Home Care U - Expert Session Continued: Analyzing Your Home Care Financial Performance (Dana Charumbira Pt. 2)

Episode Date: July 22, 2024

There are a 100 ways to slice and dice business revenue. Dana Charumbira is back to give insight on analyzing revenue, how to calculate and monitor margins, and common pitfalls when it comes to overhead costs. She'll also cover tips for long-term revenue management and budgeting that works.Enjoying the show? Send me a text and let me know!Learn more about Careswitch at: careswitch.comConnect with the host on LinkedIn: Miriam Allred This episode was produced by parkerkane.co

All right, welcome everyone to Home Care U, a podcast by Care Switch. I'm your host, Mary Mallred. It's great to see we've got a good group waiting in the wings in the waiting room. So we've got an anxious group ready to join us. Thank you all for taking time out of your busy schedule. I know you've got a lot on your plates, but I appreciate you taking the time. It also speaks volumes to your effort in your business, taking time to learn about finances, get educated, you know, taking time out to think about the business. I think that's great. So I want to go ahead and get right after it today.

I am back for session two with Dana Charumbira. She's the managing director at the Home Care CPAs located in the greater Chicago market. She and I were just catching up about session one. I hope all of you have listened to it or some of you probably attended last week. We talked about all things home care billing, invoicing, payment terms, managing accounts receivable. It really was kind of a masterclass about all things finances and thinking about and managing the cashflow of your business. Essentially, she and I were just talking about, I posted a poll on LinkedIn about what just people

in the industry, their cadences for invoicing, whether that's daily or weekly or bi-weekly or monthly. And she and I were just talking about how interesting it is to see the diversity across the industry of how people are invoicing. Without further ado, Dana, I know I let you do kind of an extended introduction last week, but for anyone that didn't attend or hasn't listened yet, I want to give you just a couple of minutes to do a brief introduction and then we'll get into today's topic. Yeah, thanks, Miriam. It's great to be back. I really enjoyed last week, so I'm excited to talk more about financial analysis in the home care space. I'm a CPA by education and I have been working in the home care space. I'm a CPA by education, and I have been working in the

home care space for the past four years. Really just wanted to work in an industry that touched a lot of lives. And home care really was a great fit when I was looking to pair the skill set that I have with home care agency owners and then families and clients. So it's been a great journey. And really, we're here just to support agency owners, and then families and clients. So it's been a great journey. And really, we're here just to support agency owners and leadership with all things financial and helping them understand the financial performance of their business. Well, we're going to talk about that exact thing today. Today, we're going to talk about analyzing your financial performance, which is really your bread and butter. Last week, we were kind of in the weeds on how to think about finances from like an operational standpoint. Today, we're going to

zoom out a little bit and talk about what it's like to analyze the finances, analyze the numbers, analyze revenue, et cetera. So we're going to talk about revenue first, how to slice and dice and think about revenue and talk about it from the lens of different stages as well. And then we're going to talk about margins, gross and net and what to track and how to track and how to calculate those. And then we're going to talk about overhead costs. And then we're going to spend the last little bit talking about budgeting and budgeting long-term and what it looks like to successfully budget as you scale your agency, especially if you have multiple departments and lots of people, as you grow your team, how to budget properly and how to assign roles, responsibilities, and make sure that your budget

is working for you as an owner. So let's start with revenue. I want to hear kind of your take of, you know, with you and your clients, how you look at revenue. You know, obviously it's kind of like a stagnant number, if you will, but there's a lot of different ways to slice and dice it. So I want to just kind of open the floor to you for a second of how home care agencies should be thinking about and looking at revenue. Yeah. Yeah. So revenue is a huge focus. And I think that a lot of the times we're looking at, we try to look at revenue trending. We always look at month on month and most agencies, all agencies will have month on month data that they can use. If an agency has built a budget, we also compare actual to budget numbers. A lot of people look at revenue and say, okay, it's up 20% or it's up 10% or it's down or the way it's gone.

But really, I think it becomes meaningful when we start to unpack why is it going that way, like in either direction. So that's where, you know, looking home care, really, in my mind, anyway, there's two primary drivers for revenue going one way or the other, it's volume of hours, and then it's price per hour. So we look at both. So we do a performance by hours analysis to see where they're at current month, first prior month with some clients, we break that down by the payer source because that can be really telling. If hours are trending one way for a payer source,

that can also really impact your average price per hour. So looking at payer source mix and the volume of hours by payer source really starts to inform your average price per hour analysis as well. So if your average price per hour is going one way or the other, that's the first thing I look at is like, okay, do we onboard a new payer source?

Has there been a shift in the payer source? Maybe the rate for the new year has been set. So we're seeing a natural shift upwards on the revenue side when we're looking at price per hour. But it's really boiling down to and getting into like what's driving that movement because then as an agency, you can say, okay, we like what it's doing and we need to do more of that. Or we can say, hey, that's not what we want to happen. What are we missing? And so with a couple of our clients, we see, okay, this payer source was 30% of revenue the prior month, and now it's only 10% of revenue. What's going on there? And that started a conversation with that referral source. And then the next month, they have 10 referrals from that referral source because

it prompted them to re-engage in a space that we saw that was... So it's getting to those underlying drivers that make that revenue analysis really helpful for the business. In a perfect world, revenue goes up month over month, but this is home care. And it's not always perfect. Just like general trends, you may be up for three months and then plateau for a month or two and then back on the ups. Is that common at every size? I know you work with such a variety of sizes and owners. When I talk to people about revenue, it's like up and then plateau, maybe down and then up. Year over year, you want it to go up, month over month, you know, to be up every

single month over month. Like that's not really common. Yeah, definitely. There'll be ups and downs. And that's where I'll point back to payer source mix and like building some resilience into your business. So like if you're a hundred percent private pay, you can really feel those ups and downs a little bit more because you're really reliant on those clients and kind of the natural flow of the business. Whereas if you're getting more into contract work and you have authorization for like three to six months, you kind of know and you can forecast and understand a little bit better where that piece of business will be. So yeah, I think you can protect yourself a little bit from the ups and downs by introducing contract work into the mix. And that's a whole other conversation around like margins and all of that. And we talked a little

bit about it last week with payment terms and reimbursement rates. And that's also where we start to look at like, if you are 100% private pay, look at your referral source mix. So do you have a lot of hospice referral sources? Or do we need to talk more to like a skilled nursing facility? So we have longer stays, maybe the hours are shorter, but we have longer stays. So that also really helps get the marketing group involved if there's a separate marketing team to have the conversation around, okay, what are we doing to start to build some resilience here? Because we know we have a high reliance on these cases that are only a few weeks long. Let's talk about breaking down revenue from kind of like each stage, if you will. I know you work with everyone and how you think about revenue does change as you

scale. Let's start with startups briefly. Clearly their top priority is breaking even, you know, out of the gate, they probably invested money in the business and they want to break even as quickly as possible. What are some of the metrics or things that they should be considering when it comes to revenue and kind of working towards break even in those early, early months? Yeah. So startups are really fun because they're like, you're still kind of figuring out like what sticks and what's the best for your specific agency. So I think when you're looking at startup revenue, you're really just trying to, at that point, get hours. But a lot of it is bringing a goal to that.

So that's where we start. In the beginning, you're still kind of figuring out data. So a lot of the times we're coaching around, okay, what is your break-even point in number of hours? Because it's hard for someone, especially if they're not of a financial background or financial mindset, or that's not what they're interested in, to say like, okay, we need to bill $20,000 to break even. So what does that really mean? So then we want to look at that and the number of hours they need to get on a weekly basis, because that's something someone can really take and then go out and run with. We look and track and say, okay, so on average last month, you had 200 hours, you need another 200 hours to break even. And then it's really around that conversation.

Home care, especially, there's just so much going on. You can easily get caught up in trying to think about where the hour is coming from or all these metrics around it. But really, at that point, you're just saying, what is the market rate? And how do I get to these 400 hours so that I can become stable to really grow into different payer sources and start to entertain some of the more advanced metrics that they should be looking at. So it's understanding the market, both on the revenue, like price per hour and the pay rate per hour, and then really focusing on the number of hours you need to become

a stable business so that you have a great foundation to grow from. And there are a lot of factors. So I don't know if you'll have a sense of this, but I was going to ask like average time it takes for a startup, a new owner to break even again, I know there's a lot of factors there, but if you had to throw out, you know, kind of a range of time, what would you say? I mean, if you come into the business with, there's different ways to structure it too, but if you're running it yourself and you're really new into home care, but you're following like a process and you're working towards building those relationships, I think in, you know, four to six months, if you're really like strategic and you're really good about keeping up with what's going on in the number side. But if you hire somebody that already has like a

relationship in that agency space, you might see it a little bit more quickly, like three, four months, because they're able to bring on business that they have community connections with already. In my experience, if you're engaged as an owner or the leadership in the business, and you're really reaching out to the community and being genuine in how you're working in the business, it will happen. It is definitely like a game of you've invested a lot of money and you want to see that come back. But six months, I think is a fair number to really at least be at the breakeven point. Yeah. I was curious what you would say. And I would say I've seen similar again, everyone's a little bit different. You know, you see a lot of people starting their healthcare

business, but still working full-time elsewhere. And so it takes a lot longer and, you know, it's all just like a matter of time and money and investment and time commitment, et cetera. And so we've got a lot of factors, but I would say, yeah, four to six months, you can break even, you know, and really start building a successful business that quickly, which may surprise some people may seem long to other people. It's really a range, but I agree with you there. Let's shift gears and talk about kind of midsize businesses. I know you consume the benchmarking report when we talk about kind of mid-sized businesses. I know you consume the benchmarking report. When we talk about kind

of mid-range, I guess my take on that is kind of like 2 to 5 million. The average agency in the industry is about 1.7, 1.8 to 2 million. And so when we talk about mid-size, we're talking kind of 2 to 5. I think the biggest lens that they're looking at revenue through is cashflow, how to manage cashflow, like we were talking about before, what's your take on or advice on managing cashflow and thinking about revenue when you're at that stage? Yeah. So that's like another interesting group. And it is like, you do feel all of your growth feels like it's going to payroll because it depends on the payer source mix again, because if you have private pay, you might feel the cash in the bank is growing a little bit faster than if you have different payer sources. But really at that point, depending on your growth rate, you just

feel like, okay, I'm keeping up with making sure I'm making payroll every week or every other week. So there, we're really evaluating, and that's where we track by payer source, how are we fluctuating? And if you're looking for either expanding your relationship, or potentially adding a new payer source? What is that? What are their payment terms? And then what percentage of our overall revenue are we comfortable with bringing in? Because we want to make sure that we're comfortable from a cash flow perspective and that that doesn't actually consume the business when we're focusing on growth. And that's easy to do because when you kind of get to that point, you're like, done a lot of things right. And so now you're trying to open up new avenues for revenue.

And so evaluating those and making sure that they fit with the overall strategy and you're not kind of going down this other path that's going to consume resources, not only cash, but also in the office and you're having to increase headcount and all of that. So it's really helpful. And we'll get into budgeting later, but to have a really strong budgeting process at that point, because then you have a path, you know, you're like, this is the roadmap and are we executing or not? And then that really helps bring guidance to it. Because once you're at 5 million, I mean, it's hard to just sit down and brainstorm each day, what are you going to do? And that's where a budget really helps.

Yeah, I want to jump to margins, because I feel like that's like the relevant next step. But let's talk briefly about like large businesses that are scaling, you know, their financial focus, how they analyze and look at revenue can change. So what, what lens are much larger businesses looking through? And when I say larger, you know, 10 million plus, obviously there's kind of a huge range of like enterprise in this industry, but much larger businesses, where's their focus and how are they thinking about revenue? So at that point, when you're getting into that size, you're typically, you might have more than one office or more than one location. And that's where it's helpful to kind of slice the revenue in that way as well. So then you're saying like, okay, what location

is performing well, or what location is there opportunity for growth? Or do we need to expand into a new location? Like, is there an adjacent area that we want to look at? And they might be totally, maybe they have different structures and different payer sources and there's learning from one to the other. But really as much as you can segment the revenue, so by payer source and by location is huge

because then you can see like, this is really performing or this isn't. And then that's where you can like shift your focus and work on either growing or managing one of the, really performing or this isn't. And then that's where you can like shift your focus and, you know, grow work on either growing or managing one of the, like if you segmented by pay or source, and then by location, and you find that there's a hotspot, something that's going really well, can you replicate that elsewhere? Or if there's an opportunity, like how do you focus resources to grow it? So it's really at that point, 10 million and higher, the more the data is separated and presented in a way that you have detail about where it's coming from, the more helpful it is.

The one thing that I want to add, you've mentioned several times like different payer sources you know, a heavily private paid business, you may have different service lines. And when I say service lines, you think of maybe hourly versus living, or you may have a transportation service, or a meal service, or, you know, medication management, care management, even within private pay, you may have different services and structure your services differently, or different counties, you know, that have different rates or different tax rates. But even if it's just private pay, thinking about how you structure different service lines and breaking it down that way, you know, maybe you have care management and that could be, you know, maybe 10% of the business, but 40% of your revenue. And so what does that mean and how does it influence, you know, the hourly care as well? So lots of different ways to slice and dice revenue. And like you said, it's kind of up and down month over month, but you can start to predict the future based off like looking back to predict the future. So I just wanted to add some of those thoughts. Yeah, that's a really good point. With the way a lot of the client management systems

now interface with like the accounting software, you can do really robust reporting if it's set up a certain way. So the data is there. It's just really structuring it in a way that you can look at on a regular basis and really understand and use it to your advantage. And I think it's really easy to look at revenue and say, oh, it's up or down. But when it's down, you know, taking an extra hour, 15, 30 minutes, an hour, or, you know, a week to like really dive into and say, okay,

why is it going up or down? And what are the factors and how do we figure out how to like pull those levers so that this happens or doesn't happen again? Let's talk about margins. I think that's a huge factor here. And you mentioned setting targets. So I want to just kind of start out of the gate. Do you encourage businesses to be managing and analyzing both gross and net? Or do you focus heavily on gross and less on net? Or is it kind of up to the businesses that you work with? Or what's your take on managing, measuring gross and or net? I think looking at both is important. I would say the difference in my mind around the two is gross. I would say regardless, I think there's in the industry sort of numbers that we would see on the gross that we think would be a good gross margin versus a bad gross margin. You really want to see it because your gross margin is telling you,

you know, for every hour I'm billing, how much of that is going to client delivery versus my keeping as my gross profit. And so I would say that that would be pretty consistent or the target would be consistent from agency to agency within a range. Where net income is a little bit different, I would say, is a lot of that comes down to how you structure your business and what works for you in your personal life and like, how do you want that business to interact with you in a way? So for example, if you're an owner, that's like, this is my day job and I'm going to do this. And this is my 100% focus. And you're drawing your salary from that. You might see that your net income, there might

be more cashflow to owner because they're not having to hire out somebody else and taking on that overhead cost. Whereas if you're saying like, you know, this is, or maybe you're focusing on more than one location. So you're hiring people to run the business for you. That's where you might see that net income impact. So that's where I think that there's some flexibility in the net income as a target, just based on how you structure the business for your lifestyle. Can you clarify what you, how you calculate net? Because there's a little bit of variance there to my understanding. I guess I see different people factor in like different deductions.

So what would you suggest for calculating net? And could you maybe speak to some of like the fluctuation there that you've seen? Yeah. So like, if we just like kind of run down the P&L, we would say like your gross margin is your revenue less your cost of sales, which in the home care industry, what we look at is your caregiver wages, the employer tax on the caregiver wages, workers' compensation. That's what we say is the cost of sales, which will get you to your gross profit and then your gross margin. And then your net income is other expenses related to the business that are there to support it,

but don't necessarily go to direct delivery of care. So a lot of the times it's your office administrative staff, any operations that you have, maybe marketing is in there. And then other costs that we see quite often are onboarding costs. So if you're doing any sort of recruitment, background checks, medical testing, all of that we would see as your net. So we try to keep your gross margin purely caregiver costs related, and then anything else would really come into play as a net income, like impact the bottom line. Okay. And what are healthy margins? What would you say a healthy margin is for a business for both gross and net? Yeah, there's different ranges. We see anything

from gross and gross to from 35 to 50 as a gross margin. 50 is really challenging to hit, but if you manage your rates really well, it's doable still. 35, you're probably like billing Medicaid and that's more of a volumes business. And so I would say the big thing about gross margin is like one isn't right or wrong, it's just the business strategy. So if your gross margin is lower, you're just looking for higher volume. I would say anything below that, you probably just want to maybe do some market analysis and really check to make sure your rates are competitive. I know it's tougher just as the economy and things have evolved to really try to hit that. But I think that when you go below, anything below 30 is really hard because then you're just going to have to have...

The volume of hours required is... You start to really struggle on then the overhead side because you have to step up in the office so much to keep up with the volume of hours. So a lot of them, your margin is going to, you know, overhead staff. And on the net side, what would you say are kind of healthy or needs room for improvement on net? It all depends on the size, but if you're a mature business and it also depends on the strategy around like if you're staffing with other people or doing it yourself, I think 15 to 25% are still healthy net income, like return on sales. If you're kind of one of the agencies that are, you know, they've broken even, and then they're kind of figuring out like that next leap, that's hard to achieve because you do have to staff up your office

to enable yourself to go to that next level. So your growth is still going to overhead because you've added someone in recruiting or scheduling. So that's why I say it also depends on the stage of the business and sometimes the structure. Yeah. I think you're probably referring to especially like payer sources. Like you said, with private pay, you may be able to hit that, you know, maybe 50% gross margin, but Medicaid, you're probably closer to maybe 30%. And so it's important to track margin by payer source, you know, so your generic gross may be, you know, 35, 40%, but then to break it down by payer source and be analyzing those targets. Is private pay going up or down? Is Medicaid going up or down? How do you manage

all of that and know what to expect for each payer source? Yeah. And one of the things too that we look at, so on revenue, we talked about the fluctuation in price for average price per hour, and then also looking at the individual rates by payer source. One thing we try to keep a pulse on as well is the pay rate per hour. And a big thing on that one is market dynamics and the labor force. It's different in every geography. But if you're starting to see like your pay rate per hour trending up, that's really helpful to monitor because then you can give instruction to your office staff. Maybe it's we need to really work on recruitment because we don't have enough with our growth. So we're having to pay overtime. So we look at overtime payroll as a percent of total payroll because that's a really telling figure.

You know, if it goes up 5% month on month, that means your caregivers are probably happy because they're making overtime. You know, we need to focus on recruitment or we need to like re-engage caregivers that aren't working, you know, more than like 10 hours a week and see what we can do to get them on a fuller schedule. So on gross margin, it's helpful to keep an eye on both what your price per hour and then pay rate per hour, because those are really the two that you can influence on like a daily or weekly basis. Workers comp, you can impact over time, but that's harder to do like when you're looking at it each month. Yeah. Let's talk about rates for a second. And like we know it fluctuates state to state geography, like you've got to do kind of your own local analysis. It was really interesting,

like pre-pandemic, you heard of a lot of businesses that their rate was the same for, you know, maybe years and then the pandemic hit and everyone was strapped and it was just really tough. And you, you know, I just heard this kind of influx of like, oh, we need to be like raising our rates and we, you know, account for annual rates, et cetera. So I think a lot has changed just the last several years in home care and just cost of living, you know, no one's a stranger to that. And so rates are going up. What's your professional recommendation on rates? Let's start on rates and we can talk about wages, but like an annual increase on rates, or is it just looking at the market or how should people approach increasing rates regularly? Yeah, that's a good question. So I think there's a couple of things that are helpful there. First, I would say when you're first onboarding a client and you're assessing care, you also want to think about, you know, if let's say they started out with like four hour shifts, how does that change? shorter shifts because they're harder to staff. Pricing based on shift duration is one trend

that is helpful. If it's a short-term or once-off case, maybe you do a flat rate that is a favorable rate for you. And there's different ways to structure it. But really thinking about rather than just having one flat rate and this is how it looks, getting a little bit more creative with duration or once-off. And then I do think building into your contract, your client agreement, just sort of a clause around we do annual reviews because people aren't always opposed to it. Everyone does kind of understand cost of living. And then you have the conversation with the client that a lot of the times it is, you need to pay your caregiver more to retain your talent.

But if they have an awareness of it ahead of time, it's in the client agreement. It's not a surprise that they can have that. It allows you to have that conversation from a place of like, hey, this is the annual rate review time. It's not, hey, we need to raise our rates because of this. And you can do once off if more care is needed or there's additional service being provided that wasn't initially priced in.

There's a catalyst for it. You want to have that conversation as well. So I think it's matching pricing with duration and then also just building into your contract. So it's not a surprise to your clients. A big reason for rate increases the last several years was just the increase in wage. Minimum wage has gone up around the country. And so that's just kind of an obvious flip side of the coin. If the wages go up, the rates have to go up's just kind of an obvious flip side of the coin. You know, if the wages go up, the rates have to go up. You talked briefly about overtime, again, kind of murky territory a little bit because every business and how they approach and think about overtime is different. So any thoughts about managing overtime and where that fits in here?

Yeah. So managing overtime, I would say also depending on like where you are sometimes, I mean, California, if you're an agency in California, you're required to pay overtime anytime it's depending on it's either eight or nine hours. So you're kind of redoing like 12 hour shifts you're going to inevitably have overtime. So I would say it's really understanding like the tolerance for your agency around it and you know, what makes most sense. I would say it's really hard to avoid entirely in the industry. We like to see it under 5% of overall wages for the period that we're analyzing. Because you also... The biggest thing when we're thinking about it too, financial analysis and all of this is great

in theory, but there's a human side of the business and home care is so human. So to say, oh, we're not going to staff a shift because we can't incur overtime. Like that's not, we would never like recommend that. So it's inevitable, but I think it's just managing it and understanding like, is it a roster issue or is it just like, we just had this one client and they really want this caregiver. And that's where you might have to have a conversation with the client's family and saying like, hey, we're happy to do this, but it will be at this rate for this time. So yeah, I think it's somewhat inevitable and you just don't want to compromise care over overtime, but just keeping an eye on it and making sure we're understanding the

root cause. And it comes back to margins, you know, knowing and understanding your margins and looking at the break even and the profitability of every single shift. You know, I know that's really granular. You see a lot of people like maybe doing that in spreadsheets outside of their software. We've built Plug4Care switch these profitability calculators to where you can look at your target margin, gross and net for every single shift to empower schedulers to be thinking about how shifts impact the bottom line to look back. Okay, here's where we lost money this past month,

but you want to be more proactive and forward thinking. How does this shift and this rate, or if we incur overtime for this shift, where is that breakeven point? And so I think it can be intense if you're scheduling hundreds of hours, thousands of hours every single week, but this is the type of focus you have to have if you want to scale is looking at the margins and the profitability at the shift level, not just historical. 100%. I think that's like, it helps in so many ways, because you bring awareness to it. So I would say that there could be a tolerance for like, this is the profitability that we're looking for. But then there's an exception, and there might have to be an approval or discussion around it, but it makes it more real time.

And it also just really helps to empower the staff. That's one of the biggest things I think with like a financial analysis and, you know, financial performance of a business. Sometimes it can feel so like siloed and segmented, but the more that you can integrate your staff into like, not saying that you need to help us make money, but here's something you can do to contribute to the growth of the business that really helps like bring them into the business operations and can really help empower them. I've got a lot of thoughts on that because there's a variation in home care. Some office staff, no revenue, no bottom line, no margin. Like they're a part of this conversation. Even recently, talk to owners that think I kind of need to safeguard our financials because then people ask questions

or get curious or question their pay. But my personal take is, yeah, transparency. Empower your team to understand and know these numbers. We could talk about performance-based compensation. These people are motivated to help the business grow and thrive and so the more that they understand and think about revenue as a business it gets everyone just kind of accustomed to how the operation runs what is the bottom line what is the break-even and how are we all working towards because at the end of the day it's the care that's being provided but in order to help as many people as possible you do have to manage and think about the finances of the business i like what you're saying of incorporating the team, make sure everyone's kind of talking and thinking about, of course, kind of in their lane, you know, they don't necessarily need to know everything, but

understanding and knowing the revenue or the financial aspect that they themselves influence. Agree. Yeah. A hundred percent. And that's where it's great. Like putting it to them in a way that makes sense to their role. So to tell somebody, you know, we have to grow by $20,000. That's really hard for a lot of people to grasp. And you need a plan on how to do that. But then you break it down into, okay, that means if we have to add 10 new clients, how many new caregivers do we need to onboard? Okay, we need 20 to 30, whatever the metric is that you've decided is your ratio.

And then you help that person because then they feel included and they have a goal that will contribute to that $20,000 growth. Let's talk about overhead costs. This again, there's a lot of variance here, but what are the common overhead expenses that owners should be watching out for? Or where are maybe some of the common pitfalls when it comes to overhead expenses? Yeah, it's a good one because I feel like sometimes that's such this like, not a great area, but there's a lot that can happen in that space. And we do see a lot happening.

I think the big thing is like home care is a people business, no matter like how you look at it. So one of the things we really encourage, regardless of agency size, even if someone is doing multiple roles, you can still allocate their salary to multiple places is really just understanding where your spend is by department. So if you have an operations group, if you have a marketing group, typically you would separate owner pay

just as a best practice so that you can really start to see where are we spending a lot of our overhead. And that's the biggest expense that we typically see is payroll. And then the other sort of recommendation or thoughts around overhead is really being timely with your accounting because that's the tricky part. Like a lot of the client software has... You can run revenue and gross margin, but really until you get into an accounting software, that's where overhead really comes into play. So really being timely with that and looking at it on a monthly basis and just being consistent. If nothing else, if you're recruiting through Indeed every month, you just want to make sure you're recording that to the same line items so that you're looking at

trends because that really helps. If you see your Indeed expense tripled last month, but you didn't have corresponding hiring, okay, what's going on there? So being consistent and timely with it just helps because then you can start to see trending. And the more that you look at the trends, that's where you can focus your attention. Or like if you're missing an expense, right? Did we not pay workers comp or it was like this other insurance expense miss? Cause that it just really helps to be proactive and keeping track of it. And now with payroll software, being able to map to those different line items on the profit and loss is pretty straightforward.

It's just spending time on the initial integration. But it allows you to then really critically look at the business each month and saying like, okay, we missed our target or we hit our target where we spend up. Yeah, I am like kind of visualizing a P&L. And I know we talked about this is a podcast. We can't necessarily like pull up a P&L. And I know we talked about this is a podcast. We can't necessarily like pull up a P&L and go through it. I was looking at the benchmarking report before this. Think about the P&L. And I know we can't maybe like get totally into it. I don't know if

you've got one pulled up in front of you, but just thinking about kind of like the buckets, what are the key buckets? Is overhead its own bucket or is it kind of bedded down within one of the core buckets? Can you share how you structure P&Ls and some of the most important things to call out? Yeah. So when I think of overhead and when I'm saying the term, I just think of basically anything that's below the gross margin line item expense. So that would be anything really that's related to running the business, but isn't directly tied to the delivery of care. And typically, like what we see in home care is there's sort of like an operations group.

Sometimes there's a marketing spend or marketing group within that. Caregiver like onboarding and recruitment is typically another big line item. I would say one area can sometimes be a little bit more difficult to really like get into and understand the ROI on is marketing that can sometimes feel just like, you know, we're spending money on marketing. Do we see corresponding sales, you know, sale and there's marketing, there's branding. And it's also, there's not always like an immediate impact on that. So you might have marketing spend, but you only see the impact from the work you're doing like two to three months later. So that's where for us, we, that's where I think it's really helpful. The home care

pulse report of the activated insights, I should say is the client acquisition cost and really measuring that and looking at it. Cause that's a metric, like a way to put some numbers to the spend that you're having on the marketing side. Because it can really feel just like this bucket of like, you know, we have a budget and we know we should have a budget, but like, what is that really doing for us? Just kind of like we talked about last episode around day sales outstanding on the AR piece. It's sort of this other metric that we don't always talk about or look at, but they're really helpful because it gives us an idea, you know, on client acquisition cost of, you know, what benefit or like, where's that number?

And then, you know, client lifetime value, are we really recouping that and making sure that we're getting back what we're putting out? Yeah. Yeah, exactly. I'm looking at this P&L and it is kind of the four buckets. I'm just going to talk through it. People can conceptually, it's like you refer to it as like direct care expenses. Then these other buckets, the way that it's listed here is like recruitment and retention expenses, sales and marketing expenses, and then also operating expenses. You think of like rent, utilities, et cetera. So those buckets, and I think you're spot on. Sometimes the P&L is just a bunch of lines and a bunch of numbers, but tying recruitment and retention back to cost per hire, tying sales

and marketing back to client acquisition cost, also like lifetime value, lifetime value of the caregiver, lifetime value of the client, these numbers, how do they kind of stack up against those other metrics to basically tell the full story of where things need to be tweaked or changed. I was going to ask about rent, utilities, other operating expenses. I think that's also kind of a black box. You could just put a bunch of stuff under there because there's one-off expenses that come up. Anything that you've seen to keep a rein on what could be just those one-off expenses that maybe an owner or an empowered administrator could maybe take advantage of?

I think the big thing, this kind of ties into budgeting more so though, is it's hard to plan for every expense. Depending on the organization size, we recommend that there's sort of a buffer. We know each month we might spend $5 spend five to $10,000 on something, or maybe it's 2000, the size of your agency, because there just will be things that come up and it's really hard to say. So it's building in that flex spend so that, and I would say, you know,

you just don't want to spend a spend or like, you know, something that's completely unrelated, but just know that if you're, especially when you're creating a budget, that it's really hard to brainstorm and understand like every line item that will come through. The big thing about those is like, we just want to see consistency month on month. So like, if your rent expense is going all over the place, that's going to be a question of like, are things in the right place? Are they not? Or like, why is this happening? So that's for me, the routine expenses, we just like to see consistency. And then if not, like understanding why that is happening and can we do a better job

of managing it? Let's get into budgeting. I know you have a lot of thoughts here in a business. It's like a part of the foundation is thinking about a budget and sticking to a budget and looking at a P&L. So let's get into budgeting. More high level, how do you think about budgeting regularly? And how do you coach people to manage a budget long term? Because again, it's one of those things that you can set it up and feel gung ho about it initially. But how do you make it a part of the culture of budgeting? So I think a budgeting exercise that organizations like regardless of size is a healthy process to do probably starting your Q4 because then you're thinking I know it's hard because it's like the holidays and you're trying to figure out the end of the year but it's a great time to

reflect on what happened in the prior year and then start to think about the next year and for me budgeting is a strategic exercise so So it's not just like, here are some numbers and what we think will happen. You're really bringing in, if you have different departments, like departmental leaders or like key roles in the company and understanding. We think about sort of like the profit and loss structure and think about it on the different categories we talked about with revenue, gross margin, and net income. Revenue, especially when you're getting into like that 5 to 10 million range and you're looking for growth, for us when we work on budgeting, we're thinking about like where are those hours coming from? So we're looking at

historical trends to see what were the hours by payer source in the prior year? What are the pay rates or the reimbursement rates of that? And those different... And then how does that look for the next 12 months? Where do we have opportunities to grow and expand? So getting really nitty gritty with the revenue buildup, rather than just saying, we want to grow 30%. It's like, where is that coming from? And then that's where having conversations with whomever is responsible

for business growth. If you have a marketing group or if it's whatever the team structure is, you want their buy-in and they support that. And then we look at that every month when we have a set budget because we can track against, like we said, ours would be here, but they were here. Why is there a difference in what was working for us or what didn't work for us? Or if we saw favorability in the price per hour, why was that? Can we continue to work on that? So that's, you know, I think really encouraging revenue to take a critical look at where will hours come from?

Because then you start to drive your team in a certain way. You don't have to tell your team, team, here's the revenue versus the budget. Because if you're getting into hours, you can really use hours as the metric and say, we said we would have 2000 hours from this source. We had 2100. Okay, great. How do we build on that? Or we were down by this money. So using hours to guide the team is really beneficial, I think, in this space. And then similar with the gross margin so like top line you're including people the marketing team even scheduling because they can look and say like can we expand hours within current clients like is there a way that they can support that where are there opportunities there that there

might need additional care and then we start talking about the components of gross margin really we're looking at pay rates and that's where you're bringing in your recruitment and your scheduling team and understanding okay here was our average pay rate over the last 12 months. Do we think it's feasible to keep that? And how are we doing that? Are we bringing in caregivers and training them? So they're starting at a lower rate and then they're progressing. What is our strategy around maintaining our average pay rate per hour or trying to minimize overtime as much as we can? And then you build out targets from the growth that you forecasted on the revenue side

to the recruitment side as well, because then they're saying, okay, do I think I can onboard another 300 caregivers or whatever the number is? And like, okay, how do we do that? What's our strategy around that? And then on the overhead buildup, you're getting into the makeup of the office staff and what are

key roles. Okay. If we're going to grow 20% of the revenue side, do we have the right people in place in the office? Do we need to add headcount? If so, when do we do that? And that's where you can start to set salary targets. If you're doing incentive-based compensation, you bring that into the mix. So it's a really strategic exercise. And then you put that all together and it starts to really paint a picture of where are we going to go and how are we going to get there over the next year? And then measuring against that on a monthly basis, because it really helps if you can say, like, okay, we overspent here. Why did we do that? Like, so on marketing, okay, we spent another $3,000 this month. It's because we supported this

organization in this way. And it opened this referral source. Okay, that makes sense for us looking at it and measuring against on a monthly basis. And then just doing like a quarterly refresh, you know, where things like super off from where we thought they were in the beginning of the year, especially with smaller, younger organizations, like they might have experienced huge growth. And so they're blowing that budget out of the water, which is awesome. But then it's like not meaningful to analyze against. So you want to just take a look at it every quarter. If you're a larger organization, maybe you're looking at it every six months, but really I think it's healthy to look at it quarterly. Just a good way to bring

everyone together again and make sure everyone's on the same page around how we're performing and where the business is going. Yeah, a lot of great insights. I think you kind of touched on this, but one of the things that is coming to mind is as you scale and as you build up an office team and you break it down into departments, one of the trickier things about budgeting is like establishing budgets for different departments or for different individuals. And like you said, at the year end, you're kind of forecasting and prepping for the year in advance, and you can look back at expenses and kind of allocate budgets. I guess the question is, can you stick to really rigid budgeting in home care, or is there so much flux that it's not always easy or predictable to be able to stick to a really rigid budget? I would say for certain line items like headcount, you can probably, unless you're having a huge swing in your office staff, be pretty accurate with your budgeting there. That's

why I say if you're a growing organization, that might change over time. And then it goes back to the structure of the office and how you empower employees and the leeway you give them with spend. I think it's healthy to say, we have this budget, this is the number. And really, that's where it says like going back to involving them in the process, like, okay, if we have a $6,000 marketing budget, what are we doing with that and getting the buy-in from the team on that? Or on the recruitment side, how much are we spending on caregiver onboarding? Is there a way that we can get more strategic with that as well. Because I think sometimes we think of, you know, the budgeting as like a CFO or like a director of finance role. But I really do believe it's like bringing the whole organization together because the more buy-in and they have like responsibility for that. Because if you just tell somebody like, okay, you can spend this much money, you know, this is your budget and they don't have any idea or say in what's going on, it's really harder to... First, you're not empowering them. And then you're also... It becomes just kind of like play money. You know, you're not empowering them. And then you're also... It becomes just like

play money. They're not really understanding where does that go and how is it helping the business? So it's educating the team as well and helping them understand. And getting them to think about the ROI, the ROI of their activities. You think about recruitment and retention, sales and marketing. Like you said, a couple of minutes ago, like, oh, this month, there was this $3,000 initiative. It's like, okay, you know, let's empower the sales team to take that money, go execute on an event, but then hold them accountable. Like what was the ROI? Did we bring in new clients? Do we bring in a new referral source? Do we bring in new employees? Like what was the ROI of that spend? And that's where it

gets technical and it gets tricky. These are a lot of conversations that have to take place, but that's the kind of accountability that budgeting helps enforce is empowering people to manage finances within their department or for them themselves, but then holding them accountable to what did that equate to

and how is it impacting the business? Yeah, exactly. And that's where like going back to those metrics because ROI can feel like, you know, how do we get there? But looking at a lot of those metrics we talked about around like client lifetime value and client acquisition costs, like those help to inform the effectiveness of a lot of the spend. Absolutely. I know we're almost at time here. Any other metrics, you know, we're talking about analyzing financial performance, any other metrics coming to mind that we haven't really touched on that we can

hit on here at the end, just anything else that you all are looking at monthly or quarterly that we maybe haven't mentioned today? I mean, we've talked about a lot over this session and last session. Yeah, it's a lot. And we also, one of the things I didn't touch on in the beginning was you do a lot of like year to date analysis. So looking at like current year to date versus prior year to date, because that's also really helpful in telling, especially, I mean, revenue growth is great because you can see, but like if revenue is growing, but net income is down compared year on year, okay, what's happening? Are we preparing for growth? And so we're spending more on headcount or are we just being inefficient because we saw more revenue? So we think we can spend more. So year to date is extremely helpful

because month on month gives you a snapshot of like right now, but year to date takes you back to, you know, like first half of 2023, which feels so long ago. But when you look at it, you're like, oh, my margin is up or my margin is down. What's happening? Do we need to do something we were doing in 2023 again? Or like what has changed since then? And that's been really helpful with some of my clients that are trying to figure out like, you know, as they're growing, you know, anchoring back to that and seeing, you know, can we keep our fixed costs somewhat flat as we grow so we can see the pickup on the net income side. So year to date is extremely helpful. And then the other thing that we look at, which I would say probably isn't as much of a common metric, but we look at average

income by hour. So we talk a lot about gross margin and gross profit, but we also like to say at the end of the day for every hour that we build, how many of those dollars are we keeping? Because that can be super insightful if you're, what, $2 an hour that you're billing. Like, okay, what's going on in the business? How do we change that? Or if we're at $10 an hour, that's great. Or is there a room for improvement? Because I think you're doing all this work and then you feel like your bank account is telling you one thing or there's something going on with cash. Is it because we're not keeping enough of the cash that we're actually billing or is it cashflow challenge?

So that's another number that we like to look at and see at the end of the month and then year to date what that looks like. Yeah, I'm glad you called out year to date. I also think of even just year over year, just like the flux, the month to month flux that is home care. There can be this consolation of,

okay, we know that like February is a really tough month for us. We've seen it the last three years. Like we kind of know what to expect going into it. You think of the seasons, you know, the start of the year, summer, fall, winter, like there are just like year over year trends that also bring a little bit of like consolation and understanding and expectation to your revenue when you know, okay, the last three, you know, three February's have been tough or July gets really tough because people are on vacation or families are traveling. And so looking at year to date, year over year, that can help you again, start to anticipate and

know what to expect in the future. Yeah. And one of the things too, you made a good point around like what we were looking at February is a funny month, right? It's like two days or three in this year, I think it was only two days, but typically it's like three days shorter. So we were like, revenue is always down. And that's a reason people like to say, well, it's because of the shorter month. So we look at what was the average billing per day in the month, because that's really insightful.

If you're actually revenue in February was down, but we were billing $500 more a day than the prior month, it's just that the calendar wasn't as long for us in this month. So that's another number that's helpful to look at when we're trying to see what's going on month on month. Yeah. Well, great sessions, Dana. This has been really fun and really insightful. I know we've got a couple of people in the chat that have reached out for more information. Just briefly here at the end, what's the best way for people to get in contact with you

personally or get in contact with the business and what can kind of people expect and that may be like intro call or out of the gate when they would start to engage with you or your services? Yeah. So I'm on LinkedIn. We're the Home Care CPAs. So I'm responsive on LinkedIn. Our website is thehomecarecpas.com. We have a really nice, like when someone's kind of just reaches out to engage with us, there's a short questionnaire just so we can learn a little bit more about your business. So we can have like an informed conversation around some pain points. But really, we just book a call, understand like what you're thinking about, you know, how we can support. And then we go from there.

Each agency has its own top of mind. So really for us, it's just understanding how we can best support somebody. Finances may not be your strength as you're starting your business and being able to lean on someone that this is their strength is really helpful. But also as you scale, you may want someone to kind of fact check

or look at how things are going, where are you struggling maybe with cashflow or scaling or thinking about revenue from different payers. So Dana and her team are definitely a resource that I recommend everyone reach out to. So we'll go ahead and cap here. Thank you again for giving me time the last couple of weeks. Hope this information is useful to those listening and we'll look forward to staying connected and probably rubbing shoulders

at some of the conferences this fall. Awesome. Well, thanks everyone for being here live. Hope you enjoyed the session and we'll see you back same day, same time next week. That's a wrap. This podcast was made by the team at CareSwitch, the first AI-powered management software for home care agencies. If you want to automate away the menial of your day-to-day with AI so that you and your team can focus on giving great care, check us out at careswitch.com.