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Hey everybody, Dr. Randi Ross here, CEO of Premier Practice Consultants. First, let me take a second to thank ChiroSecure for always being so gracious to invite me to share some important information with you today. very much. So today I’m actually going to talk about something you may have heard me speak on before.
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Hopefully we’ll add some elements and if not, I’m hoping that it impacts you again. Sometimes people have to hear things a few times, Before it really becomes important enough for them to respond and to act upon it. So today we’re going to talk about your finances of your business and somewhat as it relates to when you’re selling your practice, the banking portion of things.
So many of us don’t really treat our practices as the asset that it is. and the business that it is. And what I mean by that is, we often don’t really take the time
Understand that I’m going to underline the word understand the finances of our business. And I’m not sure exactly why this is an element within small business. Maybe, we just haven’t been educated enough to understand how important it is. Most people don’t come into the healthcare sector having been a finance major.
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Let’s just drill down to a few things that are so important for us to keep track of and again, maybe more than understand even the tracking because computers and programs do all that for us today. It’s really more the understanding portion and keeping things organized. So obviously there’s your tax returns.
No one should not have to, I hope no one listening here doesn’t do their taxes. But if you don’t, you need to get on that. You’re always for the purposes of selling your Business your asset are going to need anywhere from three to some buyers request five years of tax returns. Most banks and funding institutions will request three years.
I also recommend as we, whenever we turn the year, in other words, when we go back into the first quarter, and so many small businesses will often. defer and put on extension having to file their taxes. Your accountant might advise it maybe there’s actually a financial reason for that. Is it putting off having to pay?
Is it that your accountant is just overwhelmed and they would rather have you not require them to get it done, within the first and leading into the second quarter? Whatever the reason, if you’re thinking at any point. of selling your practice. Please do not go on extension. This can often be something that slows down a sale.
And I often find when we really need some kind of documentation that’s when all of a sudden your accountant’s, on vacation for a month or they’re doing something else and they can’t get to it. And now we’re waiting two weeks or three weeks for some, for a return when the bank can’t move forward without that.
When it comes to your tax returns, stay on top of it, get them done, be familiar with them. I will tend to think that more than half the people that are watching this never look at their tax return. They look at what they have to pay bottom line, and they sign it and they send it off to their account.
I’m not telling you, you have to understand all 40, 50, 60 pages. How many pages your tax return is of your return. What I’m saying is glance through it, have a basic understanding, and little by little, maybe learn a little bit more so that you can speak on your tax return. This is your business. This is not your accountant’s business.
This is your business. You should have a basic, if not in depth understanding of your tax return. The next thing that is crucial for you to understand is your P& L, your profit and loss statement. I believe they should be done monthly. At minimum, listen to this bare minimum quarterly, you should be populating a profit and loss statement.
Now that is a document you should understand every single line item. If you have one page, most P& Ls for small businesses are only one, two, three pages. So you’re not talking about hundreds of line items. You should be able to go through your P& L and understand every single line item. Sometimes you don’t know what something is or what that actual dollar amount that you’re, Paying for something is because your accountant might group things.
They don’t always break it down into a P and L. And even if you’re using QuickBooks or a program like that, you may be grouping things and not even have a breakdown. What I’m here to tell you as a business owner, okay, protecting your asset. You should understand and be able to
And be able to teach me what every single item is on your P& L no excuses if you can’t You need to go back to your accountant And whatever items you do not understand and you can’t explain to me and or a banker and a buyer You should ask them to clarify that and sometimes when you do this on a regular basis You What you will find is you may be paying for things that you are not really sure you understand what you’re paying for.
Or you might find things that you realize that you don’t need any longer or you’re overpaying and you’re losing money. It’s just going down the drain. So it’s super important on your P& L to understand it. One of the other documents is a balance sheet. That one is a little bit more technical where you might have, it’s not usually as, as broad a sheet as a P& L, but you may have to go back to your accountant and ask them to spend 30, 40 minutes, an hour with you.
and kind of school you and educate you on what your balance sheet looks like. These are the first three pieces of financial data that one, any buyer will want to look at, two, any banker will request, and then subject to analyzing that data, They’re going to come back and ask questions, whether it’s the buyer, the banker, the underwriter in the banking department, they’re going to ask some questions about that.
And the better you’re prepared to answer these questions, because sometimes I can’t answer the questions about your P& L, it’s your business. I’m going to come back and ask you, what does this mean? So the more prepared you are to explain and answer these questions, The better it looks to a buyer. Now a buyer’s impressed that you understand your business.
If every question asked to you is, I don’t know, let me ask my accountant. I don’t know what that means. Not really sure what that is. It makes you look like a really inefficient business owner. And that reflects really poorly to a buyer. And it can even create red flags. So the other thing that you want to watch that’s really critical, and you’ll learn a lot if you start watching this.
is the cash flow of your business. Now, for some people, this is a little more difficult. If you have more of a personal injury practice, obviously it’s a little bit harder to come to be doing that cash flow analysis because you might be waiting, for liens and things like that. With basic insurance shouldn’t be too difficult.
Most 60 days today, if you’re getting your bills out on a timely manner. And obviously if you have a cash based practice. Analyzing your cash flow is so critical to understand not only in preparing to sell your business at some point, but understanding how your business functions. Where are the pitfalls, where are the things that we can do better on?
And I can tell you that any business owner that does not understand these basic elements They can’t review their tax return. They can’t explain a profit and loss statement. You don’t understand your cash flow. That’s what banks analyze. Banks sometimes don’t even care about some of the other documents, but even when they’re in there and they’re diving into them, what they’re looking at is your cash flow.
They want to know how much money is coming in, how much money is profit, how much money is going out. Can this buyer Afford to buy this practice, meaning, are you, what you’re offering, this asset that you’re looking to transfer to someone else, is that sustaining itself for the expenses that it incurs to run itself as a business, Is there enough money for them to pay the note, service the note to the bank?
And then is there still money left over for them to be making a decent living? That’s all based on cash flow. That’s all a bank is looking at very often as it looks for that initial element of will we fund this deal? Then the questions come later on. But the first thing they’re looking at, Any bank or I show finances to from a seller?
They’re the first thing they’re gonna tell me is there’s no cash flow or this is a great business There’s a great practice the cash flow is amazing, you know So those are the things that you need to learn if you’re a business person as you are As you choose to own this asset your practice You need to understand these particular things that are really important.
And don’t be intimidated. If you don’t know something, first of all, you can probably Google it and get an explanation for the most part or watch a YouTube video on it. But if not, go back to your account. The other thing I will caution you on that is under the same umbrella is, if you think you have the greatest accountant in the world because he figures out a way to write off all the profit you have in your business, so at the end of the day, your net when we look at your P& L looks like you are in negative numbers and you make no money and hooray, you don’t have to pay taxes, but guess what?
You can’t have it on both sides. You can’t say for 25 years, Oh my business doesn’t make any money, so I don’t have to pay any taxes. But then you want to go, Oh, I have this really profitable business. You can’t have, you just can’t play and sit on both sides of the fence. So you have to decide what’s more important to you.
Maybe you don’t care that for 25 years, you’re not paying taxes because you have a great accountant. And then you won’t be able to sell your practice. You’re fine. You made it back on that end. But be aware of that. You have years and years of showing negative numbers and, not having to pay taxes and just think for some of you that think that this is what you’ve been told we’re just going to do it all as ad backs.
Banks are smarter than that. They’ll allow certain things as ad backs. For those of you that don’t know what an ad back is. When you’re selling a business or buying an ad back is something that technically is a personal item, not really an element to run the business as it exists, but you’re allowed to write off as a business expense, but won’t be a pass through item.
as the overhead. So we call that an ad back because technically it’s profit adding back, but banks are smart. They’re not going to allow every single ad back that you have. If you’ve been literally putting every, everything through the business. So you have to really think about that and consider it as you’re structuring your asset, this business for potentially being sold at some point.
So these are the really important things to think about. Please listen and take the time to learn. You’re going to be more confident and feel better about your business. And I will almost bet you that your business will grow if you follow these steps that I’ve talked about here. And if you really learn, and you should be the expert on your business, not your accountant.
Okay. Take the time, do these steps, learn this data. And then once you get it down and learn it once, Then you just spend an hour a month looking at it. That’s it. You do your stats, you do your analysis, you pump a few reports out of your computer, you know when the money’s coming in, you know where the money’s going out, and after a while it’ll probably take you 15 minutes.
Once you get into the habit of it, but then I want you to be that person When you call me and you want to sell your practice and I ask you questions and you got everything, you know it all That’s a fantastic business owner. That’s when your asset which for most of us our practice is our biggest asset Aside from maybe a home we purchase that’s when your asset will serve you When it comes time to sell.
I want to take a minute to thank ChiroSecure for allowing me to spend a little bit of time with you today. I’m Dr. Randi Ross, CEO of Premier Practice Consultants. Thank you for listening to me today, and I look forward to chatting with you again soon.
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