of times, which might depend on, it's a nice day today, it's pretty out and I feel good. And the, the, you might make one set of decisions the next day. You think you have covid, it's cloudy and rainy, and you've just had an argument with your spouse and you're going, I'm never gonna do.
So those are not decisions. I mean, they're, they are decisions, but they're not reason decisions. So my favorite, highest and best use, and I hope we get into a specific example of this with my wife's business, how we do it is to make decisions. And, uh, none of those require that you know how to [00:17:00] keep books.
Matter of fact, by the end of this, I'm gonna make it clear, you should not keep books. Somebody needs to keep books. And you need listeners to understand how to use the information they provide. And, uh, Did that answer your question? It was what is accounting
Kate Grandbois: answer? No, it did, it did answer my question and it reminded me.
I I have two follow up questions actually. One is related to the title of this episode, and I think you just touched on it a little bit. So the title of this episode is You Can't Run Your Business from an iPhone app, and you just mentioned, you know, right. Something about how many of us who don't have a deep understanding of accounting or maybe don't have an accountant yet, or aren't keeping really clean books.
You know, we go to answer these questions, I need to, I need to purchase a test, or do I have enough money to hire an assistant or a biller or whatever. And you open your, I assume this is related to opening like your bank app and being like, how much money do I have? Exactly. And looking at the bank balance, right?
Is that what you're [00:18:00] referring
Martin Holland: to? Absolutely. Uh, yeah. It's, it's a great title for the episode and I see it all the time. Uh, I have an example that I use when I give talks or keynotes and it's a picture of two iPhones company, a company, B company a's got $750,000 open to the bank app. Got $700,000 in the bank, company B's, got $75,000.
And I ask people, which company would you rather b? And they're usually on to me, they don't always just pick the big one, but it's pretty natural to go, Hey, I'd rather have whatever I said, $700,000. I said, well, let's dig a little deeper. So we looked behind, not in their iPhone, but, and they have a half million dollar payroll coming up Friday and they got $150,000 of past due payroll taxes and they have 75,000 due on their American Express card.
And they have, uh, maybe 15,000 due on their, to their bank on their, um, mortgage.
Kate Grandbois: Right? My blood pressure's going up just listening to this
Martin Holland: list. [00:19:00] Well, you go to company B'S only got $75,000 or whatever I said in the bank. He's got a $5,000 payroll, he's got a $1,200 credit card payment and everything else is paid up.
Now, which company do you want to be? And the point is you cannot tell even remotely by looking at the bank apps. That is not the whole picture. To our listeners who might be solopreneurs, everything's cashed, they don't have a lot of things. They might have a good idea by looking at their bank balance, but you don't progress.
Well, here's something I need to say. I said it all the time. Why do you need to keep books? In my experience, I have never seen a company thrive without good books ever. It does not happen. Now you can be a solopreneur and get by, and in which case, and I don't mean this insultingly, but what you have is a high risk job.
And I say high risk because you gotta pay yourself. [00:20:00] If you're working for somebody else, that's their burden to pay you, right? But books. I've never seen a company grow and thrive without good books. They either start with them or they implement them when they come to the realization that I can't go further without 'em.
And that's just a, a major, there's a great quote I read the other day. It said, if the books are a mess, so is everything else. That's a great quote. And that refers to kind of the discipline and the that, that go along with the books, but that's true also. Mm-hmm. So there's your reason. If nothing else, if you want to, if you want to thrive in business, you're gonna have to deal with it.
Kate Grandbois: Something else that you said earlier was related to the importance of cash and accounts receivable. And anybody who's listening who maybe doesn't have a a, a good accounting background, accounts receivable is the money that you're expecting but don't have yet. Right. Right. So, right. If you take insurance, the [00:21:00] claims that are being processed or the invoices that you've sent out to private pay clients who, and they just haven't paid you yet.
Right. So the money that you're expecting, one of the things that you say pretty free, or one of my big takeaways from your book was Cash is king. Yeah. Can you tell us a little bit about why
Martin Holland: cash is king? Well, because you cannot settle any transaction without cash ultimately. Mm-hmm. And I have, uh, in my book, and I don't want to belabor this too much, but the cycle of business and, um, To start a business, you need cash.
There are two ways to get it. You borrow it or you invest it. Use the cash to buy assets, which are things you own, which would be your tests, your materials, your computers, the furniture in your offices, your setup. So you buy assets, use the assets to generate sales, which in S L P is generally insurance for private pay from which you hope you have a margin, which we're gonna talk about, which is enough to pay your overhead, which we'll talk about.
And you generate a [00:22:00] profit. Woohoo. I generated a profit and you must do that. But so what? You can't pay your payroll taxes with profit. You have to convert that profit to cash. And the reason I bring that up, um, is in general, if you ask somebody, tell me about your business, they'll tell you about their sales.
Oh, I did a million last year. I did 10 million last year. I grew from 5 million to 15 million in the last three years. Oh, okay. Did you make any money? I don't know. Well, I think so. Looks pretty good, but I don't know. How's the cash doing? Ooh, don't wanna talk about cash. Okay. So I will mention this in passing because it may be useful, but if you make a profit and you do not have cash, there are only four reasons for that.
And the benefit of knowing what the reasons that you might make a profit and not have cash are is if you identify the [00:23:00] problem, you can take action to correct it. Right? So those four reasons are one we've already discussed. You haven't been paid yet. So I make a profit because I billed them a million dollars, but I have a million dollars in accounts receivable, so I don't have the money yet.
I have a profit, but not the money. Second thing is you use the money to buy assets. Now, that's not as big a deal in S L P, however, we just bought a building and a bunch of stuff, but you use the money. So I made a profit, but I. Bought stuff with it. And non expenses, assets are not expenses. That's a subtlety.
But I bought assets with it the third. So I haven't been paid yet. I already spent it on assets. The third thing is, um, I used it to pay down debt. So I made a hundred thousand dollars, but I owe my bank a million and I paid them a hundred. Right? So you made money but you don't have the cash. And the fourth reason is you took it in draws.
When you take money out of [00:24:00] your business, not as a salary, salary, you get paid for working in your business. Draws and distributions are what you get paid for. Taking the risk of owning your business, the money that you take out as draws does not affect your profit cuz it's not an expense, but it does affect your cash.
So if there are people out there who make a profit, strongly believe they make a profit, have books that tell them to make a profit, but they don't have any cash. It's gonna be one or a combination of those four reasons, and that's where you go to start improving things. Did that answer your question about cash?
Kate Grandbois: It did. And you know, it, it brings me back to the importance of understanding your books and first of all, having books to begin with. Right. Um, and I wanna address this before we get into, you've already brought up so many things that I wanna get to, like overhead margins break, even the example that you brought up with your wife of how you use the information you [00:25:00] have to make for, to look forward and, and plan some of those things out.
But before we get to that, for people who are listening, who the, this is the first time they're understanding what accounts receivable is, or they're, they are solopreneurs and they're managing their business from their banking app, or you know, someone who is just starting out. If someone doesn't have the experience with QuickBooks or experience with accounting and maybe.
Doesn't quite have a grasp around this, where would you suggest that they begin, even if they don't necessarily have the, the capital to hire an accountant? And again, this is one of the reasons why I loved your book because you have a chapter called Financial Statements Explained without Numbers or Math, right?
So conceptually, what do you do when the, when you're at the beginning of this journey?
Martin Holland: Well, there are certain sonic omes, you know, without which not. Mm-hmm. Um, and books is one of them. So if you can't afford books, [00:26:00] as we say in Oklahoma, save up a little bit before you start your business. And then I do make it clear or I try to make it clear you should not keep your books as we were talking before, bookkeeping.
I hope I don't belittle, um, or this isn't negative towards SLPs cuz I huge respect for what you know and learn and experience. But I will say that bookkeeping and accounting. Is as complicated as speech language pathology. You can get PhDs in both subjects, right? So it me trying to, you most people trying to do their own books would be like, like me going in and say, well, I've watched Diane do this for, we've been married 45 years.
For 45 years. I could, I ought to be able to work with that apraxia. Actually, I know that word. I'm not even sure what it is, uh, well, I can't do it. So where you start is you can find a bookkeeper. I mean all, all sorts of different [00:27:00] ways to do it and book, uh, QuickBooks, something like that might cost you 50, $75 a month.
You can hook it up with your banks and it downloads a transaction, not you, them, and they just get started. Okay, $300 a month, maybe it's as important as rent. And especially if you start out. Doing. If you've been in business 10 years and you decide you wanna make your books right, uh, it can be expensive.
So that's how I suggest they start, is that they realize, Nope, this is one of the prerequisites to being in business. I'm going to do it, gonna find a bookkeeper, and we're gonna start. And then you will at least have that information, which you can rearrange and things later, but you will have it recorded.
Kate Grandbois: And I wanna add one thing to that, just from my own mistakes. I'm having owned a business for about 15 years. Having a really good, under fundamental understanding of what your books can tell you, I think is another missing [00:28:00] piece because I kept books by myself for a few years. I've had an accountant for probably 10 outta the 15 years I've been in business, but it was only in the last year or so, maybe two years that I understood how to use them or understood what some of the fundamental components were.
So I'm, my only addition to that for anyone listening who is sort of new to business or wanting to learn more about business is taking the time. You know, in speech pathology, we spend a lot of our professional development learning about clinical issues or different treatment techniques, but. Taking a minute to do continuing education like this podcast or like reading your book or some other professional development about some of the edges of business, just to understand a little bit of the, those foundational pieces can be an incredible, um, an incredibly helpful strategy in moving through the business process.
Correct. Would you, would you agree?
Martin Holland: Oh, a hundred hundred percent. [00:29:00] The one thing I would say is there will take some, just like when you were in your CF year, right? Or, or doing whatever you call that beforehand, where you go visit places, you know, you're at speech pathology or speech pathologist, but there's a whole lot you don't know.
And there's a whole lot that you know, but you didn't realize you knew, right? Yep. Well, it's gonna be the same with books, but get started with the books. Let them be there. You don't have to, the day you start understand the subtleties that can come over time. If we were sitting here today, I, I do want to use some examples to show, to incentivize people, but if I were to get into some of the real subtleties today, I'd be giving you answers that you hadn't asked the question about yet.
There will come a time in your practice if, in your bus, in the business side of your practice where you're going, I wonder if I could understand this or how I could know that or what informa, aha. [00:30:00] Now you've asked the question. Now let's go look for the answers. And you have a place to look because you've been recording data, right?
It's rather than just sitting there going, man, I wish I could find that out. So that's why I say start, get a bookkeeper to start for you, even if you don't understand it. That will come over time.
Kate Grandbois: I, I think that that's great advice. Um, let's talk a little bit about, now that we understand the incredible importance of what, why we should keep books, how we can begin to keep books where we can find additional information about, um, understanding the books that we keep.
Let's talk a little bit about the forward thinking aspect. And I know that there is a lot that that goes into this and we've got a whole half hour left to talk about this cuz I know we can talk about it. You have a whole book about it. Um, do you think it's best for us to really start first talking about overhead and then [00:31:00] how that translates into looking at what a margin is because that's, that's our last learning objective.
Martin Holland: Yeah, I think so. Um, well, let's just talk about the, when you talk about overhead, uh, you're talking about expense and let's just look at the, uh, The financial statement that deals with income and expense. It's the profit and loss, p and l income statement, whatever you, it's the one where it shows how much money you brought in as income and how much money that went out as expenses.
And the difference between the two, if it's a positive number, it's a profit. If the, if it's a negative number, meaning the expenses were more than the income, it's a loss. Okay. Pretty pedestrian stuff. And interesting and useful for paying taxes. Not really useful to run a business. And I, when I was thinking about doing this, I'm thinking, boy, we've got practitioners out there who do [00:32:00] business a lot of different ways.
I'm gonna discuss it the way Diane does it. Um, and so income is money that comes in. It's not, um, money that you put in. It's not a bank loan. It's money that comes in from sales. Uh, from in s l P is from billing, right? It's money that comes in easy. We got a top line up there. The money that goes out in expense can be divided into two types.
One is variable expense and the other is fixed expense. Okay, so what's that mean? Variable expenses are expenses that go up and down with sales. Now in Diane's practice, we pay therapists, well, we do both, but we pay most of the therapists, uh, per session. And I'm gonna get into the actual math of that and show how we used it.
So if they do more sessions, we have more variable expense, cuz we pay the therapists more. We have fewer sessions, we pay them less. So that [00:33:00] that cost, that variable cost because it varies of paying. Our speech pass goes up and down according to sales. Okay? We also have fixed expenses, otherwise known as overhead.
Everybody uses that number or that name. But overhead expenses are expenses that do not go up and down with sales, at least not in the near term. Obviously in five years you've quadrupled your practice, you got more overhead, but it's things like the, um, your software charges, which are significant. Holy cow.
Uh, it's your liability insurance. It's your rent, uh, it's your staff, meaning the, uh, fixed staff, meaning the billing agents or clinic supervisor, you know, records people. It's those expenses that stay the same every month. So the way we look at, at things, and I hope to make this sound useful here in just a second, but the way we look at it is the money that comes in from billing [00:34:00] minus the money that we pay therapists.
In our case, the variable cost leaves over what, what's called a margin, right? It's a gross profit margin. And the way I like to think about it is it's our share of the sales dollar in our business. I mean, I know this cuz I track it all the time. We give about 65% of all the money that we bring in goes directly to therapists, the SOPs, OTs, and, uh, physical therapists.
Boom. So what's left over? If we sell a million dollars worth of stuff, what's leftover is 350,000 Lear. Mm-hmm. That's, that's our share of the money. If, if I say, well, let's go out and double it, I go out and sell 2 million. I don't get another million. Right. I get another 350,000. Yep. Okay. So then what I do with what we, I, Diane does with that money [00:35:00] is first you must pay your overhead.
There's no choice. I must pay my overhead when I've earned enough margin. To pay my overhead. I've reached what we call breakeven overall breakeven. Okay. If I ask people generally, I don't wanna go too far into, we, I'll just throw it out there. If I ask people generally looking at their profit loss statement and I say, how much do you have to sell to breakeven?
They usually tell me the total expense number. And that's not right. And I won't go in, the math is in the book, but,
Kate Grandbois: but I wanna, I wanna, I wanna unpack this a little bit because the concept of break even was a mind blowing realization for me. Um, as a matter of fact, my brother-in-law when he handed me the book, said, get text me when you get to break even.
And I just texted him the brain explosion emoji and he texted back the brain explosion emoji. All this is a
Martin Holland: man, [00:36:00] I love you guys. I love your whole family. I loved it.
Kate Grandbois: Hey, so we, we really, we really had an, we really nerded out over this, over this concept. It's a real, it's really, really important. Um, at least I gleaned from your book how important it is in terms of the health of a business and how you make plans and how you, how you manage things.
So I wanna, I wanna go through it again, maybe with one more example, um, because it was something that, that, it was hard for me to wrap my head around as a person without a lot of accounting background.
Martin Holland: Well, this is where it gets a little difficult. I don't know how some people love this stuff.
Some people go, I don't get it. But I, this is an important part. We said, if at our practice, we sell a hundred thousand or a million, we pay 650,000 to the therapist. Which leads 350,000 for us. That 350,000 is 35% of a [00:37:00] million. So the, the advantage of doing that is saying for every dollar I sell, I get 35%, 35 cents.
Okay. So break even. This is the math of it. The break even is if you, I'm just gonna use a hundred thousand Yeah. Good round
Kate Grandbois: numbers.
Martin Holland: Yeah. This is, this is what's really helpful. Well, it winds off, it winds up, I'm gonna say if my overhead, my office rent, my, my, my office staff, which are paid the same amount every month, my software costs and all that stuff, insurance is a hundred thousand.
I divide that number by 35 cents by 0.35. Okay? Yep. Because I get 35 cents, I don't get a dollar, I get 35 cents after. Paid those therapists, they're paid. I get 35 cents, I divide a hundred thousand by 0.35 35 cents, and I get 285,000. That's how [00:38:00] much I have to sell to break even, and that's only one kind of break even that's to break even where I haven't made a profit and I haven't made a loss, profit loss statement, bottom line would be 0.0.
Okay? That's just the beginning of how to use it, but that is the absolute minimum that you must do. If you don't know that. If you don't know that, it's likely that you're gonna take the foot off. Well, I'm gonna tell a story that I tell in the book. It's not really a story, it's a statement I make frequently.
Most of us go to work on the first of the month and every day thereafter thinking, Hey, I'm making a little money. My employees are making a little money. My landlord's making a little money, my insurance making a little money. My supplier, everybody's making a little money today. No, no. Everybody might be making a little [00:39:00] revenue, but you are not making any money at all in this case, until you hit 285,000.
Only then and only then does the next dollar of sales give you a 35 cent profit. I hope people see how I got that. There's 35 cents from each dollar. So when I've used enough of 'em to pay all the bills, the next dollar is 35 cents. Next dollar after that's another 35, right? So the danger in thinking everybody's making a little money today is that if you don't break even till the 28th of the month, you better not go fishing on the 29th cuz you've blown your last opportunity to make money before all those monthly bills reset.
This is such
Kate Grandbois: a critically important component of planning. At least for me. I used to think of my books as sort of the way you described it. Oh, well, money's coming in. We're we're making money because I have money in my bank account. Right. But thinking [00:40:00] of it more as a, well, that's the, that was the visual that came.
So I had, I have a deficit until I get a certain number of visits.
Martin Holland: The guy who originally taught me break Breakevens only been around since 1964. So, which is old, but not compared to 1200. Right. The guy who originally explained it to me was a consultant, uh, to my father in his business. And I was lucky to be sitting at the table with him, and he used a well as the advance, oh, look at that.
Perfect. Yeah, you gotta fill that well up to get to, even now, it starts piling up on top. Then the whole thing drains out again. When you start a next month and you have another rent, another salary due, you know all that, and you gotta fill the, well again, Okay. Right. So that's one form of breaking, and I hope we have the idea of margin is my share of the dollar first have to pay overhead.
Once I've done that, it begins accumulated profit. Now, let's say you want to move your facility to a new location that costs [00:41:00] $5,000 a month. More so $5,000 divided by 0.35. You've gotta sell 14,000. You got where I got that. Mm-hmm. Took 5,000 increase in overhead, divided it by 35 cents and said, oh, this, I gotta do $14,000 more in sales just to pay for that.
Right? $5,000 increase. Now you have some information. Is that reasonable? I mean, literally, I'm gonna go through our decision to move to this building and so on, and that was one of the considerations. What can we really do in there? Can I, can I do 50,000 out of there? Okay. 50,000 times, 35% is like $170,000.
Uh, yeah. I can pay five and bring in 170 or 75. Right? So I hope that's, that's just one of the many ways, um, that you can use break even to make decisions. Can I hire another administrative person? Here's something. I know [00:42:00] there are billing softwares out there that we don't use. Uh, we do it our billing, our, I mean, we use ER or EMR software, but we do our own billing, which is hideously.
I don't have to tell anybody about that. I know
Kate Grandbois: you just saw my eye roll. It's just, it's just, it's a whole beast in its own
Martin Holland: tens of thousands of dollars that, uh, we gave up early on because Diane was working solo when she started the business and calling the insurance, didn't know how to do it, and they'd call back.
She's in session. She'd call back, couldn't talk to anybody. Pretty soon we time out. Anyway, just hideously. Well, there's a software, there are software solutions for that. One of 'em wanted seven and 5%. Mm-hmm. And I go, wait a minute. Seven and 5% of a million dollars. Let's just say, about $75,000. Okay. Is that worth it? I don't know. I mean, maybe. I don't know. But let's say you go to 2 million, it's 150 grand. [00:43:00] Really? Maybe I could have done 75. I would've had to pay somebody to do my billing, but I couldn't do, I mean, but that person could do more than a million dollars worth of billing for that.
Anyway, it gives you something to work at, and I'm gonna show you maybe, or tell you right now about our decisions and how that would've affected them.
Here's the way we use Braun, uh, to make decisions recently that cause us to spend many, many, many dollars buying a building and so on. First of all, we are blessed to have a large backlog. So sales isn't a big issue. It's whether or not we can serve them. We have, um, in, in our location in Norman, we have 16 therapist rooms, okay?
And we, each therapist has their own room. Each one of those rooms cost us $34,600 a year to be there in overhead. Where he paid the therapist overhead is take our, that's about [00:44:00] $550,000 a year, divided by 16.
So each room has to produce that much revenue, margin, margin, not revenue. Annually for us to break even. Okay? Now let me tell you how we, how we use that down here. With payroll tax and so on we get $25 per session. That's our revenue, that's our 35 cents. That $25 per session, 34,600 is what a room cost divided by $25 is 1,384 sessions a year.
Kate Grandbois: Even watching you do math makes me feel nervous.
For those of us without, without financial backgrounds, I think that this is, but this is such a critically important exercise cuz how can you have a healthy business without, without doing all of these little equations and
Martin Holland: what, what we all, and if you can't do 'em, people don't like it. And I say, okay, don't like it, but get somebody to help you.
[00:45:00] Diane doesn't like it, but boy, she's got about five or six numbers and when we talk about those, she's really into it. And then when I wax on poetic like I'm doing with you, she goes, I'm out. It makes me very nervous. I I gotta go water the geraniums, I'll be back in. Right, right, right.
But we have to do 18 sessions a week, , have to, to pay the bills. But that is the absolute minimum that our therapists have to do but that's how we use breakeven on almost everything. And we're looking at another location and it still boils down to can we get the therapists?
Of course. What do we have to produce? I'm keenly aware that a large part of the population wants a work-life balance, right. Diane's vision for her company is to be the clinic of choice for moms and the clinic of choice for the finest SLPs. That's what she lives for.
So we're trying to balance that.[00:46:00] There is a level that you have to do for the company to survive.
Kate Grandbois: And I wanna pause and, and talk a little bit about that. You probably saw me rustling around on my desk looking for an article. I couldn't find it, but I Googled it. Um, this concept of the idea that making money equals greed or the concept of.
Needing to worry about the bottom line means that, you know, there are, there are components of being an evil corporation trying to shove all the dollars in your pockets, right? I think that's a, that's a very common theme in our American culture. Um, and I don't wanna get into that because that's a, that's like a whole other hour long conversation about, about, you know, corporate greed.
Um, but there is an article, this is a part of my professional development that I've been, um, learning over the last year. I, I gleaned some of it from your book and I've gleaned some of it from, um, implementation Science, which is a, a new sort of [00:47:00] branch of study in our field. And there is one article in particular that I wanna highlight here that I highly recommend anybody in business read. And it's called Market Viability, A Neglected Concept in Implementation Science.
And the study of implementation science is the study of how our research is implemented. So what research exists out there that we can actually implement in real world settings to make an ac make an imp to make an impact. So this, you know, research practice gap, how are we using the knowledge that we have to treat our patients?
And I swear I'm gonna get to a point and sort of marry all these concepts together here. No, that's fascinating. The, the, the, this, this article for me, in combination with how you would address this in your book market viability, um, a neglected concept in, in, in implementation science really unpacks the idea that if you don't have a healthy business, If you don't have money to pay your employees, if you don't have a good calculated margin to [00:48:00] reinvest in the materials that you need in the building that you need, in the sensory equipment that your clients need.
If you don't have a good understanding of the market that your product is going into, then you can't do good work. You can't contribute to your community. You can't help your patients. You can't apply the most updated treatments to an entire population or to an entire community, and I think it's really important to sort of zoom all the way out and acknowledge that.
Worrying about your budget, worrying about, you know, calculating your margin, understanding that you have a well to fill, understanding that you need you, nobody volunteers, everybody needs to be able to take home a paycheck to their families or to, you know, have housing and to buy food. All of these things are real world problems, and it doesn't necessarily mean that you're being, as you mentioned earlier, there isn't, there aren't necessarily components of greed in this.
These are necessary components of [00:49:00] science. These are necessary components of healthcare. These are necessary components of effective treatment. Um, and there is this really important marriage between business knowledge, market viability, and science. That has to happen. Oh, for good things to happen for other people.
It's there, there are components of altruism in this. You can't in this conversation,
Martin Holland: be philanthropic if you don't make a profit.
Kate Grandbois: Yes. So profit is not evil. Is, is I think the point that I'm trying to make. No, I've got, I've got a
Martin Holland: chapter in the book. It is your responsibility, okay? Look, if you say it's bad to make a profit, what you're saying is that every penny we bring in, we need to pay out to the software guys, the utility bill, the engine.
If I, if I make any more than that, it's bad. It's not. But people who haven't been around business, people who've been around business a long time, often begin to wonder, how do I ever benefit from profit? Because [00:50:00] the profit's tied up in accounts receivable. It's tied up in our down payment on this building that we bought.
It's tied up in, uh, all the, the things that I told that I told you about in growing. We give 65% of our revenue to our therapists. That's not to mention the staff people and so on. You know, 90%, 85% of what we bring in go out to support people. If I don't make a profit, I'm not there. Let those people go.
Right. And here's one thing that I really enjoy, not enjoy, but I like to make this point. Everybody makes a profit. Everybody. If you are working for somebody and it costs you more to go to work, then you get paid. When you get there, you quit going. You have to make a profit in order to support yourself outside of work.
Everybody does that. Everybody. I mean, it's part of our soul. I won't go there. It's not worth it. Right? [00:51:00] Everybody has to make a profit.
Right. So profit is they, things can't work. Everybody lives that way, but they don't transfer it to a bigger picture and say, Hey, really, you know, I won't go to work if I don't make a profit. Why would I expect a business to go to work and pay all these things out and not make a profit that funds its growth and funds?
Its survived. So maybe I'll get down off my soap box now, but I hope I didn't offend anybody.
Kate Grandbois: No, no, I, I, you know, I think in thinking about these larger concepts and how it applies to the decisions we make as small businesses, that's where. The rubber meets the road, so to speak. Right. So, you know, as those of us who are running small businesses, or as anybody who is listening out there is thinking about these concepts and how it applies to your individual small business, I think the takeaway for me is it is okay to [00:52:00] focus on making a profit without feeling like you are short-changing anyone, or there are negative aspects we think of.
There's just so much connotation with profitability being negative. I. And the reality is, is that once you go through these exercises and you calculate your margins and you understand your fixed expenses versus your overhead, and you understand some of these fundamentals, this is sort of coming full circle with why is accounting even important?
Understanding that profit is the goal and that cash is king, is a, can be a generous and critically important component for your community, not just because you wanna align your pockets with profit.
If you do it ethically, meaning no cheating, lying, stealing, misleading, right? No, no theft, no corruption, and you focus on profit. You will focus on serving your customers even if you don't want to.
Martin Holland: Cuz that is the [00:53:00] only way they are not forced to do business with you. And if you make 'em mad because of your hours or your attitude or whatever it is, it's gonna go away. But it sounds bad to focus on profit, but if you focus on profit, you will find that you must do things that serve people. It's the only way you can say, I'm gonna charge $900 an hour for a private the, and you might get somebody, but maybe that's Boston, but I'm gonna charge $900 an hour cause I'm gonna make a profit.
Well guess what? Nine outta 10 of your therapists or your a clients being going, you know, it didn't work for me. I'm only gonna be open between one and three because that's when I work best and I wanna sleep in. Doesn't work right, because they want after school for the kiddos. And anyway, I can keep coming up with those kind of examples.
A and I
Kate Grandbois: think one of the key differences, again, just bringing all of these larger [00:54:00] fundamentals back to speech pathology, is that our clients, our indivi, our customers are individuals with communication disorders. That's why we exist. So by serving our customers and by, by focusing on profit and making sure that we are serving our customers, we are doing that good.
Um, just in the nature of being in business.
Martin Holland: Yes. Yeah, a hundred percent. And it, and it really is, uh, just a little bit philosophical here. Real advances came when people specialized and became more efficient.
Okay, just brief overview that specialty. I don't make my own shoes because I wouldn't be very good at it, but I'm willing to pay a guy what might be an exorbitant profit. Who knows where to buy the leather. He makes good shoes, they last longer, and I don't have to do it. And he's so good. He can do it kind of cheap.
That's that's not outrageous. I just bought my time back. I'm happy to do it. And that started with business and that's where it [00:55:00] resides. And anyway. We're getting well into
Kate Grandbois: profit. No, I, I appreciate all of these and just, I am in looking at the time, I'm wondering if you have any final words of wisdom for our audience.
So anybody who's listening, regardless of where they are in their, in their business journey, in their learning journey. I know you've worked with so many different kinds of businesses in your career. Are, are there any nuggets of wisdom that you think would be helpful that we haven't already covered?
Martin Holland: Well, two things. Um, I don't know if it qualifies as wisdom, but in my experience of my own businesses and my 500 clients, I found that all businesses are unique, but all businesses are the same. Right? The things we're talking about, especially in bookkeeping, but other things we could talk about in the operation of business, they're universal.
There's no question that retailing is different than s l P, but that's only a fraction of your business, right? [00:56:00] Um, The second thing is, I, I mentioned the Sword of Damocles. I'm gonna presume people know what that is, but the Sword of Damocles was a no, I've never heard of it King. Okay. It, well, it's important cuz you're living it.
Um, and I, we, we were tied on time, but uh, Damocles was a courtyard of King Philipp in Greece sometime before b you know, BC time. And he was saying, oh the king, you've got it so good you can have anything you want, anytime you want. And he said, well, you wanna try it for a day? He goes, sure, damn it, please.
He said, sit at the head of the table. So he sat him at the head of the table and a golden throne brought food and all this. And then he looked up and there was a sword hanging over his head, dangling by a single horse hair, horsetail hair. He allowed pretty quickly that he didn't wanna, he'd had a knot.
Business owners always have the sword of Damocles hanging over their head cause it's, it's up to you and I so. [00:57:00] Love and respect that. Okay. And I'll say one other thing. This would be my last thing. A, a podcaster one time asked me on kind of short notice what the qualities of a great business owner were.
And I can think of lots of things, but I came up with this, uh, pretty quickly and I go, oh, I like it. You will thrive best in business if you view business as an adventure. Okay, I'm on a quest. It's up the hill and down the hill. I mean, yeah, you're an SLP and you're doing your stuff, but I'm on this adventure.
My defeats did not wipe me out. My triumphs, you know, kipling me with triumph triumphant disaster and treat those two imposters just the same. Uh, it, it is an adventure and it's best looked at as that way. It's not your identity, it's not who you are. It's an adventure. Second thing was I. Business owners really, really do well [00:58:00] and make it look easy, tend to make, be decisive.
In other words, they make decisions when they have adequate but not complete information. By the time you get complete information, the opportunity's gone because the event has happened. But they don't, they make a decision. They don't equivocate and languish and worry and bemoan, oh, I messed up. If they messed up, they make another decision.
And the third thing is they tend to be focused. And that doesn't mean that you can only just do one thing, but if you're working on your practice and you're wanting to build an area, look at that area, work on that area, get that area established in, in, uh, systemized, let's say, and brought in established in your business and then moved to the next thing, one at a time, even while you keep maintain your practice.
But one thing at a time is you get better and better. So that was a lot of one other things
Kate Grandbois: that was so helpful. I have appreciated this conversation so much. Thank you so much for being here with us today. Loved it. Loved it. For anyone listening, if [00:59:00] we've mentioned any resources, they, everything will be listed in the show notes.
All of our references will also be listed in the show notes. If you have any questions, send us an email anytime. Thank you so much again, Martin.
Martin Holland: You're welcome. Thanks.
Outro
Kate Grandbois: Thank you so much for joining us in today's episode, as always, you can use this episode for ASHA CEUs. You can also potentially use this episode for other credits, depending on the regulations of your governing body. To determine if this episode will count towards professional development in your area of study.
Please check in with your governing bodies or you can go to our website, www.slpnerdcast.com all of the references and information listed throughout the course of the episode will be listed in the show notes. And as always, if you have any questions, please email us at info@slpnerdcast.com
thank you so much for joining us and we hope to welcome you back here again soon.
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