Home Care U - The Financial Basics of Running a Home Care Agency (Jennifer Ramos Pt. 1)

Episode Date: January 23, 2023

Jennifer Ramos managed and sold three different home care agencies before turning her attention to helping other people do the same. Come ready to learn all the things nobody ever told you about building a solid financial foundation for your home care agency.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 to Home Care U.

This is a weekly live event series where the recordings will come out as podcasts. I'm Miriam Allred, head of partnerships at CareSwitch. We are the home care industry's first freemium model home care software with built-in payroll. You can get started for free or learn more at careswitch.com. Today, we're excited to have the lovely Jennifer Ramos joining us. Jen, thanks for being here. Oh, it's my pleasure. Thanks for having me. Before we jump in, I also want to call out my co-host, Connor Koons. He's our VP of growth here at CareSwitch, and he and I are here to maybe stump Jen. So thanks for jumping on too,

Connor. Thanks, Miriam. Glad to be here too. So Jen, before I introduce the topic, give us a little bit of color on your background. And I want to say don't be shy or modest about your successes in home care. We want to know and get a taste of, you know, what you've been and what you've accomplished. Oh, thank you. Yeah. Home care is near and dear to my heart for sure. So several years ago, I had the amazing opportunity of working alongside a physician who wanted to start a franchise in San Diego, specifically South San Diego,

and asked me to come in and join him and run the business for him. And I have to tell you, I had no idea what home care was. And I literally just said yes to I had no idea what home care was. And I literally just said yes to the opportunity because it sounded amazing. And I really respected him and thought, okay, this sounds like a great opportunity to learn something new. I literally that night went home and Googled home care. I didn't know what it was. Anyway, long story short, I accepted the position with him. I fell in love with the business.

I fell in love with the opportunity to inspire and lead caregivers, to bring on our older adults, to care for them to the best of our ability, like just the whole thing. The financial side of everything, you know, within six months, it was apparent that the owner, the doctor didn't really want to participate with the business anymore. I asked him if he would consider selling it to me, and he did within a year. And then the rest is history. I developed that territory. It was a franchise.

And after about a handful of years, I opened up two more territories about an hour from that location. So I had three territories altogether and had those for about 13 years or so. The years get weird, but then I sold them, went to Colorado, opened up my own private and a staffing agency, had those, sold those, came back to California two years later. So I've had a lot of experience with home care and I just love it. There's nothing I feel like I don't really know. I mean, I'm sure there is some stuff, but, you know, we've never really seen it all. Right. So, yeah, but I love it.

Yeah. It's my passion. Brave soul saying yes to something you knew nothing about and then being able to take over the agency in a year's time. That speaks volumes. Yeah, it was awesome. It was an amazing opportunity. Yeah.

Awesome. Well, we want to pick your brain about like home care finances. So you didn't super touch on like your current experience of like exit planning and mergers and acquisitions and that territory. A lot of that is based in financials, you know, and getting into the weeds of that in your business and being able to get to the point where you can sell. So just prefacing today's topic, we are kind of covering, you know, Home Care Finances 101, the financial basics of running your agency. So we're going to talk about your business financials, you know, they're the

foundation of your business, then we're going to talk about investing in software to manage your money and how important that is. And then we're going to get into organizing your chart of accounts and reviewing your financial statements. Hopefully, that's not new to anyone listening live or that's going to listen to this afterward, but you're going to break down and dissect some of those topics from the lens of yourself and for people that are starting out and need some help in these areas. So let's start out with your business financials are the foundation of your business. What's your thinking there? And why is it so important so early on? I absolutely believe that it is the foundation because without the owners... And I do reflect back in my early years when I used to own the

business in the very beginning, I just innately knew that I had to really operate the business based on what the numbers were. Numbers don't lie. And so I didn't know what the heck I was doing, to be honest with you, with P&Ls and financial statements. I just had no clue. But luckily, my CPA had a bookkeeper who I approached and I asked her, can you teach me everything basically that you know, at least enough for me to operate the business. And so I approached her probably, I want to say about three months into starting that company with the doctor. Also, I was responsible for the entire company when I had that first early opportunity,

and I felt a huge responsibility to make it work, not only for him because he had faith in me, but also for my own. I had a small daughter at the time, my first marriage at the time, I had a lot riding on this opportunity. And so I just kind of dived right in. The reason why I do really stress now as a business broker, especially, and as an exit strategist is a lot of business owners, I feel like get intimidated by the numbers and get a little intimidated by what they don't know. They may not ask the questions because they don't know what questions to ask. What I would encourage business owners is to really just really seek out some information

on what the fundamentals are on a P&L and how to read your financial statement. And a financial statement is really your income statement, which is your P&L. If you don't know what that is, YouTube is your friend. I would encourage you, if you don't want to hire somebody to show you or train you, or if you don't have a sophisticated CPA that really wants to take the time with you,

just Google it. It will be worth your time. I can't stress that enough. A lot of owners get caught up, you know, understandably in the weeds of the business because you're staffing and you're kind of led by the pain points of running the company and the putting out buyers and trying to hire and get new clients and the marketing and all that. And oftentimes the financials go to the wayside. But the problem with that is you're kind of building a house of cards. And by the time you, before you know it, you're really, you're not as profitable as you could be, if at all. There's a lot of businesses out there, especially in home care, that spend and spend and spend,

and they're not tracking on how much they're keeping. Their eye is on revenue and their eye should be really on revenue and their profits. And so it's just really important to understand what creates profit. So if I can jump in here with a couple questions to that. For someone who may have like run a different type of business and then is jumping into the home care space. And so they understand kind of the financial management, but in a different context. Let's say a different type of small business. Do you find that they're generally pretty prepared to do the same thing at home care? Or do you think that there are nuances to the financial needs of running a home care agency that they might not be prepared for? I think there's some nuances.

Industries are all, I mean, numbers and the P&Ls are all pretty much the same, except for the, if the industry, like our industry, for example, knowing what cost of goods sold is, and that's really your caregiver's wages and their burdens. And the burden is really their taxes and the worker's comp. Well, you want that categorized on your P&L sheet appropriately. So you understand what your margin is, your gross margin. And the reason why your gross margin is important is because you want to see if you're paying your caregivers appropriately and still making money for the business and charging your clients versus charging your clients. And someone in a different industry may not understand that your caregivers are actually your cost of goods sold. And that's

where it needs to be on the line item. It's a little technical and I don't want to get too much in the weeds of that. But yeah, to answer your question, it can be different unless they were in a service-based industry and they understand it already. That makes a lot of sense. Just as a heads up too, don't be afraid to get into the weeds during this discussion.

I mean, use your judgment on what makes sense here. But yeah, definitely. I mean, go into as much detail as you want. My follow-up question to this, I'm really interested in like the house of cards concept that you talked about. And I'm kind of curious, are there things that you have typically seen agency owners do like specific things that have the tendency to build that house of cards, if that makes sense? Yes. Yes. Lots of things. The number one thing is they never really look at their financial statements of the business to see the health of the company, you know, and it's not to crucify anybody. I understand, like I said earlier,

you're kind of preoccupied doing all the other things for your business. Then that's, I totally get it because I was one of you. But the problem with not looking at the money really, and as opposed to your checking account, because we look at our checking account, but we don't look at actually all the money coming in and out. The problem with that is you have no idea that you could be hemorrhaging money and wasting money on things for the business

that aren't yielding a return on that investment. So like marketing things and different marketing campaigns, different people. You might be top heavy in your agency and feel like you have too many people working for you, but without crunching the numbers, you won't really know. Do you have any tips for how someone might determine whether they're staffing properly or if they're too top heavy in terms of their staff that way? Yes, it would be looking at your administrative costs versus your revenue. And it's just doing a simple calculation to figure out what that margin looks like. And margins are very important

to know. I really encourage folks to really get that very early on, if you can, in your business journey. Don't think it's like on the side and you'll think about it later. You really should learn about them as soon as you open your doors. And it's never too late. So if you've been in business three years and never have, that's fine. Just do it now. It will save you hundreds of thousands of dollars later, I promise you. You referenced having or utilizing a CPA. When should people start? I see that question all of the time. When is the right time to hire a CPA? What would you advise? Well, everybody's in a different boat. So it's a case-by-case basis, but truly, best case, right away. As soon as you're going to open a new business, I would seek out a CPA.

They shouldn't charge you an arm and a leg because you don't have a lot going on at that point, but they would support you. They should support you on your bigger goals and your bigger pictures and picture for the business. And they should interview you and ask you, especially a strategic CPA. There's different types of CPAs. There's some transactional that'll just do your taxes and then that's it. They'll look at your books and just do your taxes. Then there's some strategic CPAs that will actually advise you and ask you what your goals are. What do you want out of this business? What is your full financial picture look like? And really, really dig deep and help you. As soon as you can hire somebody on that level, I would highly recommend that. It's worth the investment. It

really, really, really is. It's like having a really strong, it's like one of the pillars of your business. I actually had one more question, kind of one more follow-up question on the staffing thing. Because I think like finding the right balance of staff that is getting things done, but not becoming too much cost is really important and really hard to do. So I've seen that there are kind of like various types of benchmarks that are used in the industry. Sometimes like people will use something like sales per full-time employee or weekly billable hours per like non-caregiver employee and like various kinds of versions of each of those. Is there a benchmark like that, that you're kind of saying to use here, or are you basically saying like decide what margin you want and ensure that the overhead incurred from your staff isn't chipping into that margin?

Yeah, I say keep it simple because a lot of those KPIs and a lot of those calculations can get really overwhelming, especially to somebody who doesn't really like numbers, right? So I feel like the best approach, and also from my benefit too, because when I go to sell a business, I really keep it simple also. So I would feel, I feel like all you'd have to do is figure out what your admin margin is in total for administrative people. And all you're going to do is divide that number of payroll against your revenue and then multiply it by a hundred. and it's going to give you a percentage. And if that percentage is anywhere between 10 and 12, it's great.

And that'll tell you you have some room. If you go over like 14%, you're probably a little too high. If over 15%, you're definitely, in my opinion, it's too high. Because you could hire really well for all of the departments of a home care agency and keep that margin tight. It's just hiring the right people and making sure that you're getting the ROI on those people. Yeah, that's super useful. So we have requests from some of the guests on to repeat that formula one more time. Do you think you could repeat that again?

Sure. So what you would want to do is once you look at your P&L, and I'm going to go back a second because this is also a chart of accounts thing. So your chart of accounts is just a list of your items that reflect on a P&L. Okay. When you organize a chart of accounts, your administrative team, and that's your scheduler, that's your care manager, that's your director of ops. That doesn't include the owner though. This is just your admin team. They should be lumped in your chart of accounts as a separate category and their taxes as a subcategory and all of their costs for their payroll should be in one category. So when you pull your P&L, it's very easy to see that payroll. Once you see that payroll, you're going to take

the total number for that period. If it's one month or an entire year or a quarter, you're going to take that number of payroll. You're going to divide it by the total revenue for the same period. And then you're going to multiply that number by 100. And that's going to produce a percentage. And that's how you can see very quickly. It's like a 30 second calculation if you are spending too much money on your admin team, especially if you have an admin team that isn't producing. Yeah. And so a good number would be 10 to 12. And if it's getting up to 15, that's a big cause for concern. I feel like it's what you got to look at it, like what's going on there. If it's 15, it's a little high. Okay. That's really specific and actionable. Thanks for that. Sure. Do I remember you saying you were a spreadsheet gal? You were like in spreadsheets, you know, really early on all the time. Is that right?

Yeah. I love spreadsheets. So talk, I don't know, give us like some insight there. You know, a lot of new owners are trying to cut costs and don't have, you know, a ton of money to spend on software. You started in spreadsheets, you know, did that work and for how long? And then, you know, what was the evolution of software for you for these types of things? Yeah. So I love spreadsheets just because I like to, I just like numbers and I like to crunch them and they tell a story. So your financials tell a story, right? So whether you're doing it, starting out with spreadsheets, just to see what the cashflow is, like your revenues coming in

and things going out, that's fine. But I would encourage you to step away from spreadsheets when you can and just get a simple software to do your accounting. And it's specifically accounting software is what you're looking for. It will save you so much time, so many headaches, and it's just so easy to use that I highly recommend that because it's just going to be easier for you for data entry. But spreadsheets are great. I'm not going to say that they're not. It's just it can be a little overwhelming to keep up with because you're doing the data entry yourself, whereas the accounting software, it does a lot of it for you, right? It'll calculate some things. It'll just produce

some things and you can see really easily what your net income is just by running a report. And for people just starting out that maybe shopping around for accounting software, what are like a few key things that they should be looking for? The most, the number one software is QuickBooks. I think that's the most familiar people are with. That's, I highly recommend that one. That one's just user-friendly, super easy to use. There's another one called NetSuite that folks use. There's another one called FreshBooks. That's also popular. There's a couple of others that I'm not so familiar with, but they're still, I hear are still good. It's Zoho Books. There's that one. And then there's another one. And I don't know if I'm going to pronounce this right but odo o-d-o-o yeah so just google and see like cost cost wise what's what makes sense to you but

quickbooks they're all pretty affordable it's worth the investment in my opinion it just is you know i think people like you said their minds are all over the place when they're first starting and so even the thought of you know hiring a CPA, finding a software, any guidance that you can help direct in this area is really beneficial. I want to add to that because that was my experience. I love the spreadsheets thing, but I really love being in front of my clients more. And I loved dealing with my caregivers more. And I loved seeing the bigger picture of the business more in marketing and all that. So sitting behind the desk and crunching numbers, A, eventually I just didn't have time to do it. And B, it just wasn't where my heart wanted to be. My heart wanted to be with the other folks. And so having the spreadsheets come out, not spreadsheets, the

software do things for me with some data entry on my part, just minimal, which is light years. It was just made a huge difference, huge impact. That's a really good reminder for people because I think a lot of owners that resonates with, you know, they want the face time with the clients. So the less administrative time they have to spend, the better. So that's a plug, you know, to find the right software to do a lot of the manual work for you. Yeah. Connor, any additional thoughts, you know, on this topic? No questions on this part. I'm looking forward to getting to some of the other topics too. So yeah, so let's, let's jump right into chart of accounts. You, you kind of prefaced it a little

bit, something that we don't talk about probably as much. So why is it important and how should agencies tailor it to their own needs? So it's really important. Your chart of accounts is in all of the software we kind of talked about, right? And so when you get a software, it will come with its own chart of accounts based on, because you tell software that you're a service business. So it'll come with its own template. But I want to remind everybody or let everybody know that that's just a template from the software company. So you can change it to however you want so that it makes sense for you to easily run your business. And so when you figure out which software you use and you go in there and figure out how to change use and you go in there and figure

out how to change that template or change that list, you want to organize things in a way that's going to be very easy for you to see once you run a P&L in order so that you can control all of the expenses. And it's very easy for you to see how much you're spending on different things, like all of your caregiver payroll expenses and burden. And again, when I say burden, that's the taxes, the work comp, anything that you absolutely have to pay for them. If it's state mandated or whatever, that you have to pay the caregiver to actually earn that revenue

goes into your cost of goods sold. Okay, that's huge. There's a lot of agencies that don't do that. And it's very difficult to see if you're paying the caregiver properly against what you're charging your client, because that calculation is going to give you the gross margin. And so that's another margin you should learn to understand. Does that make sense? And then for the expenses on the chart of accounts, you want to organize them in a way where that's easily read if you have a lot of marketing expenses you want to lump all your marketing

costs in there in the chart of accounts and you can make it look however you want so it could be marketing as a as a main category and then you can have subcategories and it can be as detailed as you feel like you want it to be you don't't want it to be too detailed because it'll be congested, but you do want to have like social media marketing. And then that's your cost. That's Facebook. That's whatever you're doing on social media. That could be that. It could even be your marketer, a person, their salary can be under marketing. So you can see, is this person bringing revenue in with the amount of payroll I'm spending on them? And that's the same of payroll I'm spending on them. And that's the same calculation that I spoke earlier. Anytime you want to see a margin,

all you're going to do is take that total cost divided by total revenue for the period and divide it by 100, you'll get a margin. So that's just that's how you get your margins. But you do want to organize your chart of accounts because the chart of accounts is kind of like the main list. And so when you run a P&L report, it's pulling from that chart of accounts. Yeah. Yeah. You hit on something that I was thinking about of like, how in depth do you go? And I think you say, you know, there's some customization, like you want to have a really good handle on what's coming in and what's going out. But how that's broken down or the depth that that is, is kind of up to the owner. But am I right in saying that owners should

be aware of dollar in, dollar out? You need to be tracking every dollar, right? You really do. I encourage owners to look at their financials every week and just have a financial day, literally, or half a day or two hours and just sit there and really analyze your expenses. If you can't do every week, then every other week at minimum once a month. And at minimum, I would look at the month prior. But you want to make sure that you're closing the month too and reconciling for the month prior. And I would just schedule that time with yourself.

It's like scheduling a meeting with yourself that you're not going to cancel. Like you're not going to cancel. It's so important to not cancel that type of meeting with yourself. Because truthfully, it's your responsibility to make sure that this company functions and functions healthy. But you have a lot of employees that are looking to you. You have a lot of clients that are hoping you stay in business and grow. And so having that type of meeting, that financial meeting with yourself is very important.

And I would look at the month prior and I would comb through what your revenues were and dissect truly why were your revenues up or why were your revenues down? What happened? What decisions did you make that changed from one month to another to have those numbers impacted? And then I would go down to the cost of goods sold with your caregivers. You know, did you have a lot of overtime? Is it eating away at your revenue? Because your overtime is going to be in that top category. What's your margin look like? And then I would move down to your expenses. You know, what money are you spending out? Are you getting ROI on those expenses, especially with the marketing. And I would just look at it every

single month. And that's how you're going to make decisions for the business based on the numbers. You just look at it. You see what's coming in and what's going out. The other thing is, is when you do that, there's times when you'll find stuff and you're thinking, why am I paying for this? What is this? You have no idea what it is. And it's an opportunity to cut that cost if it's not bringing you anything. It's something you decided to do six months ago and you forgot to turn it off, but it's bleeding the company. You're not going to know that unless you're actually looking in real time. It'll save you hundreds of thousands. I'm telling you that that happens. It's creating a habit is really what it is. And I'm glad you've referenced the weekly. I was going to ask, you know, weekly versus monthly, but you think of how much is happening in a business on a weekly

basis. And if you wait weeks or months, you will just be lost. And I think of owners that are maybe three or four months in business and they don't have a handle on this stuff. We were talking with Julio last week about not having a handle on your finances and going under before you even open your doors. That's not uncommon in this industry. And so owing yourself and your business the weekly time out to focus on your finances is so important. It's so important. And then on the flip side, you could be doing really well. You could be not looking at your finances at all, be doing really well revenue wise, your team's on fire, you're helping seniors, everything's great. You're collecting a paycheck or taking

drop from your business. You think you're okay because you're just taking whatever minimum you're okay to take. And at the end of the day, you're not profitable because you're not watching the money. And you go in there and you're thinking, well, why am I not making any money? Well, you're not making any money because you're not monitoring the money and making decisions based on your financials. And so I can't tell you how many times I look at a business that wants to go and sell and they're just not profitable. They're not sellable. They look good in the revenue top line, but the bottom line, they're just not keeping the money. So the goal is to earn the money or collect, get the money in, but the major goal is to keep it. So yeah.

Oh, follow up question to that. Do you find that there may be a few specific things that tend to be like the types of expenses or the reasons the agencies aren't profitable? I think maybe they're focused on the wrong things. I think that oftentimes, and this is just my opinion, but I really stand firm with it. I feel like we're so conditioned to think about marketing, marketing, marketing, drive revenue, drive revenue, drive revenue, drive revenue, so much so that that's all that the owner's thinking about. And so they're not looking at what they're keeping. Right. So they'll try marketing things. They'll try a new marketer. They'll go through, you know, doing different promos or things like that. And those things are good if it's bringing in the revenue. But if it's at the end of the day, it's going right out the back door and you don't know

why, then what good is that? So I think it's that. I think the focus needs to be on that bottom line. How do you be as profitable as possible and bring and hit on all these other things working backward? Yeah, that makes sense. So let's say that you're using a lot of like kind of passive advertising around the town. Like maybe you've got, I don't know, like your logo on a billboard or a park bench or something, you know, things that aren't maybe as easy to track the revenue from as like a referral or like an inquiry through your website. How do you go about deciding is that worth what you're spending for it or not?

So to me, that's branding. If that's not a direct referral source coming to me, like if I'm not spending money on donuts for an actual social worker and a sniff, that's a direct referral. That's like a relationship building cost, right? So that's on your P&L, relationship building, X amount of dollars. I can see that this referral gave me this business, right? But for what you're talking about with like a billboard or a flyer at a golf course or something like that, unless you're really tracking, is a golfer calling me from this

flyer and you can't track it, then to me, you should be spending that money when you're already insanely profitable and you can expense like 1% to a branding fund. You know what I mean? Where you have the money and you can say, okay, I'm going to pull from this bottom line, this net income, this net profit. I'm going to take 1% of that net profit and now do branding campaigns for branding because then you want to brand the community, which I get. But you want to do something like that when you can afford to do that. I don't suggest out of the gates either. Is there like kind of a benchmark that kind of should be used as far as here's when it would make sense to have a like dedicated branding budget in terms of like your level of profitability? That's a good question. I think everybody's

different. I think I had a branding, my own personal experience, my, um, my, when I was at 15% in net profit consistently for a couple of years, um, then I was like, okay, I'm going to put like 2% of that 15% and do like branding. And then I did, but I think everybody's different. It's a little bit of a specific question. That makes sense. You got to be making money to actually spend money. And I get that part, but you want to make sure that the house is solid first before you throw money to something that you're not sure you're going to get anything back from.

It's got to be, you've got to be really confident. You're going to get something back from this, especially in the early years. You know what I mean? Yeah. Gotcha. That makes total sense. Thanks for that. We've referenced a variety of like, quote unquote, line items in this chart of accounts.

My thinking is, you know, we understand that you can structure it, you know, kind of however you want and your software will give you, you know, a template that, you know, needs to be customized. Are there line items that are commonly maybe missed? You know, is there subtopics or line items that you don't see maybe a new owner thinking of that you would recommend that they have as they're starting? Yes. So I would say a relationship building expense for your marketing, relationship building expense for your client, and a relationship building expense for your caregiver. Those line items and broken out in the expense side on the expense part where it makes sense. So if you have employee expenses, let's say is a category, and then you have

subcategories. So whatever those expenses might be, it might be training. It might be whatever gloves, supplies, whatever relationship Relationship building should be one because you guys are spending money or should be spending money to establish relationships, to build company culture. So all those monies would go there. And then when you're spending that on relationship building, you can see, has our company culture improved? I spent $10,000 this last quarter. What's our company culture like? Because I just surveyed everybody. Are they happy? So you can kind of go back the checks and balances and see if it's working. I don't really see those a lot, which I feel like is a missed opportunity, those categories.

So I would say put those categories in. The marketing side would be relationship building with your referral sources. Donuts, coffee, lunches, lunch and learns would be another line item perhaps, or it could go under relationship building. And then clients, because we do want to invest in our clients. We want to keep them a long time. We want them to understand that this is a relationship with you. We want to acknowledge your anniversaries and your birthdays and Valentine's Day and Christmas and whatever. When your budget permits, you want to have some sort of allocated budget to give them a card or whatever you're going to do. Those items for sure. Yeah. I like that you're mentioning this because it could very easily be those $5 or $10 here or

there that are outgoing that are being tracked. So, you know, the line line above relationship building, give that a place to live so that it can be tracked. Yeah, so it can be tracked. And so you can do it with intention. You know, a lot of times we do it just kind of off the top of our head in the moment, but you want to do it with intention. And those things can go really long way when you look back after a year of doing that. You know what I mean? So yeah. And then you want to track. And what you said, surveying too. Some people may do it for three months and then give up because they don't think it worked or move the needle. But if you have the intention and continue to do it and survey and see what people are receptive to, then you can justify that cost.

Yeah, absolutely. Yeah. And to me personally, I feel like relationship building, that you can, you know, justify that cost. Yeah, absolutely. Yeah. And to me personally, I feel like relationship building that line item, whatever you're spending there, it's always good. You know what I mean? If you're, if you're hiring bad apples and you're, you know, giving into bad apples, then of course it's not going to, you know, yield you the return you want, but just don't hire the bad apples, get rid of the bad apples. You know what I mean? Invest in your people, you know? So I kind of cut you off. You know what I mean? Invest in your people. I kind of cut you off there. I like this, you know, these line items. Any other line items or even subtopics that you can think of that owners may miss early on? Yes. So the other thing I would encourage everyone to do is also whenever you're taking

expensing money that's personal from the business. So like you have your business card, right? You're checking a card, you're checking a camp card and you go and take your sister to lunch or your kids to dinner or whatever. That's a personal expense, not a business expense. And a lot of business owners will take those liberties and that's fine. But on your chart of accounts, I would encourage you to have owner's expenses or officer's expenses. And then everything you have under there should be categorized under subcategories there in your chart of accounts also. So when you pull a P&L,

you can quickly see these were personal expenses to me. This has nothing to do with the real capital of the business. So if I minused out these dollars, or excuse me, added them back to the bottom line, this is really what my net profit is without me taking my kids to lunch or dinner or whatever. And that's a really important practice so that you can see, okay, my net income truly for the business is this and not this because I expensed, you know, $20,000 this month because I took a vacation or whatever. So if you have those categories with officer expenses, it would be a lot easier on your CPA and it'll be a lot easier for you to see the health of the business in real time. It really will. Because sometimes we use our card, we don't realize it before we know it, it's adding up and we take liberties with our business. we know it, it's adding up.

And we take liberties with our business. So I would say just categorize them. I would also say don't take advantage of the business. Don't use it like an ATM. Try not to do that because it devalues your business completely. So you can expense stuff like, like legit expense stuff like auto, your car, your health insurance, your 401k, any, maybe like a gym membership, but nothing. I mean, don't go crazy with it. Don't go to Jason.

I get the feeling that you've had these conversations with owners, you know, and you probably meet some resistance because bad habits have probably been formed. Anything, I don't know, an example that you can divulge of a resistant owner that, you know, have these habits and approach them? Yeah, yeah. A few of them. One in particular who I love. Yeah, it's hard. It was really hard for her. And her husband was telling her, we have to, you have to stop expensing through the business. But she had this business for 15, actually 20 years. And she was just in this habit, in this comfort zone. And so what I told her was, you guys can afford it.

Just take a draw. Just take a bigger draw to do these things. Just don't expense it like an ATM. You would just keep pulling money out. It was very difficult for her to shift. But after, I want to say, three would, you know, just keep pulling money out. It was very difficult for her to shift. But after I want to say three months, she did, because then we would review the P&Ls and it looks so much cleaner, just so much cleaner. She cleaned it all up. And I said, okay, now keep this habit, like don't go in there. You know, it just, you know, it just increases the

value of your business. So by the time you are ready, like later down the line to sell, I'm telling you, it will save you so much money, really. So trust me, I promise you. I wanna keep you on the soapbox because all new owners need to hear this. You know, I know a lot that are struggling with this and it's habitry and it's, we all know how hard it is to break bad habits. And this is one of those

that early owners can fall into pretty quickly. Yeah, please don't. It's not going to serve you. Something kind of on a similar note here. We asked you about this, I think, last time we had you on back in November. But I think this is good to kind of like recap again, is like for someone who's kind of just starting an agency, you know, just starting to

get it off the ground, how should they, first of all, go about deciding when to start taking money out of the business? And second of all, when they get to that point, what should their process be to decide how much to take out and how to pay themselves? So it's a really good question. It's kind of hard for me to answer, but the best thing to do is when you do have an accountant or a CPA or someone who's doing your taxes, if you could ask them what they recommend, because it depends on if you're an LLC and an S-corp.

S-corp, you pay yourself a salary, a managerial type salary, and then you can take draws out. And some accountants and CPAs will advise take once a year draw, or you can take a quarterly draw, or you can take a monthly draw. But that's the dance you want to have with your accounting professional. It truly is. And how much you can take, because you don't want to take so much out of the business in terms of a draw, where you're funding your personal life, but the business is set, you like you're just sucking everything out of the business, because then all you're doing is you're just, you're funding your personal life, but the business is set. You're just sucking everything out of the business

because then all you're doing is you're self-employed. There's no benefit. There's no profits that are sitting in with the company to grow the business. And it really is a dance you should have with your accountant. But I would recommend not taking a lot. I recommend paying yourself something because you do need that reward, but not a lot.

It would have to be very, in my opinion, very bare bones, at least for the first three years, which you absolutely need to survive. And that's it. And let the money stay with the business. Let it build, let it build, let it build until there's a point where you can take really healthy draws after the third year, second or third year or whatever. So taking into account the fact that every business is going to be different and every circumstance is a little bit different, kind of general ranges of maybe, you know, here's kind of what a typical salary or a typical draw

is that you often see for like businesses of different age. Oh, that's a good question. So basically a typical salary would be any, you would pay yourself a typical salary would be any managerial type salary for your market. So if you Google, if you go into Glassdoor, that's where they keep all the salaries or whatever. And you could see in your area, this is what a manager or a general manager or director of operations is getting paid. Then you would typically want to pay yourself around that amount. And that would come through payroll, right? So if you're an S-corp, it would just come through payroll. There is a period where you can't, it'll trigger being an S-corp. And there's a period where you

can't be an S-corp. So to pay yourself a salary. So that's why I said you have to talk to your accounting professional to see where you're at with it. And I think it's 40,000 in profit. Then you can, it'll trigger where you can be an escort. But ask your accounting person. And then in terms of draws, it's so hard, Connor. Because I'm very conservative. So the more conservative owners aren't really going to draw too much. I think at one point I was just drawing 1% a quarter and then taking a managerial

salary personally for myself. And it's kind of all over the map. All the owners I meet, it's all over the map. Some are just sucking everything out. Some aren't even touching it and leaving it as profit and letting it roll. It's really all over the map. But personally, for me, I was very conservative. I let it roll with the company until the company just grew and grew and grew and grew in terms of dollars where I just

had a savings account that was huge. And then I could invest that money into different things. That makes sense. And yeah, definitely. It depends on the specific business and also your life circumstances and everything. Like how much do you need the income versus, you know, are you doing another job or anything at the beginning too? So. Yeah, exactly. And do you want to reinvest the money, especially in the early years into the business, or are you going to just take it and go buy a car? It's everybody has their own personal thing. You know what I mean? I mean, that's how I opened my two territories. When I first started with the one territory and I opened the two territories is I just

used the money that was sitting in my checking account from all the profits from the years prior. And then those became profitable. And then I just duplicated everything I was doing. And then when I sold, I was able to sell for a high multiple. And I walked away with a couple million from one of the transactions. So it's whatever your strategy is, whatever you want. Kind of for quick reference here, remind me. So like in that story, how many years had you been managing your agency when you sold? The South, the Coronado office, it was 13 years. Okay.

And then I sold it after the 10th year though. I kind of knew I wanted to. I think I actually knew I wanted to from the time I restarted though. I thought I can do this. I'm going to probably do this for like 10 years and then I'll probably want to start getting out. And that's exactly what happened. And that's interesting because that's what happens to a lot of owners. That 10 year mark, if you can hang in there for 10 years,

after 10 years, you're kind of looking for something else. Yeah. Yeah. That makes sense. That's kind of what I've seen too. Yeah. And I love the honesty, you know, it doesn't speak poorly to you as an owner, if you bear the end in mind. So I love you being transparent of this is what I thought when I got into it. And then here's where I was at, you know, after 10 years, you know, and that's not a bad thing.

No. Yeah. I felt good about it. And, um, I always operated it from, okay, if I had to sell tomorrow, would a buyer want this? So I always thought, okay, if I were a buyer, what would I want about this business? I want happy clients. I want happy employees. I want it to be very profitable.

I want the marketing to be seamless. A bunch of referrals coming in from different sources. And I always just kind of operated from that level from the very, very, very beginning. And I also had my daughter at the time and I was thinking, okay, but what if she wants to grow into this maybe? So maybe I should hold on for it until she's a teenager. So there was a lot of factors where I wasn't sure if I was going to sell, but I didn't want to be pigeonholed if I had to sell or if I had to get out or something happened to me and I was in a car accident and couldn't function the business anymore. I just wanted to have options. Awesome. Good question coming in here from

Namsa. Hopefully I'm not butchering that. I don't know if you see this too, Jen, but I'll ask it. What are your thoughts on a startup partnering with an already existing agency, especially when the startup does not have many billable hours and is just getting started. The existing agency only wants to expand into a new territory. So thoughts on that of working with other local agencies as you're getting started? Yeah, I think it's a great opportunity, actually. If the owners are like-minded, I'm assuming the startup agents, there's two owners here. I'm not sure, but it would have to be a like-minded thing. I really do feel like it's a great opportunity for the startup agency to really learn a lot from the more established agency, what's working and what's not working, and then go and do that

in this new area. Do you know what I mean? So I feel like that could totally work. That's a great opportunity. That would be a great opportunity, in my opinion. Sort of as a follow-up to that, I mean, just kind of for the benefit of people listening who might not be familiar with what that arrangement looks like. I mean, what does the partnership look like in an instance like that? What does that entail? I don't know. That partnership could be really designed to be anything. I will say this, though, Namshah, if I'm saying your name correctly, forgive me if I'm not, you should really have a buy-sell agreement in place if you guys are

partners. Buy-sell agreements are very important. There's a lot of business partnerships that go in together that do not have a buy-sell. And when the partnership kind of goes sideways and things aren't as rosy as they were in the beginning, because sometimes that happens, it seems like more of an acquisition. Okay. A buy-sell is going to protect you with these kind of scenarios if one of you wants to go leave or if one of you falls ill. So having a buy-sell agreement is really, really, really important. It seems more like an acquisition. Okay.

So they're just kind of growing. I think it's a great opportunity. I think a startup could really learn a lot from a well established agency already. And like I said, the good things that are working with that well established agency and the not so good things to start in a new territory. The other thing I will say is one territory might not like be like the other. So if you're going to duplicate what worked in that established agency into another area, be ready to kind of navigate any little changes that that market wants. Because some areas are very different, even though they're neighboring each other, like the referral sources where the caregivers are coming from. So just be flexible enough to

know that you need to shift your sales in that new territory as you expand. Yeah, thanks for jumping in, Namsa. Really good thinking. And I would just add, you know, establishing expectations. I think this is what you're saying, Jen, of like, be very clear of who owns what and what that relationship and partnership is going to look like so that one doesn't get taken advantage of, etc. But also, there's a lot of opportunities and we hear this, you know, across the country of partnering with other agencies to refer business to each other, to refer caregivers to each other. You know, there's, there's this underlying opportunity of sharing with other local agencies. You know, a lot of, some may see them as competitors,

but there's also this opportunity of like working together to serve the most population. Yes. And I love that. I love agencies that can work together because honestly, the greater good for the greater good of taking care of our seniors to the best of our ability. You know what I mean? And some agencies aren't really open to working because they just have this, you're my competitor and they won't, you know, which, okay, but it's so great. If you can actually collaborate with each other, share caregivers. And as long as you guys are like-minded and it really, those relationships really work, especially when the agencies are similar in size. You know what I mean? Like if one huge agency is like leaning on a little tiny agency, then it's really going to be difficult for the little agency to kind of, you know, work with them. But yeah,

I agree, Miriam. It's a great point. I love when agencies work together because everybody's just better off. And I think that's like the long-term goal. You know, we all talk about what the pandemic has brought to this industry and the ongoing challenges and how are we going to push past this? I think there's this huge opportunity of collaboration that we may be missing out on. And, you know, you talk to really large agencies and they're doing this, you know, in their big metropolitan areas, they are working together with other agencies and it's, you know, proving super successful. And so I think there's a lot more that we could do on this front. I know this is kind of tangential, but I think there's a

lot more that can be done here. Agreed. If we don't have any other audience questions, maybe we cap here. Next week, I just want to preface, next week, we're going to bring you back and we are going to talk through some financial horror stories, which maybe sounds scary, but we want you to get like up close and personal

and honest with some finances gone wrong in agencies. And as much as you're willing to share would be awesome. So let's maybe cap here on today's discussion and look forward to bringing you back next week. finances gone wrong in agencies. And as much as you're willing to share would be awesome. So let's maybe cap here on today's discussion and look forward to bringing you back next week. That sounds great. You are amazing. Thanks for joining us today, Jen. Thank you for having me. I appreciate it, guys. Take care, everybody. And we'll see everyone back here same day, same time next week with Jen.

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.