Home Care U - How to Keep Control Of Your Money (Tim Smith Pt. 1)

Episode Date: May 9, 2023

How do you look for signals that your expenses are getting out of line? How can you put processes in place to avoid this? And just where'd all the money go, anyway? Tim Smith, finance guru among home care owners, sounds off.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. Welcome everyone to Home Care U, a weekly live event series put on by CareSwitch.

I'm Miriam Allred, head of partnerships at CareSwitch. If this is your first time joining us, I want to say welcome to Home Care U and Home Care U. If you're wondering what that U stands for, U is for university. Our concept here is that nobody went to school to learn how to run a home care agency. So we're bringing the education to you in bite-sized sessions. And the goal of these sessions is to go really deep on important home care topics that aren't being talked about enough or aren't being talked about at this deep of a level. And that's what we want to bring to you today.

So before I introduce today's guest. And we get into today's session. A few housekeeping items as always. We're in a Zoom webinar. We've got about 30 people on live with us joining today. We've got a number of people on Facebook as well. So engage with us here in the chat. Or in the Q&A box.

We want today's call to be productive and we want you to get out of it what you're interested in getting out of it. So we need to hear from you. Today, we're gonna talk about profitability and about margins and about budgeting and about money. And I always say this, but there's no dumb questions and don't feel shy or timid asking

maybe a simple or basic financial question because that's why we're here today and we want to get those questions answered. So without further ado, let me introduce you to Tim Smith, our guest today. He is the owner and president of First Light Home Care of Central Oklahoma City. He has been in home care for about seven or eight years. Tim may need to confirm some of this, but he comes from a background in operations and supply chain management in corporate manufacturing companies, which is pretty interesting. And so his journey to home care may look differently than some of yours, but I will say his expertise and experience in operations and in processes has led him to success in his home care business. So today we're going to drill down on finances and margins and budgeting.

When I first met Tim, this is the topic he was speaking about at a First Light conference in front of, you know, 100 owners. And I was really impressed by how simple he was able to kind of break down and demystify budgeting and home care finances. And he can really eloquently explain some really important concepts about finance. And so I want him to share some of that with you all today. So Tim, I'll kick it over to you to clarify anything that I misspoke on and even just elaborate on your background a little bit. Well, nobody said I had to be eloquent. So I do feel like that's something we should have talked about ahead of time. Yeah, I think you, you know, I think that's right about my background. A lot of agency owners

that I meet all the time, you know, are in this business because of a deep caring for people, which of course my wife and I have as well. That's part of the reason we wanted to start this business. But of course, some owners come to this from a background in nursing or even caregiving or something in the medical field, whereas I have a background in manufacturing and operations, but also a background in quality and process improvement. I used to teach classes in quality and process improvement for large companies. So really at our agency, we do focus pretty heavily on operations, documenting procedures and trying to have a standard way of doing all our major processes at the agency.

So that is a focus for our business here in Oklahoma city. You were talking about seeing me speak before. I think one of the things I like to tell people, you know, there's a famous quote, everybody talks about the weather, but nobody ever does anything about it. So my goal is always to help owners and other key people at, at home care agencies. My, my, my goal is to help them understand that your business is not the weather. Your business is not just happening to you and you don't have to just sit back and find out if it's going to rain today or not. You can have influence and part of that is understanding all the different aspects that make up the business's financial performance.

Because that's an area where some things you can control extremely directly and some things you have indirect control or influence. But the first step is understanding what's going on. I love that. I love that analogy. And I may bring that back to life as we continue the conversation, because I think it ties straight into budgeting and finances and focusing on what's in your control and your finances are very much that. So love that. One more thing before we really dive in here, give our audience a feel of your growth over the last seven years. And like you just mentioned to me, most of your business is coming from VA clients. So just kind of give us the lay of the land or the demographic of your agency, kind of where you started, where you are now and how things are going. Sure. And maybe a little bit less than seven or eight years, more like five or six, I guess.

But we got licensed in 2017. I would say for the first couple of years we were running the business. You know, we were in the same boat, probably that a lot of the viewers are in, a startup business, scraping by, trying to get to 100 hours a week, 200 hours a week, that kind of thing. After a couple of years in business, we were maybe running 400 or 500 hours a week. I think there's a lot of agencies out there that had a lot more initial success. It took us longer to get traction. Over time, that business has continued to grow. When the pandemic hit, we did see an initial dip in business. We certainly had some clients that right away wanted to cancel visits, and there was a lot of concern. But since then, whether it's the

pandemic or for other reasons, business has grown quite a lot. You know, we've seen year over year growth, sometimes, you know, the business doubling even year over year. You know, we've built a strong relationship with our local VA and we do have quite a lot of VA business. And that is certainly something, especially when you're looking at cash flow, it's really important to look at third party payers and to stay on top of collectibles and make sure that your receivables are not getting out of control. But, you know, we've grown a lot since then. We have a steady business now. Our office staff has grown a lot.

We have an office with a total of about seven people working in our office. I work mostly remote. You can see I'm at home at the moment. So I have managers that run the business day to day, and then I'm just working with them a lot remotely. Awesome. Well, thanks for giving us a lay of the land. It always helps to kind of understand where you're coming from and what your agency looks like in context of where we take the conversation today. So let's jump in. Today, we are going to be talking about profitability 101. And we're going to be talking about profitability 101. And we're going to be talking about how to keep control of your money. And today, we're going to talk

about just how important money really is inside of a home care agency. And there's a lot of moving parts. And I am looking at who's joining us today, some newer owners, and their priorities are probably a moving target. And they're thinking some newer owners and their priorities are probably a moving target and they're thinking about their people and their clients. And there's just not enough maybe talk or focus of how important it is to have a strong foundation and understanding of where your money's at and where your finances are. So that's what we're going to get into today. So I want to first talk about budgeting. I don't know if people hate that word or love that word or where everyone stands on that word, but I want to talk about your process of budgeting,

you know, what your budget is for you, how you built it, how you manage it. Just give us kind of an overview of your take and the importance of budgeting. Yeah, and budgeting is important. And this is something that came from my background when I worked for large companies. You know, every department manager would have a budget for the year, you know, by month, different categories of expenditures and what you're projected to spend. And then you'd have to report back on actuals versus that. So that's, I would say, what influenced me in terms of how we look at budgeting at our agency. A lot of agency owners don't have a financial or accounting background, maybe not even a business background.

And, you know, when I talk to some owners, I feel like a lot of owners, it's kind of like they're pulling the lever on a slot machine every month and they're waiting to see sort of if they get cherries or they get something else, you know. And really, if you have an idea where your expenses are coming from and you're watching your hours and everything, when you get to the end of the month, ideally, you should have a pretty good idea how you did. You know, before your accountant, you know, whether you're doing your own accounting, or whether you have an accountant that prepares your financial statements, you know, that kind of thing. You should have an idea. So when you get your financial statements, they should be confirming what you pretty much already know, like whether you had a good month or not, and kind of where you're going to land. So, you know, one of the things we do at our agency is we have a budget, you know, we have a budget for every category of expenses. And we actually just do it on a spreadsheet. It's pretty simple.

I think every agency is different in terms of who's responsible for finance. At my agency, I do that as the owner. And a lot of agencies probably function similarly. But other agencies might have a chief financial officer or a bookkeeper or somebody who does that. But we have a spreadsheet that every month, once our books are closed and our financial statements are ready, we can take all those numbers and plug them into the spreadsheet and see how we compare. So if we take a step back for a minute, like where does the spreadsheet come from? Where do those numbers come from?

You know, before the year starts, we're making up a budget for the year. We're taking everything off of our profit and loss statement and putting them into a spreadsheet and determining where do we expect to be by month for each of these buckets of money. You know, when we made our spreadsheet, it's pretty much laid out in the order of our P&L. So the profit and loss statement comes out. And if it's laid in the same order, then you can have, you know, I have two screens here. I was joking before. That's what I'm looking at over here. I have my second screen. I have my main screen. Whoever's doing it, I mean, it takes five minutes if you have it done right. You can pull up your P&L statement,

you can pull up your spreadsheet, and you're basically just typing the numbers in as they come. So, I mean, the reason to do that is because if you have an idea what to expect, what you're expecting, what you think is going to happen, it's easier to find, that might not be something that's very far outside the expectation. Maybe that's not even something I would investigate or care about. But it matters. It depends on the size of your agency too. When you're just starting out, $100 might be a lot. You know, you might want to go dig in and figure out what's going on there. But regardless of how big of a discrepancy you're going to care about, if you don't know how you're doing versus some kind of expectation, then you don't have any idea where to begin. You had a bad month. You pulled the lever.

You got lemons or whatever, and you have a bad month, and you're unhappy with your performance. But it can be kind of hard to figure out even where to start, where to begin. How do I even figure out what went wrong? So the spreadsheet is just really easy because nothing can hide on there. If you had a month where you didn't hit the numbers you expected to, where you're not... Let's say you're expecting to break even and you didn't, you lost money. I mean, the spreadsheet is just very easy. You can go look and see what didn't match your expectation. It could be at the top line. Maybe you didn't have as much revenue as you expected and therefore you didn't have enough money to cover the expenses that you were expecting.

Or maybe one of your expenses is out of line. But either way, you have a place to start. This was a great, great foundation setting here about budgeting holistically, the importance of it. I want to put you on the spot if you don't mind. I don't know if you have your budget up on your second screen or something, but I'm just curious. You're referencing the P&L, which that's a great place to build a budget from. If you don't mind sharing or can share really kind of the pillars or the key buckets of a budget. Obviously, everybody's budget looks differently and it can include different things based off your organization. But I'd imagine there are five or six key pillars of a budget, those areas that stand out. Would you mind overviewing those and

why you think those are most important or if that's tailored to your agency? Yeah. And I'll take a couple of minutes and maybe just for the people that are not as familiar, let's just talk about the profit and loss statement and how it's structured because that's important. So your profit and loss statement starts with revenue at the top. That's the first number on pretty much everyone's P&L. And then below that you have, you know, what we call variable costs. So variable costs are things that go up or down pretty much directly in relation to your revenue or hours. As your business grows, these expenses grow directly. So for most home care agencies, one of the big easy ones is caregiver wages, right? Every time you have a shift,

every time you're billing for a shift, you've got a caregiver sitting there, right? Or sometimes more than one maybe. So that's going to grow. As you grow your hours, your caregiver wages are going to go up directly. That's a variable cost. There's other variable costs as well. You might have supplies, gloves, or something like that, that the more business you have, the more it grows. If you're a franchise business, royalties is a very easy variable cost. But all those variable costs are right under your revenue on the profit and loss statement. Those all add up to something called cost of goods sold. That's a line on your, you know, if you're running QuickBooks, if you're running your finances through QuickBooks, right there on your P&L statement at the bottom of that first section, it's going to have your cost of goods sold. So you subtract your revenue from

cost of goods sold, and that's your gross margin. You know, gross margin is a term, you know, that the basic meaning of that is it's the money that's left over once you paid all your variable expenses that can cover your fixed costs. So everything below that line is your fixed costs. So you talked about the pillars and sort of the different categories. You probably have a category on your profit and loss statement for office expenses, you know, maybe your office salaries, supplies, things like that. You probably have a section for sales and marketing, you know, marketing expenses, advertising, things like that. You might have a section for telecommunications or, you know, cell phones, your office phones, answering service, software package, things like that. And if you

have debt, you might have finance charges for that. You take all those fixed costs together and subtract it from gross margin, and that's where you end up with your net income. So that's just the profit and loss statement just in kind of a couple of minutes to kind of get everyone grounded. So, you know, some of those costs may not adjust much over time, especially your fixed costs. There's an expression that I heard, you know, years ago, all costs are variable in the long run, and all costs are fixed in the short term. So even when we talk about fixed costs, those costs are going to change over time, but maybe not within a month or two, maybe over the course of the years.

So when we talk about fixed costs, you might have something like office salaries. You know, that's fixed in the short term. You have your people in the office. You can pretty much predict what that's going to be. But if your business grows over the course of the years, you might be adding staff and you might be adding to that. So it's still going to be fixed in the short term, but it will change over time. So those are the major categories you look at when you're looking at your budget. And, you know, one line might be, you know, plus or minus a bit, but you might look at the whole category and say, okay, so I was a little bit high on supplies this month, but my office expenses overall were where I expected. So, so that's okay. That was awesome. That was a great synopsis of what I was hoping for.

I'm thinking about taking this kind of a different direction, you know, budgeting and even my own personal budget and what that looks like. And the fixed costs are obvious and controlled, and I'm not worried about those. It's when I get to the variable costs, you know, the things that change week to week or month to month or year to year that make me stress about budgeting. And I think of what that translates to in a home care agency. How do you manage variable costs? And, you know, even down to the level of like, you know, some of your staff have credit cards and you have a bank app that you can, you know, kind of see everything incoming and outcoming. How do you not let the variable costs stress you out or how do you manage the variable costs? Yeah. And I think the costs you're talking about,

they're towards the bottom of the P&L, but they can go up or down over time. So I think monitoring them is important every month. So think about something from your personal life. How many of us have had a gym membership in the past? How many of you still have a gym membership and maybe don't even know where that gym is? Maybe you could not even locate it, right? But it's just coming out of your account every month. So looking for things like that. When you're a business owner, probably a lot of the people on this call are getting emails every day about, hey, we'd like to offer you this service. We'd love to, you know, to offer you this service. And people love to have, you know, when they market to a business like ours, they love to have an expense that's going to recur every month that hopefully you'll forget about over time.

You know, even if you're not enjoying that service anymore, that cost just keeps coming out. So both in the process of doing your annual review and figuring out what your budget is for all these categories, and also in the monthly reviews when you're looking at different categories, that's an opportunity to catch stuff like that. Say, yeah, I don't think I'm using that service anymore. I should check with my office staff and see if they're using this anymore. So you can find things like that. In terms of things like credit cards, when you have credit cards for people, I would say a best practice is that those people should be turning in receipts every month and they should be maybe signing off on their credit card statement and turning it into you.

I also like to check the feeds frequently. For my own credit card, I check my credit card feed pretty much every day because if you start to see like fraudulent charges, you'll see something on there and you'll immediately know like, hey, I didn't make that charge. You know, what is that for? It's a lot easier to tackle things like that rapidly versus waiting a month or two and then trying to figure out afterwards, like where it came from. So I think, you know, the process of budgeting, the goal is not even really to hit the numbers that you set. Like, I mean, nobody's nobody's watching you. Nobody cares, you know, how your agency is doing, except, you know, for the ownership. It's more about just being more sensitive to things that might, you know, be out of control or that you might not be expecting. So when you set your budget for the year, I hear people ask, like, well, how do you figure out what you're going to spend for each

category? You know, how do I know what to budget for? When you're up above the line and you're looking at revenue and things like that, you're going to think about how much you'd like to grow or what you think is a reasonable pace of growth. And you're going to put those numbers in for hours and for revenue. And then for variable costs, you can do it as a percentage off of revenue because you can't, you know, you want it to be related to your revenue. But for your fixed costs, one of the things I would say is it almost doesn't matter what you put in for the budget. You know, it's more just to have a benchmark, fixed costs to change much, I might just look at an average for the last six months of the year. And I might just plug in an average. I don't put a lot of thought into it. I just want to have some number to compare against. Yeah. You just want to know the health of your business and just have a consistent pulse check of this is how things are going. And this is where we need to focus our attention if something's off. Which leads me to the next question of how often are you reviewing your budget? And do you ever

bring office staff into or any of your staff into those conversations? I know you said you own the budget at your agency, but are there ever times when you need to bring someone else into the conversation? Yeah, I think, you know, especially when you get to bring someone else into the conversation? Yeah, I think, you know, especially when you get larger and you have people that are, you know, have their own credit cards, they're running their own expenses. That's where you have the opportunity when you see something on your on your budgetary review. You might not even know kind of what's going on with that expense or why it's up. So that's where you can go have a conversation with your people. I think a good practice is to give people responsibility for budgets and areas of their expertise. So if you have a networker, I think it's totally appropriate to give them a budget for overall marketing and

networking expenses. And depending on what kind of person you have in that role and how involved you want to be, you might give them a certain degree of freedom in terms of how they spend that money. You know, do they want to spend money signing up for fairs where they're going to go and do a fair? Did they want to spend money on internet advertising? Do they want to spend money on advertising at the local hospital on, you know, charging station screens, something like that. But you can give them an overall number and have them be responsible for it. And then when you're doing your regular review,

if you're doing that yourself, you might come back to them and say, hey, you were budgeted for $3,000 last month. You spent 3,500. Let's talk about it. Kind of, do we need to adjust the budget? What's this money being spent on? What do we think the return on it's going to be?

So I think that every agency is going to be different. In all honesty, at our agency, I do most of that. I do most of the review and I do most of the work with the financial statements and everything. And then the conversations with my office staff come in if I see something that I'm not sure about or that I want to ask them about. And it brings in this level of accountability. I like what you're saying in that it's a conversation to A, maybe set the budget, but then B, if things are off or things are good, you know, there's conversations that can be had and there's accountability that can be had. And I, you know, I think it's great to have one person that owns the budget.

Oftentimes that's like you said, yourself as the owner, the operator, or you have someone else on your staff that does. But I think it's good when there's transparency and collectively, the team is talking about the budget and aware of the finances so that everyone feels connected to the organization, but also the finances of the organization, because that's really essential for everyone to stay afloat in the organization is the money behind it. And so if everyone has a piece of that and accountability to that, then it can work to everyone's benefit. I want to I want to ask you something. Last week, we had a cash summit, and we had canoe Koshal speak, you're probably familiar with him. He talked about instead of being revenue focused, he prefers to be expense focused.

He was talking about how detrimental expenses and not managing expenses in your agency can be. And he was explaining this paradigm shift that he had and that he wants to kind of teach owners, which is obviously your revenue, you know, it's top line, it's extremely important, but, you know, the expenses, all of the outgoing money is what can, you know, hinder your revenue and your success on. So any thoughts on that approach or thoughts on kind of your holistic approach? Well, at the risk of being

disinvited from a future session, I'll say that I have sort of the opposite view. Even when I used to run factories for a living or ran businesses for a living for large companies, I always had this idea, profitable growth covers all sins. So perhaps we should all avoid sinning. You know, I think that that's a lofty goal, I guess. But, you know, that's the power of margin is that as the business grows, I mean, you know, cost control is important. And I do think it's important to be focused on expenses, but growth kind of will drive your business. You know, nobody has ever saved their way to a successful, profitable business. You know, you have to have that growth. So, you know, our business is honestly more top line focused. We're, we're, we're focused on adding

clients, adding hours. And as long as those, those clients and hours are profitable, then they just accumulate over time. So that's, that's, that's really kind of our approach. Yeah. I wanted to run that by you. I had a feeling that you may have a different outlook or opinion on that. And so I wanted to run that by you. And there's no right answer. You know, it's whatever you want your finances and what you want your financial focus to be. Yeah, there's lots of different ways to run an agency. And you know, when I go to national conference, and I run across, you know, maybe there's 100 different first light owners there when I go. And there's just a lot of different ways to run a business. And there's people running their business in ways that are just not consistent with the way we run ours. You know, so, I mean, I always tell people I'm not running anyone else's

business. I'm running mine, you know? So I think that everybody has to make those decisions themselves and do what's right for them. And that's the beauty of entrepreneurship. And, you know, we can learn tips and tricks and best practices from you. But then it's up to, you know, I'm looking at the audience here that we have with us about 40 people, how you implement this inside of your business is completely up to you. And I know that's intimidating, but hopefully it's also exhilarating in that you can take things that you learn and that you like from other business owners, and then you can customize that and build that framework for your own agency. So, but not everything is arbitrary. You know, my, my son is 17 and I was helping him study for a math test yesterday and he didn't want me to help him study. He wanted me to leave him alone, you know, and like just do it himself. But I decided to get involved. And he even said it in one place, like, dad, you know, like you haven't done any of this stuff for like 30 years, you know, like, how are you going to help me? I said, son, the beautiful thing about math is it doesn't really change. It's the same as it was 30 years

ago. And I think finance and accounting to a certain extent is the same. I mean, so I kind of said that every owner has the right to run their agency their own way. And everybody has their own philosophy. But cash doesn't lie. Philosophy doesn't put cash in the bank. Philosophy does not cover your expenses. So I think understanding where you're at from a business perspective, understanding your expenses and your business performance is never bad. It's not bad for anyone. Really well said. You're 100% right on that. I want to shift gears a little bit and talk about what you do when things are awry. You know, one month, you know, let's kind of lay out a scenario here.

One month, you're looking at your budget. And I don't know if it's color coordinated or if there's green and red and orange or things are going right or wrong. But you find, you know, that something's out of line. And maybe you can take the, like, the scenario one step further. Something's out of line. You see it on the budget. Like, what's next? What do you do? How do you go about correcting it? And I assume that a lot of businesses are using QuickBooks for their accounting or a similar software program. So the first step is if you have something that you see that is out of line, I mean,

you want to look at timing. Timing is important. You know, every year you have 26 payrolls. So that means two times a year, you're doing payroll twice. If you really want to be obsessive about it when you make your budget, you might figure out which months those are going to be and add 50% to your payroll cost that month. You know, you can do that. I mean, a lot of people, I would just run it by the month and just kind of understand that timing has an effect. Same thing on revenue. You know, four times a year, you've got five weeks of billing instead of four. So, I mean, that's just sort of timing things.

So, you definitely want to take a look at that. You can, you know, if I have a category that I see something I don't expect, the first thing I'll do is go in QuickBooks and pull up my P&L and double click it. I mean, that's the beautiful thing about software, right? As I can get all of a sudden up on the screen, you have a whole list of all the things that went into that. And then you look for things that are out of place. You can do that for a few months in a row and see, okay, so it seems like I was running at $2,000 a month here. Now I'm at $4,000. When you pull up the details on that, it should be pretty clear what's drivingification. So maybe you move to a different software package for scheduling. And some of the things that are supposed to be in this part of the budget now are being

classified somewhere else. So I've definitely found things like that. I found a workers' comp issue for a while where my workers' comp money was being booked the wrong place. I found mileage that was being booked above the line rather than below the line, things like that. So you can find misclassifications. I've also found maybe even opportunities you might find when you're doing your budget. So like, let's say you're paying a lot of money to your office staff for mileage because you have some clients that are far away.

And of course your office staff, when they drive there in their own car, they're claiming mileage and you're paying them for it. You might find that you have enough money there. Maybe you can afford a car payment with that. Maybe it'd be better to turn that into an asset and have a company car that they can use when they're going long distances from the office. So not only do you find things that are out of whack or not what you'd expect, you might find opportunities where you can, you know, you can take an expense and turn it into something more useful. Yeah, I like this spin. I wasn't expecting this, but I really like this spin. And this is really what it boils down to, you know, like being aware of your budget and, you know, keeping track of all these numbers. And there's

going to be mishaps, you know, there's going to be things that you didn't predict or things that come up that you have to pay for, et cetera. But I like where this is going of, there's going to be mishaps. There's going to be things that you didn't predict or things that come up that you have to pay for, etc. But I like where this is going of, there's also an opportunity here to find ways to cut costs, to find ways to save or to create new opportunities, whatever those may be. So this is a cool kind of transition of what you're saying here and looking for those opportunities as you're reviewing your budget. So something I want to ask you is, you know, I'm picturing a budget in my head and budgets can have, I don't know, 20 to 30 plus line items. You know, they can get pretty complex. They can get pretty hairy and intimidating. If you are looking, you know, maybe on a Friday afternoon, you know, just kind of pulse checking your business, are there three to five metrics that are your go-to

of this is the health of my business based off three, these three things? And what are those? Yeah. And if you're using a software package for, um, for scheduling, then you might be able to run a simple gross margin report. So gross margin report might show for each of your clients, you know, what your margin is projected to be for the week. You can look for any red, which is, you know, a place where maybe the sales price you're currently charging is not covering all your all your variable costs that the system knows about, like your caregiver wages, things like that. So margin is definitely one of the things we would look at. I mean, ideally, every client you bring on board is positive in terms of gross margin.

Every client you bring on board is adding a little bit of money to cover your fixed costs. But there might be business reasons why you might bring on a client that maybe it's for a special referral partner and you're hoping to get more business with them. Or maybe it was a promotion of some sort, things like that. So gross margin is one thing to definitely look at. And along with that, when you look at the breakdown on it, maybe something like I would look at caregiver mileage. We have a fairly large territory and we pay mileage for caregivers when they're going to more than one visit in the same day, they get paid mileage in between. So that can be one thing

that if you have a scheduling team that is not scheduling clients that are close together, you know, they're sending caregivers kind of from one visit over here all the way over here, that can add up to quite a lot. And that subtracts directly from the money that's available to cover your fixed costs. You know, some things are just not going to change every month. There's no reason why your cell phone bill should go up or why your lease costs should go up. But overtime is another thing that a lot of agencies look at. A lot of agencies have struggled to hire staff over the last few years, especially since the pandemic started. And as a result, caregivers that want to work,

that do good work, a lot of times they get kind of overscheduled by the schedulers. And it's easier to go to Jill because you know Jill's going to take the shift versus trying to dig through the rest of your caregivers that are more reluctant and try to find somebody to work that maybe would not be on overtime. I mean, I had a caregiver a year or two ago, I had a caregiver that for a two-week paycheck averaged over 100 hours per week. So in my business, you know, looking at the clients that she was serving, look at the work she did, I was okay with that. But caregiver, you know, caregiver expenses per person can get pretty high when you start to add on that much overtime. So I would say, especially for smaller agencies

that maybe haven't hit break even yet, or who are, you know, just hitting break even and thinking about the next wave of expansion and maybe expanding their fixed costs by adding office staff, things like that. I would say overtime is one thing that can, that can be a very easy metric that you can share with your team and that can motivate your schedulers and that you can work on to try to keep it to a minimum. Okay. Can I, yeah, prod a little bit deeper, anything on like the sales and marketing front or the recruitment and retention front that you're looking at? Yeah, in terms of recruiting and retention, I think it's really good to track where do your caregivers come from? You know, does your system have a way for you to track that? Can you look at the referral source? How many of your caregivers come from referrals from other caregivers? You know, is your bonus program working? Are you getting caregivers referring

their friends? I would, you know, I think every agency would have to look at what works for them. You know, I had years ago, I used to get a lot of them through a website. And then at some point, that website was not really yielding any candidates anymore, but it had a really high fixed cost associated with it. So I think just being really aware of where your caregivers come from and not spending money on avenues, you know, like a platform that's just not providing good candidates. Or maybe candidates are coming to you from that platform, but they're also applying to a different platform where you get most of your candidates from. So it's easy

to say, well, I got this from, you know, caregiverhiring.com and I should keep that service. But did that same person also apply through a different service that you're already using, that you already pay for? So I think that's a way to look at your recruiting costs. Coming back to, you know, you're asking about networking and advertising. You know, there's a lot of agency owners want to spend money on advertising. I've known people that spend money on radio, TV, you know, billboards, all kinds of stuff like that. Whenever possible, you want to be able to track the results. So if you know, we had a case a few years ago, where we convinced ourselves to try putting an advertisement on charging pads at a local hospital, I use that I mentioned that

earlier as a possible example. And but we put a tracking number on it. So there was a phone number associated with that that was unique. So anytime someone called from that number, anybody who saw our advertisement on the charging station and called the number, we would know it. So we'd be able to track that client back and say, okay, so we got this client that's helping to cover this expense. So we had those charging stations for a year at the hospital. Do you want to guess how many calls we got from that number? Hundreds probably, right? Okay. I was going to say probably not very many. Zero, zero, zero calls in one year. Is it possible we created some awareness that

eventually led to somebody calling us? Maybe, I don't know. But overall, I think that's one of the reasons why when you're making an investment like that, when you're spending money like that, it's good to be skeptical. Assume it's not working and how are you going to be able to prove that it works? That's one of the things with internet advertising that can be frustrating. So you spend money on sales engine marketing. You're getting sponsored ads that are appearing at the top of the screen for people. But how many times have you gone looking for Macy's.com?

You want to log on to Macy's. You type in Macy's in the search, and then all the websites pop up, and then you click on the first one. Well, you just clicked on an ad. You just gave in. And Macy's said, oh, my advertisements are working. But if somebody goes in and types in First Light Oklahoma City and then clicks on my ad, that's not really a result of marketing. So I just think being skeptical about the places where

you're spending money and as much as possible, if you have a vendor who's trying to sell you on, hey, come spend money with us, we're going to grow your business. My first question is, how will I know which prospects come from your efforts? How will I be able to track it? And if they can't answer that, then it's really hard to spend money on something like that. I'm glad you're going down this path and I'm glad we got to, you know, cost per applicant. And I'm thinking of their, you know, cost per, per client, you know, client acquisition, client acquisition costs, what I'm thinking of. And you're exactly right. These are areas of the budget that can get out of control really quickly. And you need to have a pulse on them. You know,

those, your clients and your caregivers are the lifeblood of your agency. And you're most likely growing and constantly looking for those two sources. And the costs associated with finding new clients and finding new caregivers can get out of hand very quickly. And so understanding, you know, get keeping a pulse on those two costs and everything that's going into those is really important. And back to, you know, establishing ownership, most likely you have a salesperson or a marketing person or a recruiter or someone in HR that owns those processes and should know those numbers off the top of their head. Your cost per applicant and your client acquisition cost, those two things should be known by

the person that owns the budget and the person that owns those metrics. So when you think about sales and marketing and the expenditures that you're making, that is something that it's a fixed cost in the short term, but will probably need to grow as you get bigger. You know, it's one of the things I didn't think about when I was first starting out. But when you have an agency with 30 clients or 40 clients, you might lose one client a week or one client a month, you know, because people pass away or they don't need care anymore. You know, they've recovered from surgery or for other reasons, right? Like, but what's interesting is that as the business grows, you start to realize that that loss, the loss of clients actually is kind of as a percentage

of your client base. So as you get bigger, you can't continue to grow if you're getting one or two clients a week. When you get to a certain size, you have to somehow increase that pipeline. If you're getting the same number of new clients every week, at some point, you're going to level off and then eventually start to decrease because now you're not losing one client a week or one client a month. You're losing maybe two or three clients a week. People are passing away. It's unfortunate, but it's part of our business that that happens. So you might have to look at ways, how can you expand your pipeline in a way that you never did before? Because if you keep doing the same things,

you might not be able to bring in enough clients to continue to grow. And like you said, you may hit and most likely will hit diminishing returns with certain sources of applicants or certain sources. And so most likely it'll cost more money to find new sources and potentially to exhaust those sources and get everything that you can from them. So you're exactly right. As your business grows, your costs grow. And so you need to be able to predict that and track that and be aware of the growing expenditures.

So I think the place, well, I wanna pause here and just say anyone here that's joining us live, if you've got questions, if you've got comments, now is a great time to be asking those. We've covered a lot of ground and talked about a lot of things. So, um, jump in the chat if you've got questions, um, that I can ask to Tim directly. Um, while we're waiting for people to respond, I think I want to use the last 15 minutes here to talk about margins and just explaining all of the margins that exist in a home care agency. And so multiple times during the call, you have referenced gross margin. There is also profit margin. And I always think of the margin of how much you're paying your caregiver and how much you're charging the client and that margin and everything that goes into that.

So talk to me, if you will, about, you know, what a healthy gross margin looks like in a business and how you think about the margins in a home care agency. Yeah. And to some extent, and so you might want to make a certain margin in your market, but it's also important to understand what does your market look like? You know, so I mean, so when you're looking at sales price, you know, I've heard lots of people talk about like, well, you can set sales price by taking what you're paying your caregivers and multiplying by X and adding Y or something. You know, that's not a bad rule of thumb, maybe to understand how you're, you know, what you're likely to end up with in terms of margin. But really, the price you're charging people should be based on what's the market rate. And the only way to find that out is by, is by, you know, doing competitive analysis, looking at other companies that are similar to

yours and like, what are they charging? You know, what you can do by calling, you know, doing competitive analysis, looking at other companies that are similar to yours and like, what are they charging? You know, what you can do by calling, you know, having, having people on your team or other people, you know, call and inquire about rates, that kind of thing. You know, I always, I always use the example. I, when I'm, when I'm teaching a class, I'll hold up my iPhone and I'll be like, Hey, so anybody here, you know, like an iPhone costs like a thousand dollars, right? How much do you think it costs Apple to make this? You know, and I get lots of funny answers, but it certainly is not $1,000 or 800, you know, I mean, so, you know, Apple doesn't determine how much to charge for an iPhone based on how much it costs to make it. They charge basically the price that the market will bear. And that's something important to keep in mind when you're looking at home care. And the same thing is true on

caregiver side. You know, we did an analysis recently. We went and did a competitive analysis on caregiver wages. And we figured out, you know, our goal in our market is to be the highest payer for caregivers. We want to be paying our caregivers the highest rate because we are the highest quality agency. And we found out that we had some room to move there, that we needed to go out and actually do an increase for our caregivers. So in terms of margin, I think in our agent, it's going to be different market to market, but I think it's not uncommon for people to be looking for a gross margin, maybe in the range of like 40 to 40%, somewhere around there. So we talked before about how the

profit and loss statement works. When you take your margin, you know, all your variable costs and subtract them from revenue, you end up with your gross margin. When you think about your margin, you can think about it two different ways. You could take your gross margin for the month and divide it by your number of hours. And that would give you an idea of your margin per hour. Or you could do it kind of more bottoms up like, hey, I pay my caregiver as an average of, you know, this many dollars per hour, and this is my current average sales price. And then here's how much I pay for payroll taxes and

burden. And here's how much I pay for royalties. And you can subtract it that way too. But margin is so important because it determines how you're going to cover your fixed costs. Do you have enough margin to cover your fixed costs? When you're a small agency, you're trying to figure out how you can get to break even so you're not losing money anymore and that's where margin is so important because every new client you add on is going to add on margin until you get to the point where you can cover that fixed cost okay interesting so i want to go down yeah on rate setting and wage setting, because that, yeah, plays into this profitability concept here that I'm just fascinated by. So you mentioned, you know, setting your rate based on the market, and then also setting your wage based on, you know, like the market as well.

Do you, what if those two things don't add up? You know, I'm thinking of rising wages and rising rates, but those two things don't seem to be going up proportionately. Am I? Is that making sense? they're kind of leaving basic economics behind. If there aren't enough caregivers and if agencies are turning away clients because they can't staff them, then just without even knowing what their rate is, you know that they're not charging the market rate because supply and demand are going to equal out over time. So I mean, are we ever going to get to a point where the rate for service gets to the point where people cannot afford it? I think that's a possibility, but I don't think we're anywhere close to that yet. So, you know, I think that agencies that struggle with that are agencies that don't really know what people are charging. A lot of agency owners think they know what other agencies are charging.

But if you haven't done competitive analysis, if you haven't really done sort of a secret shopper and checked, I would say you don't really know. And they can change rapidly too. I mean, just within the last two years, I mean, before three years ago, rates were pretty steady and did not move much at all. But in a lot of markets, you know, bill rates have changed a lot in the last few years. And I mean, so if you're in a situation where you have to pay your caregiver's X, but you can only charge Y and this gap is not enough to cover your fixed costs. I think usually one of your assumptions is wrong, in my opinion. I appreciate the take because I'm, yeah, I'm just curious to kind of understand. And price is a signal. I mean, price is not just what people

pay you. It's not just how you get paid. It's also communication. If you went into a restaurant and you sat down and you saw filet mignon on the menu and it was $10, would you order it? You might out of pure curiosity, but I got to tell you, if you get sick later, please don't call me. You know, like filet mignon is not supposed to be $10. You know, but I got to tell you, if you get sick later, please don't call me, you know, like Flaminiana is not supposed to be $10, you know? So, I mean, and everybody has their own marketing approach. You might not have an approach where you're the highest quality agency. You might have an approach where you're an affordable agency with affordable caregivers and your rate should reflect that. But if you're going out telling people you're the highest quality agency in town and your rate is 20% lower than anybody else, at some point, those things are not in agreement.

There's a disconnect there. So I think that that's something to keep in mind as well. You should have a strategy because when you do your competitive analysis, you're not going to call 17 agencies and find out they all have the exact same rate. They're all going to be different. But who are you comparing yourself to? Who do you want to be like? You know, where do you fit in that market? So I think that that's important too. Someone is asking in the Q&A about competitive analysis. They're asking, you know, what is the best way to do a competitive analysis? Is it just purely calling around and asking, or is there any other more scientific

approach that you found that works well? It's a little juvenile maybe, but I mean, having your office staff call and I mean, if they can ask for the rate and if somebody wants to give it to them, then that's great. But I mean, a lot of agencies will try to find out more about your situation first. So either using a situation from your life or having one that you're prepared to speak to, I think, is important. I mean, you know, I had one person, you know, that the agency they called kept calling them back, asking if their grandma still needed care or whatever. I don't know. That's a little bit of the, you know, the challenge there, I guess. But I mean, the way you find out you don't go to a

marketing event and ask other people, like what they're charging, first of all, that's potentially not legal. But second of all, you just I mean, you I think you get a more honest answer if you approach it in a way that that they're, they're encouraged to give you a rate that they think is a market rate. Yeah, well, good, good response there. And I would say same to be said on the caregiver side. You mentioned this, how important it is to understand what other people are paying their employees. And you mentioned, you know, you're paying on the higher end and you only know that because you know what other people are charging. And so same can be said on the caregiver side.

Yeah. And we do it the same way. I mean, you can call an agency and say, how much are you paying your caregivers? But I mean, I think you get a more market-based answer if you're calling up and if they feel like you're a caregiver who's seeking employment. And, you know, honestly, the office staff can do it. And it's kind of fun to do. I mean, it's the, don't do it yourself. Don't feel like you need to do it as the owner. Nobody's going to believe me if I call and say that I'm a caregiver looking for work, probably just, you know, I don't, maybe I don't, you know, maybe I don't sound caring enough, you know, it's a possibility.

So just have other people do it, you know? And the nice thing on the caregiver side are our online applications. You know, most people are posting pay on Indeed and on all the recruitment sites. So there may be less phone calls on the recruitment side because a lot of that information is public. But you may want to call and confirm to really get to the bottom. But I mean, I would call I would do the competitive analysis because rates for caregivers and rates for billing have changed rapidly and even in the last year and those ads might be out of date they may not have updated their their pay rate or there might be other factors to consider you might call and you might find out they're paying more for cnas or they're paying more after the first three months or they

have bonus programs things like that so i think those are that's the reason why i would you know i'm we're pretty strong about doing competitive analysis at our agency. Yeah. Well, really good stuff. If, if anyone on this call hasn't or isn't doing competitive analysis, Tim is exactly right. So much has changed over the last one to two to three years. And if you're not staying up with what's happening in your market, then you're absolutely falling behind. So I think this is a really good place actually to wrap up today. I feel really good about what we've covered. I'll maybe just open the floor one last time to you, Tim.

We've kind of covered budgeting and profitability pretty holistically over the last 50 minutes. Is there anything that we've missed or any last advice or tips that you want to share today? No, you know, the only thing I'll say is when we used to do work in factories and all, and if we had a cost issue or if we're trying to attack it, we always approached it from sort of the 80-20 rule, you know, the idea that, you know, 80% of your expenses are coming from 20% of your actions, that kind of thing. So, you know, for example, in our household, we might, I might talk to my family or my wife about we need to save some money. And right away, she'll be like, well, you know, maybe, maybe we should, you know, maybe you shouldn't go golfing once a month. Well, you know, hold on a minute, like, let's hold on.

I'm only spending, you know, $40 to go golfing once a month. We spend $400 at restaurants, you know, so let's focus on where the money is. You know, is that a little expression? Like, why do you rob banks? Cause it's where the money is. So I think when you're trying to drive your financial performance, it is important to handle little expenses. You know, if you have $45 a month, that's going out to some marketing company that you don't use anymore, you should absolutely take care of that. But if you have a major problem, you've got to look at where the major money is. You're not going to $20, $30 yourself back out of trouble. You need to kind of look at where the big buckets are. So that's the main thing is I think if you're trying to drive your business, you got to look at

where the big levers are. Great place to end the 80-20 rule. It never fails us in all aspects of our lives and of our businesses. Really, I think the 80-20 rule is a great place to end here. So with that being said, I know someone is even saying in here, is this being recorded? Absolutely. This is a live event that we perform every single week and the recording will come out as a podcast. And you can listen to it wherever you get your podcasts, Spotify, Google, Apple, it's there. So feel free to share this recording, even with members of your team. For those of you owners and operators on today, some of you may not own the budget or the financial portion and feel free to share this information with your team members. So Tim, thanks again for joining us and for everyone

here. We'll be back same day, same time next week, and we're going to cover profitability 102. And we're really going to take some of what we talked about today and go a couple of rungs deeper and talk more about, you know, money management and the importance that it plays in your agency. So if you've got questions, feel free to email them directly to me, Miriam at careswitch.com. And we'll make sure we cover them in next week's call. Thanks again, everyone for being here. And we'll see you again next week. 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.