Home Care U - Financial Horror Stories And How Not To Become One (Jennifer Ramos Pt. 2)

Episode Date: January 30, 2023

A home care agency can have good caregivers, great staff, plenty of clients, and still fail if they don't manage their financials correctly. Come learn what NOT to do. 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

Hey, welcome to Home Care U, a podcast made by the team at Care Switch. Nobody went to school to learn how to run a home care agency, so we're bringing the education to you. Join our live audience by going to careswitch.com slash homecareu or listen on your own time wherever you get your podcasts. Home Care U is hosted by myself, Miriam Allred, and Connor Koons of CareSwitch. Enjoy the session. Okay, welcome to today's episode of Home Care U.

We'll be diving deeper into the financial side of managing an agency today by hearing financial horror stories of agencies that didn't do things the way they should have and addressing what you can do to avoid making the same mistakes. Before we get started, some quick reminders. First, if you're listening to the podcast, know that Home Care U is both a live virtual Zoom class and a podcast. You can join the live classes and ask whatever questions you want by registering free at homecareu.careswitch.com.

Kind of one more little item on the agenda here just by way of introduction. So you might know me and my style if you've listened to any episodes before, but I do have a stutter. The reason that I mentioned that is because if you hear a random pause somewhere in this episode, that is probably not zoom buffering. That is not Spotify buffering. That is me buffering. So be ready for that. And just know that that happens occasionally. So with that said, I want to jump into things and introduce our guest. Same guest as last week for those who were on with us. Jen, do you want to jump on and introduce yourself and maybe just briefly recap your story for those who might not have been on last week? Sure. So thanks for having me back on, Connor. I really appreciate it. Yes, my name is Jennifer Ramos. I'm with M&A Business Advisors,

and I'm a business broker. Specifically in healthcare is where I niche down, and that's my specialty. I have a very strong affinity to home care agency owners in particular, because I used to be one of you. I used to own and operate home care agencies in California and one in Colorado for several years, both franchise and non-franchise. And so it's an industry that is near and dear to my heart. And so, yes, I'm happy to be here with you all. Awesome. Thanks for that, Jen. I'm super excited to pick your brain some more and to learn from your experience. It's always easier to learn from other people's mistakes rather than your own mistakes. So hopefully as we go through some of these stories, the people listening will be able

to do a little bit of that and hopefully avoid making some of these big financial mistakes. So let's jump into this here. We have several different stories of financial horror stories in kind of a home care management context. So we'll go through these. If you are joining us live, put your questions in the chat and depending on the question, we'll address it right then or at the end of the interview. But let's go ahead and get started. So I'll hand things off to Jen, but I'll probably jump in periodically to ask follow-up questions here. Thanks again. I appreciate being here, Connor. And so this is a really important topic and I really love that

you guys asked me to come on and bring some situations that I've actually experienced with clients because you're right. We can learn from other people's mistakes as well as our own. So I'll go through a couple of scenarios. The first one that actually came to mind when you asked me to put some thoughts together about this was one that was more recent for me. And because I'm a business broker, I do get a lot of not ideal situations. And the reason why a lot of transactions or a lot of people that want to sell or it's time to sell is because it's not necessarily because they plan to sell, it's because they're forced to. And there's some external situation going on that is forcing them out of their business, like divorce or illness or death or something like that. So I digress. My first situation,

the first thing that comes to mind with this gentleman, we're going to call him Raymond to keep the integrity of the actual individual. But it's funny. And what comes to mind with Raymond when he came to me, he's a lovely gentleman. He had his business for, he still has his business, but he's had it for three years. And what happened with Ray was basically, he was going about his business. In the third year, he was really doing well. He started it. It was a franchise. He started it. Year one, like everybody else, trying to build, build, build. Year two, build, build, build. Year three, he really started making some money. Year two, he was making some money. But year three, he really started getting some traction and making some money. And when I say making some money, I mean, the business was revenuing

more money. Ray was excited, like any business owner would be, you know, the bells and whistles were going off. He was like writing this, you know, on this high and what have you. What happened was, unfortunately, he was coming from vacation and he was getting headaches and his wife grew very concerned. He has three daughters and a wife and they took him to the emergency room. And unfortunately, this gentleman, he found that he had a brain tumor. And long story short, it was cancerous. And so now he went from one extreme to a completely different extreme, where he was very sick, in a very short period of time, that nothing was going on to kind of lead up to this for him. He then came to me because he needed to figure out some options for his business because he wasn't sure if he would be here,

you know, truly. It was a really terrible situation. In coming to me, we had to value his company, right? So I'm looking at this business and he's like, Jen, you know, this business has been thriving. You know, I just need to know what my options are for my family, just in case I can't continue running this business. And, you know, what have you. He started chemo at the time and radiation, but he was still very involved with his company, even though he was getting these treatments, and he's still, you know, proactive with learning his options. Once we deep dived into his financials, what was painfully obvious is that because he just didn't know, like many owners, we just don't think something like this is going to happen to us, right? Until it does. And so he was operating his business as if it was his

personal checking account. And so because the business was making money, he felt he could pay himself more on salary. And he started using the company credit cards to fund his entire personal life, including his teenagers' cell phones and their car insurance and just everything under the sun was being paid for. His personal stuff was being paid for through the business. The mistake he made was not realizing that that money is not really his. I mean, it is, but it isn't. And it's funny because I put it in my head. There was one time I was talking to him.

He said, well, isn't it mine? Isn't the money mine anyway? And I said, well, yes, but it really is business, belongs to the company. So when we went to value the company, it wasn't sellable and it wasn't worth anything because he was showing all this cash coming into the business, but he was taking it all right back out. And so even considering that these were personal expenses, and they should, you know, go back to the bottom line of the business. When you go to sell buyers don't, it's not attractive to them. And so they'll look, they're looking at other real cash flow of

business. And the reason why it's not attractive to them, and they can't prove that these cell phone charges are really what the seller says they are. I know that that's kind of a loaded scenario, but the mistake he made was really just using his business to fund his personal life and he should not have done that. And it's just bad practices. It's bad habits. So let's break down a couple specifics here. I want to make sure that we zero in on the problems that that was causing for him. So is it accurate to say the main problem with using all of his personal expenses as if they were business expenses is that it kind of made his profit seem artificially small. And so when people were looking to possibly acquire it, it didn't do justice to how much

profit it was actually producing because he should have waited it until that cash showed up as profit, went into his bank account, his personal bank account, and then spent it. Is that safe to say? Yes. I mean, really how it should be is all the profits to the business. You shouldn't really never run your personal expenses through your business. That's just it. I mean, really how it should be is all the profits to the business. You shouldn't really never run your personal expenses through your business. That's just it. I mean, bottom line. The only thing I could say that is acceptable to run through your business on a personal level is maybe your health insurance, your 401k or your IRA or whatever you're funding for retirement, your auto expense. And that's really it. If you start going into like, and some travel,

I mean, sometimes we'll take our company credit card and go to Hawaii or whatever. That is kind of reasonable. But when you start paying for your kids' phones and everybody's car and your AT&T bill at home or your internet bill at home and your cable bill at home and just everything, it really dilutes the profits of the business. And it's really hard to prove. Not only that, but SBA loans will not even look at those expenses. So if they consider it, it's just gone. It's just, it's almost as if it's the company just had those expenses itself. So it depletes the bottom line to a point where you're not profitable. The business just does not look profitable. It's just really not good habits to have.

So I think I'm trying to put on my hat of a new business owner here and trying to understand why shouldn't I do this? And what might be some of the frequently asked questions here? Let's say that they were all expenses that he had to pay somehow. What he really should have done is figured out how much it made sense to pay himself or to draw, do it the right way. That's all in his personal bank account. He's paid it to himself. Yes. Then pay for those things, correct? Exactly. Exactly. Do not mix the two. You don't want to commingle things. Just if you need to pay yourself a higher salary, then pay yourself a higher salary to cover your personal expenses or take a draw, like you said.

But even that, paying yourself a higher salary, just because your company is making more money doesn't mean, okay, now here's the green light for me to just put more money out. You don't want to just, you don't want to knee jerk that decision. You want to be very strategic with what you pay yourself because at the end of the day, you want that business to be profitable, whether you're in the second year, first year, second year, third year, 15th, 25th. It needs to show that it is a healthy business. Even though you're on your taxes, your CPA is doing their job to minimize your tax liability. So they're trying to make it look though you're on your taxes, your CPA is doing their job to minimize your tax

liability. So they're trying to make it look like you're not as profitable. But when someone like me goes in there at the last hour to try to figure out how healthy your company is, it just makes it very difficult. So now we have this gentleman who is very ill, who has three daughters in high school, middle school and high school, has a wife who doesn't work and he has this business he can't sell. You know, what do you do with that? It's really, he's really, really in a tough spot. And unfortunately, it's kind of a common mistake. And it's, yeah.

So with that simple, just little habit shift, you know. Wow. Yeah, that's a really sad story. Yeah. So with that simple, treating as business expenses, even though they were personal expenses, he was already probably paying himself too much salary. So given that, and the fact that he had expenses on top of that, that he wasn't even paying himself from the salary, how should he have gone about deciding how much to pay himself in salary and also making that work, given the fact that he wasn't even deducting a lot of those expenses from his own salary, if that makes sense? that you would pay anybody else in the position you're in. Then really just kind of figure out what is the going rate in your market for a general manager or a director of operations or whomever who would be in that position that you're in running your business

and pay yourself according to that salary cap. And that's it. And learn to live within your means of that. Because I promise you, if you stay there and you just continuously try to build your business, build your business, build your business and focus on making sure you're generating a profit at the end of the year, every year, then at year three, four, five, six, you'll be able to go back and then start taking larger draws. You know what I mean? Then you can start pulling from the

business because it can sustain that. Not only is it showing healthy and profitable, but it's also able to afford to give you now some more income. Then you can go into the $100,000 bracket or $150,000 or $200,000 bracket because the company is healthy enough to sustain that. But in the first, I would say, five years, it's just a bad habit. It's just because the company's making more money doesn't necessarily mean you need to now start triggering to pay yourself more. That makes sense. So for someone who's hearing this and thinking, well, crap, that's exactly what I'm doing, is changing it as simple as changing how they do this in the future? Or are there additional steps that they should take as far as like maybe trying to correct past problems or anything like that, that they should

do to make sure that they're on the up and up in the future and prepared in case life happens this way? Yeah, yeah, definitely prepare in case life happens this way. That's for sure. Just stop doing it. Just go back. You don't have to undo anything in the past. Just for right now, going forward, if you do have these types of habits of using the business to fund yourself like that in the way I described, where you're paying for everything with your bank checking account that belongs to your business, just stop doing it. Go and calculate out what your personal expenses are that you're using for the business and then get a total. And if that's the total you need every month, then just add that to your

salary. Just add that total to your salary and pay yourself as a salaried person. Or if you're in a position where you can take a draw, I mean, you got to talk to your CPA because there's certain rules around it, but just pay yourself that instead of ATMing it. Does that help? Does that make sense? Yeah. Yeah, it does. Thanks for that. That is a strong, a scary, but important story to start off on here. I'm going into another scary one, Connor. Okay. Well, real quick before we do that, just a quick reminder. If you have questions about this, drop them in the chat and we'll probably address them either as we go or at the end.

But that being said, let's move into the next horror story here. So this is one that's a case of a lesson of when you bite off more than you can chew. Sometimes we do that. Sometimes we have these lofty goals and sometimes our goals are a little bit too much and it's not attainable. So last year, this comes to mind, I had a client, her name is Stacy. We'll call her Stacy. And Stacy's situation, she was an agency owner. She is no longer an owner, but she was an agency owner and she had three really large territories. I mean, super duper large. And so when she came to me, again, I'm a broker. So she came to me to

discuss potentially selling her business. And Stacey's situation was she was a business owner for about four years. She originally didn't want the business. And she had a husband who really, really wanted to be in the senior care industry. And he talked her into opening this agency. It was a franchise. So they had just huge, enormous territories. The first couple of years were going well. He was the marketer. She was operations. So she was handling all the internal stuff and he was handling all the sales stuff, which he loved. He was thriving and the whole deal. They had a son at the time who was, I think he was about 18. Long story short, her husband ended up passing away unexpectedly in the third year of business or going towards the third year of business,

he just passed away. So what happened was when they started the business, instead of just buying one territory and growing into the other two, they purchased all three with the idea of they were going to run these things for the next 20, 30 years and just right off into the sunset. But the problem was when he passed away, it was very unexpected. When he passed away, she was now left not only with no marketing experience and really no money because they were still building to that revenue mark and that profitability mark to hire anybody to manage these territories. She was left all alone to run this business and by herself. And she had a care manager. I think she had two care managers.

But basically, she lost her husband. Shortly after that, about six months later, her son passed away also unexpectedly. And now she's totally alone. So her husband and her son, both gone in a matter of a year. And now she's alone with this business and this huge obligation. So when I was speaking with her, when she was seeking some support and some help around what to do with her businesses, she came to me at a time where she was just trying to get emotionally sound for herself. You know what I mean? Like, you can't foresee when tragedy is going to happen or loss or something like that.

And she was struggling emotionally, but she had such a huge obligation with this business. And all of her business was really coming from one of the territories, the other two were not producing. And so what happened was her franchise Zor, I know this is heavy. I told you it's horror stories. You wanted horror stories. It's bad. Her franchise Zor came knocking on our door and basically said, because these two other territories are not producing, we're now going to bill you, I think it was upwards of $250,000 because you're underperforming unless we get you to these benchmarks within the next three months or six months, I think they gave her, which was going to be impossible for her to do.

It was just, she just was not in a space to do it. And so she was trying to explore some options. Could she sell the three territories, which you might be able to, but it's a really tough sale. You're looking for a specific buyer, you know, the whole thing. Although the business was profitable, it was making a profit. It just wasn't making enough to sustain those other two territories to grow. It just wasn't. She just couldn't do it. And so the biggest mistake out of that in my mind was I couldn't really get my head around why they would go into three huge large territories and try to cover such a large part of the map out of the gates. It's not a very strategic move, in my opinion. And financially, you're just going to put yourself in a really vulnerable position. So that was tough. So ultimately, she made a deal with the franchisor. Ultimately, she did sell the one territory. But in the bigger picture of things, she took a huge financial loss and an emotional hit. It was emotionally draining for her.

And the financial was just, it wasn't there. She just couldn't. Also, she didn't have like a contingency plan for someone to step in to help her run the business. And so she basically, it was just kind of going by the wayside. So it was tough. That was a tough situation. Wow. Well, we asked for horror stories and you delivered.

I hope that she's okay now, or at least near to okay. Lots to unpack with this one. I guess my first couple of questions here, it being recognized that her main or like their first mistake was in buying three large territories instead of just one or even two. How would you have gone about deciding what the timing should be as far as when to add more territories, especially when they're large territories like this? That's a great question. So in my opinion, I really feel like starting out

with a smaller radius of coverage in terms of even if it's not a territory that we're talking about, like a franchise owned, even if you're an independent, covering an area that's maybe a 50 mile radius or whatever, you're figuring out 30 mile radius from your office or what have you. And really mastering at first, the first year or two, your operations, how you're going to become profitable, looking at your margins, making decisions based off your numbers. We talked about that last week. And really mastering that piece first, and then branch out and then branch out. And then if you're going to go into an entirely different territory, like let's say it's a franchise,

and you're going to purchase one. Once you purchase it, if you do, it's because you're really ready to duplicate what you did in the first one. And then you're just duplicating into another one. And then you duplicate into another one. and you just kind of keep doing that to grow if you're in a position of growth like that i think you have to master the one first because especially as a new owner and there's so much to learn like so much i can't even imagine covering a huge part of territory without really having systems in place and like learning how to do all that with a smaller one. Does that make sense? Yeah, it does. Are there specific milestones or success metrics or benchmarks that you would look at to say, okay, now I feel prepared to buy a second territory or now I feel prepared to buy a third territory? I think if you can successfully,

well, everybody's different. I mean, you know, and your cash flow is different and what your personal cash is to invest and things like that is different. But I think that a healthy way of looking at it is if your first territory is, if you're at maybe 15% profit margin, if you're consistently at a 15% profit margin, that means you're doing something right.

That means operationally things are working. You have some revenue coming in, You've got referrals coming in. If you have a pretty healthy kind of business, you're not putting out fires, you're preventing them, your culture is strong. I think you should have a lot of those dynamics in place before you even entertain another territory. So I think those are some metrics, like all your KPIs should be looked after and healthy and things like that. And the reason why is because if you as an owner are involved, which you are in the early years, for sure, you should be really involved. You know, if you're putting out fires in one territory, but you really want to open another one, then you're just going to be putting out fires in the other one. You know what I mean? Like you're going to be all over the place and that's not what you want. You need a

quality of life also. So not only as a business owner, are you taking on, you know, all the risk and all the pain in the neck stories from caregivers and all these challenges and stuff, and trying to take care of seniors too, because that's where your heart's at, you also have to take care of yourself. And so when we bite off too much, too much, too soon, and we don't really strategically plan those levels of growth, you can really burn out very quickly and illness could be fall on you, or you know what I'm saying? Or there's other areas of your life that are lacking because you can't be present. If you have kids, if you've got parents, if you've got, you know, your quality of life will take a hit. And your sanity. I mean, you've got to show up 100% for your employees.

You've got to show up 100% for your family. And if you're, you know, making these decisions because you're just, you know, you see the sparkle in the air and you like shiny objects and you're thinking, oh, I can do this. Really, really think about it because it's not easy. That makes sense. One question about that 15%, just to clarify for those listening, is that 15% net profit or is it EBITDA? I'd say net. Net's easier for them to think about. Don't worry about EBITDA. Okay. Sounds good. One more question that I have with this story, and this may be a hard one to answer. And if so, that's fine. I kind of would be interested to hear your thoughts on

what might've led to them being so confident in taking these three large territories. And, you know, was there kind of a mistake in their thinking there that you see repeated with other agency owners that we can tell people to watch out for? Was there a specific mistake they were making in their thinking or in their calculations or their mindset to be watching out for? Yes.

And so I think their mistake in particular was her husband was very, he just felt like he was invincible and excited and this new opportunity. And although that's not a mistake, it was a mistake that he has all this energy and wants to do all these grand things. And that's exciting. And that's amazing. But always have a plan B, like always run what if scenarios, like what if this doesn't work?

Why wouldn't this work? What if I got into a car accident? What if I got sick and I had to be out of the business for six months? What's that going to do to us? You know, I feel like where we where we fail oftentimes is we're not thinking in terms of what could happen. We're thinking that we're just going to live forever and nothing's going to happen to us because it hasn't happened to us yet until it does. I think having a plan B or contingency plans for what if scenarios is very critical

for a business owner to exercise. What type or I guess level of contingency plan would she have reasonably been able to make in this instance? And what would that have looked like? Especially in terms of how can you replace what he's doing for the business, that kind of thing. What level of contingency planning should go into that? I feel like they could have in hindsight, and she and I spoke about this because I think that's her conclusion too, is they should have allocated funds for having a marketing plan in place and a marketer in place if in the event he couldn't be there, just for whatever reason. Same thing.

They should have had a contingency plan for operations. Who would take over operations if she couldn't be there? Who was going to do that? Who's going to step in and what's their bandwidth? He was able to take over operations should she have needed that, but she was not able to take over the marketing when they needed that. And that's what service the others. And it just didn't happen. So I feel like there should always be a plan B with that regard. Even if you're the operations person and you don't have anyone else in your office, be thinking when you're looking at these caregivers and you're interviewing caregivers, who has some capacity to be in the office? Who has some skill that I'm seeing here in the field that I can pull in to do intakes if I can't do intakes anymore, or I don't want to do intakes anymore?

So always be thinking with that mindset, like, okay, what if I couldn't do this? Who could do it? Is it a sister that you could pull in temporarily? That makes sense. And thanks for sharing this too. These are tough stories to hear, but they're important. Let's go on to story number three. Okay. So this one, although it feels tragic, isn't as tragic, okay?

That's good. I didn't want to end another one on something catastrophic, but I will say this, you guys, and this is very important. Please don't assume these things won't happen to you. God forbid they do. And we don't want these things to happen.

But 50% of all sales that are happening, businesses that are up for sale, it's because of extraordinary events that happen to the owner and they're forced to sell. They never expected to sell. They never wanted to sell, but they're forced to sell. So that's why I wanted to share those two stories because financially they were in trouble. And yeah. I think in that same vein, you mentioned to me one time, what I think you called the four D's. You mentioned some of them at the beginning of this, but I think we should recap those really quick. What are the four D's and like, what does this list mean? The four Ds is something in my industry, in the broker industry, that is a triggering event that will have business owners be forced to sell.

And one of the scenarios, one of the Ds is divorce. Lots of couples, if they're business owners, they want to sell because they're going through a divorce. Next is death. Next is disability. And the next one is disagreement with a partner. So those are the four Ds. And those are the most common. And I'm telling you, 50%, that's the statistic always.

About 50%, 60% have to sell because of one of those or two of them, which is terrible. But it's reality and that's what happens. So if we as business owners want to be savvy business people, we need to be thinking what if scenarios. You might be happy with your spouse today, but who knows if you are in four years, three years, what's going to happen?

Who's going to take over the business? And it's not all doom and gloom. It's just preparing. This is your money. And 80% of your wealth is tied up in your business. I can guarantee it, not more. And so we have to be thinking about these things because if we're not thinking this way

with the end in mind, you're leaving so much money on the table and assets on the table. Thanks for sharing that. I hope that there are people listening who take that to heart and benefit from that because I'm certain that there are people listening who, you know, life is going to happen to hopefully not the way it has in these stories. But it's not impossible.

And so I, I hope that we can take that to heart and kind of figure out how do we contingency plan and how do we contingency plan and how do we be prepared when things don't go as you expected in your business? So that being said, yeah, let's jump to story number three. So this one is an interesting one, but I really love this owner. So anyway, so we're going to call her Lee. She is an agency owner.

She's had her business for over 20 years. So she's very seasoned in her business. What comes to mind about this business owner is she tends to run her business through emotion, like emotionally, right? So she's very reactive and always has been the entire time she's had her business. And what I noticed about her is in working with her is anytime there was a problem that comes up, and some of you might be able to relate to this, especially early on, because it's a very emotional thing when you take on a business like this in the beginning, you tend to throw money at a situation to solve it.

You know, like a caregiver comes to you and they're whining because they want, and don't get me wrong. I don't mean whining. I just mean, like, I love caregivers, but sometimes you do get those whines, you know, and they're constantly complaining because you're not doing something for them or you're not paying them enough or they want more. Well, this particular business owner would listen to it and just give them more and throw money at situations. She had a marketer that was underperforming. She would let go of that marketer right away, hire a new one at a higher salary, thinking she was going to get more out of them. And then it wasn't. It was a fail.

She'd let them go, hire another one, put them on a bonus plan. She was just always throwing money after money, money, money out there to problem solve everything without ever looking at her P&Ls, without ever really analyzing her books. She knew her margins, but even with her margins, she'd look at them, glance at them, but she wouldn't study them. She wouldn't make decisions based off of them. And she was a $5 million business. I'll say it because she still has her business, but she's over $5 million. So that's nothing to, you know, it's a good business. She's got a lot of revenue coming in. The problem is all of it is going out the back door. So her margin is about 3%, 2, 3% on $5 million.

So you do the math on that. If she had to sell her business today, it's not sellable. And I'll go into why. But from a financial standpoint, because this is a financial horror story, her business would pretty much be worth about $400,000. That's it. You know what I'm saying? So it really puts it in perspective that when we really manage our companies, we have to get into these behaviors as business owners where we're strategically making moves for our business. Because if we're running things just based on

emotion or letting our business run us, this thing can grow into an ugly monster. And again, she's had her business for over 20 years. One quick question here. So let me make sure that I am kind of understanding this properly and putting this into perspective. So typically, when you're selling a business, the amount you would value it at to be sold would be several times the annual revenue. And then the specific multiple there, depending on like the business and a lot of other factors. In this specific instance, the business would sell for even just a fraction of its annual revenue. Are both of those things accurate? No. So the annual revenue is important,

but it's not how you value a business or price a business. It's not. So the annual revenue is important, but it's not how you value a business or price a business. It's not based on the annual revenue. It's based on the cashflow and what's coming in that the company keeps. So it might be bringing in a lot, but if it's going out, the money's going out of the business and the business isn't keeping it, that's where the multiple comes in. And a multiple is a times on that cashflow number. So she has 3% on 5 million and you stick the average industry multiple of three, and that's even high right now on that number. It's no more than 500,000. Wow. And so that's the problem she has. A, she's never going to sell for that ever, right? Because a business owner who has the mindset of, I've been revenueing all this money for all this long,

there's no way I'm selling for that little. So she's stuck with this business if she had to sell, right? If one of the Ds happened to her. Thankfully, the Ds aren't happening to her. So that's good. She's still in the driver's seat. But now she needs to put it in gear because now she needs to change a lot of stuff in her business to get that bottom number, the cash flow number to be healthy. stay on track with this one because this one's a big learning lesson on why operations are so critical to really, really try to perfect because it will definitely affect your cash. It will definitely affect the financials in a huge way. Number one mistake is she is making business decisions based totally on how she feels. Based on if she's upset, she does one thing. If she's happy, she does something else. And for example, if they have one great week, she will spend a ton of money on treating everybody to all kinds of stuff. But the very next week, if their hours crash,

then she's upset with everybody. And then she's throwing money at like, okay, do you guys need a bonus or what do you need? It's just really erratic. It's not good behavior, right? So that's number one problem here with this particular scenario is being too emotional. You've got to get your emotions out of it. You have to put your financial hat on. You need to sit with yourself in a dark room or a well-lit room, rather. Go through your numbers

and before you make any decision, make sure it makes sense to your bottom line, period, the end. The next thing that needs to happen here is once she does do that and analyzes the financials and makes that decision, go back and reanalyze that decision and how it impacted the money. Does that make sense? So if you're going to give somebody a bonus because they make their bonus, you do this bonus structure and they hit their bonus and you give them that money, then you go back and visit it and make sure, okay, can we sustain that type of bonus structure for this person and run a scenario to make sure you can afford to do that continuously. Right?

So you want to go back because if it's not working, then you're going to stop. You're going to adjust. You're going to say, oh, we gave you a little too much there, but let's do this instead. Because you want the employee to be happy, but you have to financially make it make sense. The other thing is not really having a good expectation of your team. She doesn't really have good expectations set forth to her team in her department. She has about 14 people in her office. And so she doesn't have any sort of accountability

in place for them. There's no real, I expect you to do this and then let me follow up with you and let's make sure that it's been done. None of that is happening. So a lot of stuff is falling under the radar and a lot of the culture is taking a hit because I feel like her team isn't being well supported and coached. And because she has a reaction to things emotionally, I think there's some resentment there from her team. So there's a lot of turnover, internal turnover. So there's a lot of turnover there, especially with her marketer. So company culture is totally taking a hit too. And they're constantly putting out fires all the time. That costs money. So you're exhausting

your time, your energy, and your money to put out fires that could have been prevented if the team was coached and if this owner really understood how to operate that way. And all of these missteps are definitely impacting that bottom line. So when I saw the 3% margin when I was doing her financials, I could tell right away. Her turnover is high. Her admin costs are through the roof. They have been for the last five years because I go back and look at prior years and just try to see a pattern of what's going on.

And her numbers are taking a hit. It's just bad. So that's why the operations is very important on trying to really understand and learn. That one's really interesting. Lots of questions about it. So it sounds like, I mean, to recap, a big piece of what was missing here was systems and processes. And that would include systems for accountability. That would include more kind of systems for tracking expenses and financial management. That would include probably training and staff evaluation processes, you know, things like that. being understood that that's a huge question, a huge topic, how would you suggest that a business in a similar position go about learning to add those systems and processes in? And then second of all, how does an agency grow to that size, having so many problems in those like foundational

parts of the business? To address the second question, because that was always my question too. She happens to be in a very good territory, very good area, really highly desirable area. She's been in the industry for a very long time. So her footprint is solid in the community. She herself is very charismatic she's very personable people just love her love her love her love her and it's really an interesting thing because um even her team love her it's almost like a love hate kind of a thing

right they just it's just not her strength. She just doesn't know how to put in these types of systems and stay consistent with a system, right? And she's the type of leader that likes to micromanage and really you shouldn't really micromanage your team, right? There's a whole thing on that. But she likes it. She likes to do that. But to answer your question, I really feel like she's built this thing on that. But she likes it. She likes to do that. And so, but to answer your question, I really feel like she's built this business to that level because people just like her. She has referral sources that are loyal,

that will forgive if there's any mistakes to clients. She's very good at saying, sorry, we'll do better. And then they'll do better. And so it's just this dance that she does. I don't know how else to explain it, but it is an interesting one. And what was your first question? The first question was for an agency

who is recognizing that they also maybe are lacking in these foundational systems and processes that help the business run more efficiently. How do you start making improvements there? Yeah, so I'm going to say this. foundational systems and processes that help the business run more efficiently. How do you start making improvements there? Yeah. So I'm going to say this. I feel like as an agency owner, you really do need to do a SWOT analysis on yourself because you are your business, right? Especially when you're just a startup, you have to figure out where your strengths and weaknesses lie and really double down on your strengths and hire out for your weaknesses as soon as you can, as soon as you can. And just identify if

you're not strong in systems and processes and you're more of a visionary type of an owner, then that's great. Seek out help for systems and processes. There's beautiful software out there. There's amazing coaches out there that we all know and love. There's beautiful software out there. There's amazing coaches out there that we all know and love. Seek out those individuals to help you create those systems. It's money well worth spent. It will save you so much heartache and so much time and money if you just invest up front in those types of resources. Now, if you are on the opposite end and you're amazing at systems and putting things like that in place, then great. Implement them. Put them in there. See what works. See what doesn't work. Keep massaging the system until you get it nailed

to what you want it to be. And your profits are starting to come in and you'll be able to gauge that. But I really feel like owners need to step back and really come to Jesus with yourself and just say, what is my strength and what is my weakness and not be sad about it and make plans around it. In terms of the services you offer, is helping to build these systems and processes, the type of consulting you are involved in? Or are you more strictly focused on the M&A side of things? I'm really focused on the financial side of things. I'm really good at helping folks. And it's where I'm really comfortable too. I really am. I mean, I could help on systems and processes, but there's other coaches out there

that this is all they do every day, all day. And I would definitely recommend seeking those out. And we have some friends, even in this community, Clint and Jess, they are doing amazing stuff for new agency owners out there for in terms of systems and processes. I'm more of the financials and how to understand your financials and how to understand your

financials and how to understand how they impact things and where to identify how to be profitable based on all these things we're discussing for systems and processes and why it's important for you. Because I really, I really would love for my industry to start experiencing owners that come to us when they're ready to sell. Or if God forbid, one of the D's happen, they're like, yeah, but we had a plan in place for this. And this is what we're doing. And we're profitable. And this is what we're doing to recover. But we do need to sell at this point, you know, just more prepared. It's just there's too many business owners coming to us that are not prepared. So my focus, I'm hyper focused on getting people prepared

up in the beginning and upfront. So that's my specialty. That makes sense. And for agencies who are listening to this, who might be looking for someone to help out with these kinds of things, we do have a list of consultants that we've worked with at CareSwitch, who we have high opinions of, who do great work, who are well regarded in the industry. So feel free to reach out if you're looking for recommendations on who are some great consultants to work with to help you establish the systems and processes that you need. Yeah. So I hope this is helpful. I know these are crazy stories. I know it. I know it. I will conclude on this last story with Lee. The other thing that I would encourage your listeners to really focus on too is know when to get rid of your bad apples.

I mean, respectfully and compassionately, but just don't, I would encourage you. And this is what Lee struggles with is hanging on to people that are just not working out way too long. They're a drag on your financials 100%. They just are. You're putting them in a position where they're not achieving, they're not excelling in what they're doing for you. You are frustrated, they're frustrated, and you just keep paying them to be there and not producing. You're not getting return on that investment of that salary. And so just knowing when to cut them loose. And there's a saying where you should hire slow and fire fast.

And that's, I mean, that's just the best advice. You really do need to understand that piece or just perfect that piece. And it's going to take trial and error as a new business owner. Make your mistakes, lick your wounds and keep going. And just keep trying to perfect that. And then when you have a director of operations or a general manager that can take over what you're doing for your agency, teach them to do the same. I think that's great advice. Having the right people on your team and in the right seats is, in my opinion, the most important thing that you can do. So thanks for sharing that. I think we'll go ahead and end right here. So thanks again, Jen, for joining us. Very tough,

very important stories to hear today with really great takeaways. I mean, you talk about them as if they're somewhat rare, but I think we both agree that these happen all the time and much more frequently than anyone would like to admit. So it's good for everyone to hear these. Just a few brief reminders before we end here. So HomeCareU is a weekly event. We have a live class that is on Zoom every Wednesday at 1 p.m. Eastern. You can see the schedule and get signed up for it free at homecareu.careswitch.com. And then just a couple of reminders about CareSwitch. We are the home care agency's first freemium agency management software, meaning that you

can sign up and do all the basic things to run your business, scheduling, care documentation, everything like that for free. And then there are things that you can choose to upgrade to to take your business to the next level if you'd like, such as full service payroll, premium chat that's more advanced and has more options to keep everyone in the loop and organized, and some more really exciting things coming soon. So if you need a home care software

or you're sick of using home care software programs that look and operate like Windows 98, check out CareSwitch, get signed up for free and get using it. Thanks again for everyone who's joining us today. Thank you, Jen. And we'll see you all again soon. Thanks, Connor.

That's a wrap. This episode was made by the team at CareSwitch, the first free home care agency management software. If you're tired of running your agency on an outdated software that looks and works like Windows 98 and you want to save a little money for your bottom line, check us out at careswitch.com. Thanks for listening.

See you next time.