We work with rehab businesses of all sizes and we can tell you it’s not unusual for us to see $200,000+ in billing more than 121 days outstanding. And that’s not counting what’s sitting in the . . . → Read More: Give Yourself a Raise- Clean Out Your Accounts Receivable]]> Do you know how much of your cash is sitting out there uncollected in your Accounts Receivable department?

We work with rehab businesses of all sizes and we can tell you it’s not unusual for us to see $200,000+ in billing more than 121 days outstanding. And that’s not counting what’s sitting in the 0-120 days categories!

• How do you keep your claims from going past the 60-day mark?
• What are the most collectable accounts in your 61-90 day bucket?
• Do you use a collections agency to collect on old accounts and if so how successful are they?
• Do you have a “disciplined approach” to managing your A/R?

Start With an Analysis
When assisting clients with improving their financial systems, one of the first things we do is pull an aging report. We like to divide collections up into “buckets”:

• 0-30 days
• 31-60 days
• 61-90 days
• 91-120 days
• 121+ days

The next step in the process is identifying what we call an “A/R Do or Die.” These sessions can run as long as eight hours. The goal is to review every account and decide what needs to be done to close the account.

As a rule, your greatest opportunity for maximizing your cash flow is within the 0-60 days bucket. Your “collections” will be anything over 61 days. Once claims roll past 60 days, they become much harder to collect. Doing an “A/R Do or Die” is the best way to get an immediate handle on every account in each of the bucket.

Put a Disciplined Submission Process in Place
If your staff is only billing once a week, then your claims are starting out up to seven days behind.

We encourage our clients to bill every day. If a patient was seen yesterday, the visit should be billed out today. Therapists must finish charts by the end of each day so your billing staff can “clean” each claim before submitting. If the charts are not finished, the billing staff needs to track down the therapist(s) the next morning to make sure they complete their documentation by Noon. The goal is to make sure that all claims are billed within 24 hours.

Run your aging reports by patient. If you are waiting on Workers Comp or Motor Vehicle claims, and you have attorney agreements, pull those patients out of your pipeline and put them in a separate, manageable database.

Collections in a Sale Transaction
Collections is a deal and a value point in a sale transaction. Providers with knowledgeable and efficient billing departments and a good accounts receivable collections history tend to add to the valuation equation. Depending on the transaction structure (i.e. stock or asset,) your accounts receivable can be a material part of your business valuation. Most buyers will require a “working capital reserve” upon the closing of the transaction and your accounts receivable will usually be the majority of your liquid assets.

We arm our clients with many different strategies and tactics to ensure a healthy cash flow. Those who have implemented the process and are disciplined in staying on top of it generally are getting paid within 45 days. Give yourself a raise! Contact us today.

An entrepreneurial partnership is your work marriage. Whether married . . . → Read More: Husbands & Wives and Other Business Partners]]> According to the Small Business Administration, 90 percent of all U.S. small businesses are family owned. Of that, an estimated 14 percent or roughly 1.2 million businesses are husband and wife owned. With an average longevity of 24 years, these partnerships can survive and flourish.

An entrepreneurial partnership is your work marriage. Whether married CEOs or best friends from school CEOs, drawing clear lines between the business and personal relationship as well as understanding each other’s strengths and weaknesses breeds success.

Understanding Personality Types
Everyone has strengths and weaknesses, along with different communications styles. The key lies in truly understanding your and your partners’ behaviors and adjusting accordingly. Social scientists like Carl Jung and the mother/daughter team, Myers & Briggs have researched how people perceive the world and make decisions. Using tools that assess psychological and personality preferences to specific questions and situations, we can categorize people into anywhere from four to sixteen defined personality types.

When working with clients, we use a Disc Assessment to identify personality types and improve work productivity, teamwork, and communication. The assessments can be a real eye opener and help identify mismatches in “right talent, right fit.”

Clear Delineation of Responsibilities
About 30 percent of our clients are husband and wife business owners. Usually one is a treating therapist and the other is not. However the delineation between clinical and non-clinical is not enough of a differentiator when defining responsibility and roles. You both need to be very clear about the needs and goals of your business and divide your responsibilities based on strengths, talents and personality traits. Compromise and do not micro-manage the other.

Being married to your business partner can be one of the strongest leadership tools your company possesses. But if you are not in sync on the job, it will be easier for your staff to come between you. Above all keep work matters at work and don’t carry the business over into personal time.

Having a separate work space also helps many of our clients. Some of the more successful partnerships are when one partner works from home and one works in the office. We also see a slight advantage when both partners are therapists too. They are usually in agreement on their clinical product and just need to work on the business side.

I can’t say it often enough…having a written strategic plan is critical for so many reasons. For married partners it is especially important to bring in a third party facilitator to assist with your strategic planning process. It’s not too late to build your 2012 strategic plan!

Financial Implications for Married CEOs
Should you set up the business with a 50/50 ownership? 80/20? Should one spouse employ the other? You may want to take a look at each person’s credit rating to assist in your decision making. If one or the other has bad credit, fix it now. Looking down the road when your business is growing and you need to secure financing, the last thing you want is to be turned down for a loan.

Most banks require that anyone with 20% or more ownership in the business be included in the credit and underwriting portion of the loan request. If one partner has poor credit and one has good credit, make the latter the majority partner. If you’ve already established a 50/50 partnership you can make a revision to the business ownership structure. Just ask your financial consultant or attorney.

Having your financial house in order is critically important for any sale transaction.

In order to ensure that a Clinical Director is . . . → Read More: Clinical Leadership: Three Steps to Success]]> As your rehabilitation business grows it is critical that each facility be led by a clinician. You should expect a Clinical Director to take responsibility and accountability for not only the clinical aspects of the business but the operational and financial results of the clinic.

In order to ensure that a Clinical Director is successful, we recommend three critical steps:

1. Provide the Clinical Director with tools to measure performance – A Clinical Director must have key information on the operations of the business to be successful. We advocate establishing operating budgets that set realistic targets in key performance metric indicators, and compare those budgets to actual performance on a weekly basis. As the director matures, financial information should also be shared and  budgets set.  The expectation is that the Clinical Director will have accountability for the financial results.
2. Design incentive plans to reward strong performance – Clinicians are not motivated purely by financial rewards. That being said, clinicians who are migrating towards management tend to have a business mind; and, at some level, will be motivated by having the opportunity to earn more money. The incentive plan should be simple and easily calculated. We advocate rewarding top line performance, as it gives you greater control over the bottom line. We have created bottom line driven incentive plans, but have found them to be too complicated.  They also can be the cause of disagreements over the financial controls of the company, tax strategies, etc.
3. Train, Train, Train – Very few clinicians have any training, background or experience in management. Therefore, establish a training program that will provide your directors with training in leadership skills, management, operations and financial metrics, customer service, compliance, and human resources. You can send your employees out to courses, but we suggest bringing someone in to provide training to multiple clinicians at one time, including current and future Clinical Directors.

Once you have a few clinicians who have been trained to manage and direct a clinic, you have leveraged your knowledge and your growth potential is unlimited! For more information about developing clinical directors and building incentive plans, contact me at 856-914-1440 or visit Martin Healthcare Advisors.

A budget planning process forces you to think through your whole business model. White it’s not written in stone, a budget acts as a benchmark for you to compare actual activity to projected activity. A monthly . . . → Read More: Don’t Leave Money on the Table]]> If you are not managing your rehabilitation business to budget, you may be leaving money on the table.

A budget planning process forces you to think through your whole business model. White it’s not written in stone, a budget acts as a benchmark for you to compare actual activity to projected activity. A monthly review of your Financial Budget and a weekly review of your Operations Budget quickly identities problems and allows you to nimbly make strategic adjustments.

Metrics That Matter the Most
In the rehabilitation business, there is a direct correlation between operations (productivity) and financial results. If you have never done a formal budget before and do not have a budgeting tool, start by creating an Operations Budget that defines your targets for volume indicators (referrals, visits, units and charges) and for performance metrics that matter the most: Cash/Visit, Visits/Referral and Visits/FTE/Day.

By using volume indicators and performance metrics you can build your Operations Budget based on prior history and current trends in your business. This should provide you with a starting point for your financial budget, as your operations drive your top line revenue. Then you can build your expense budget by analyzing historical expenses and salary trends.

Now look at your Operations and Financial Budgets side by side. Are these numbers in line with how your business should be performing operationally and financially? If you find disparity between the two budgets, you need to figure out why. This can be a very laborious process if you do not have a budgeting tool to show your operation metrics feed into your financial results.

Don’t Let a Buyer Lower Your Valuation Because You Do Not Have a Budget
Managing your business to a budget is the best way to make sure all of your years of hard work pay off in an eventual sale of your business. Here’s why. In an acquisition situation, buyers look for three years of financial statements in order to determine future performance. If all you can provide is an end-of-year accounting statement that only shows expenses and revenues, you’re doing yourself a great disservice.

These kind of accounting reports allow the buyer to make false assumptions about performance and assign a higher risk, thus lowering the price of your business.

On the other hand, if you can show operations and financial budgets, and how you manage performance to budget, the value of your business will increase because the guesswork, or risk, has been minimized.

We have developed a budgeting tool that takes the operations budget and pulls it into a financial report, basically automating a manual process. Our tool shows very quickly what profit will be achieved when certain operational targets are met. The result is business owners making decisions based on objective data and overall profit improvements of anywhere from 25-150%.

Design an application that your employees can fill out if they’re interested in attaining shadow stock, so you . . . → Read More: Shadow Stock: Building the Program]]> The most common way an employee earns shadow stock is through years of service and performance. For instance, a therapist should have three to five years of service at your practice and be a high performer.

Design an application that your employees can fill out if they’re interested in attaining shadow stock, so you have basic information about work history on file. In addition, set up a committee that approves new shadow stockholders. Members of this committee can be your board of advisors, business partners, pure equity owners and current shadow stockholders.

When you offer shares of shadow stock, base it on staff members’ positions. Here’s one way to break it down:
-Chief Financial Officer, 20 shares
-Multi-Clinic Manager, 15 shares
-Clinic manager, 10 shares
-Lead therapist, 7 shares
-Staff therapist, 5 shares

This type of gradual increase in stock offerings gives new employees a true career ladder. They can attain more stock and additional value in your practice as job responsibilities increase. This gives employees a legitimate incentive to help grow your business.

How much stock should you offer? The amount is predicated on how you value the stock. This is the tricky part. Stock can be valued in various ways, but the easiest method is the KISS “keep it simple stupid” principle of valuation methodology.

One potential methodology is to base stock on actual revenue growth, such as cash collections, from the time someone attains stock (basis year) until he or she leaves the practice and the stock is paid out (terminal year). Typical pay-out periods are somewhere in the range of three to five years.

Consider the following example. Practice revenue in a basis year–the year an employee receives shadow stock is $500,000. Practice revenue in a terminal year (the employee exits) is $750,000. Between those years, revenue increased $250,000. If you’ve issued a total of 115 shares, divide that number by $250,000, which yields a per share value of $2,174. If a therapist owns 15 shares of shadow stock, the total value is $32,610 (15 x $2,174).

Another option is to use the same growth methodology, but base it on a change in earnings or profits. However, this type of methodology may be confusing for staff members, since they may not understand all the details of financial statements.

In many cases, profit is difficult for employees to comprehend since you, as the majority owner, have a significant amount of control over that profit. Therefore, if you’re going to use this methodology, be sure that you maintain accurate profit and loss statements and have them reviewed by an accountant. Make sure you eliminate personal items that may be run through your practice for tax purposes.

Have your attorney thoroughly review the details of a shadow stock program and then create a small committee of key people in the practice to help you put the plan in place. The goal is to build unity and retain clinicians. If you give people a reason and incentive to stay, they won’t want to leave.