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

Connect with Dana on LinkedIn

The Home Care CPAs—more than just financial partners, they're here to help you build sustainable revenue growth

Listen to this episode on Spotify or Apple Podcasts

[ 00:00:02 ] Welcome, everyone, to Home Care U, a podcast by Careswitch. I'm your host, Miriam Allred. It's great to see we've got a good group waiting in the wings in the waiting room. So, we've got an anxious group ready to join us. Thank you all for taking time out of your busy schedule. I know you've got a lot on your plates, but I appreciate you taking the time. It also speaks volumes to your effort in your business, taking time to learn about finances, get educated, and taking time out to think about the business. I think that's great. So, I want to go ahead and get right after it today. I am back for session two with Dana Charumbira. She's the managing director at the Home Care CPAs located in the greater Chicago market.

[ 00:00:43 ] She and I were just catching up about session one. I hope all of you have listened to it or some of you probably attended last week. We talked about all things home care billing, invoicing, payment terms, managing accounts receivable. It really was kind of a masterclass about all things finances and thinking about and managing the cash flow of your business essentially, and we had a really good conversation about accounts receivable. She and I were just talking about; I posted a poll on LinkedIn about what just people in the industry, their cadences for invoicing, whether that's daily or weekly or biweekly or monthly. And she and I were just talking about how interesting it is to see the diversity. And I think that's really important. And I think that's really important across the industry of how people are invoicing.

[ 00:01:28 ] So if you're curious, we've got, yeah, about 30 people that have responded to that across the industry, all different sizes on LinkedIn. So check that out if you've got a minute. Without further ado, Dana, I know I let you do kind of an extended introduction last week, but for anyone that didn't attend or hasn't listened yet, I want to give you just a couple of minutes to do a brief introduction and then we'll get into today's topic. Yeah. Thanks, Miriam. It's great to be back. I really enjoyed last week. So I'm excited to talk more about financial analysis and the whole thing. So I'm excited to talk more about financial analysis home care space. Yeah. So I'm a CPA by education and I have been working in the home care space for the past four years, really just wanted to work in an industry that touched a lot of lives and

[ 00:02:11 ] home care really was a great fit when I was looking to pair the skillset that I have with, you know, and some great group of people, you know, home care agency owners and then families and clients. So it's been a great journey. Um, and yeah, so really we're here just to support agency owners and leadership with all things financial and really just helping them understand the financial performance of their business. Awesome. Well, we're going to talk about that exact thing today. Um, today we're going to talk about analyzing your financial performance, which is really your bread and butter. Last week, we were kind of in the weeds on how to think about finances from like an operational standpoint today. We're going to kind of zoom out a little bit and talk about what it's like to analyze.

[ 00:02:55 ] The finances analyze the numbers, analyze revenue, et cetera. So, um, we're going to kind of just quickly preview of the episode. We're going to talk about revenue first, how to slice and dice and think about revenue and talk about it from the lens of different stages as well. And then we're going to talk about margins, uh, gross and net and what to track and how to track and how to calculate those. And then we're going to talk about overhead costs. And then we're going to spend the last little bit talking about budgeting and budgeting long-term and, you know, what it looks like to successfully budget, um, as you scale your agency, especially if you have multiple departments and lots of people, as you grow your team, um, how to budget properly and how to assign roles, responsibilities, and make sure that your budget is working for you as an owner.

[ 00:03:38 ] So let's start with revenue. Um, I want to hear kind of your take on, you know, with you and your clients, how you look at revenue, you know, obviously it's kind of like a, a stagnant number, if you will, but there's a lot of different ways to slice and dice it, dice it. So I want to just kind of open the floor to you for a second on how home care agencies should be thinking about and looking at revenue. Yeah. Yeah. So revenue is a huge focus. And I think that, you know, a lot of the times we're looking at, we try to look at revenue trending. Um, we always look at month-on-month and most agencies, all agencies will have month-on-month data that they can use.

[ 00:04:15 ] If an agency is built a budget, we also compare actual to budget numbers. So I'll start with month-on-month. The big thing there, you know, a lot of people look at revenue and say, okay, it's up 20% or it's up 10% or it's down, or the way it's gone. But really, I think it becomes meaningful when we start to unpack why is it going that way? Like in either direction. Um, so that's where, you know, looking home care really in my mind, anyway, there are two primary drivers for revenue: going one or the other, it's volume of hours and then it's price per hour. So we look at both. So we do a performance by hours analysis to see where they're at current month versus prior month.

[ 00:04:57 ] Um, with some clients, we break that down by their payer source. Because that can be really telling. If hours are trending one way for a payer source, that can also really impact your average price per hour. So, looking at payer source mix and the volume of hours by payer source really starts to inform your average price per hour analysis as well. Um, so if your average price per hour is going one way or the other, that's the first thing I look at is like, okay, do we onboard a new payer source? Is there a, is there a, is there a, is there a, is there a, is there a, is there a, a shift in the payer source? Maybe the rate for the new year has been set. So we're seeing a natural shift upwards on the revenue side when we're looking at price per hour.

[ 00:05:34 ] Um, but it's really boiling down to and getting into like, what's driving that movement because then as an agency, you can say, okay, we like what it's doing and we need to do more of that. Or we can say like, you know, Hey, that's not what we want to happen. What are we missing? And so with a couple of our clients and we're looking at it, we see, okay, this payer source was, you know, 30% of revenue the prior month, and now it's only 10% of revenue, what's going on there. And that started a conversation with that referral source. And then the next month, I mean, they had like 10 referrals from that referral source because it prompted that prompted them to re-engage in a space that we saw that was beneficial previously.

[ 00:06:11 ] So it's getting to like those underlying drivers that make that revenue analysis, like really helpful for the business. In a perfect world, revenue goes up month over month, but this is home care. And it's not always perfect, a perfect world. I'm curious, you know, just like general trends, you know, you, you may be up for three months and then plateau for a month or two, and then back on the ups. Is that common? Is that common at every size? I know you work with such a variety of sizes and owners. You know, when I talk to people about revenue, it's like, you know, up and then plateau, maybe down and then up like year over year, you want it to go up, but month over month, you know, to be up every, every single month over month, like that's, not really common.

[ 00:06:55 ] Yeah, definitely. There'll be ups and downs and that's where I'll point back to payer source mix and like building some resilience into your business. So like if you're a hundred percent private pay, you can really feel those up and ups and downs a little bit more because you're really reliant on those clients and kind of the natural flow of the business. Whereas, if you're getting more into contract work and you have, you know, authorization for like three to six months, you kind of know, and you can forecast, understand a little bit better where that piece of business will be. So, yeah, I think you can kind of protect yourself a little bit from the ups and downs by introducing contract work into the mix. And that's a whole other conversation around like margins and all of that.

[ 00:07:36 ] And we talked a little bit about it last week with payment terms and reimbursement rates, but that's one way to control it. But yeah, naturally. And that's also where we start to look at, like, if you are a hundred percent private pay, look at your referral source mix. So do you have a lot of hospice referral sources or do we need to talk more to like a skilled nursing facility? So we have longer stays, maybe the hours are shorter, but we have longer stays. So that also really helps get the marketing group involved. If there's a special, a separate marketing team to have the conversation around, okay, what are we doing to start to build some resilience here? Because we know we have a high reliance on these cases that are only a few weeks long.

[ 00:08:14 ] Let's talk about breaking down revenue from kind of like each stage, if you will. I know you work with everyone and how you think about revenue does change. So, what are some of the things that you think about when you're working with startups? Set up a startup for them to be in our company, and to be able to take some of that. Startups briefly: Clearly their top priority is breaking even. Out of the gate, they probably invested money in the business and they want to break even as quickly as possible. What are some of the metrics or things that they should be considering when it comes to revenue, and kind of working towards break even in those early, early months? Yeah. So startups are really fun because they're like, you're still kind of figuring out like what sticks and what's the best for your specific

[ 00:08:51 ] agency. So I think when you're working with startups, you're looking at startup revenue a lot of it you're really just trying to at that point get hours but a lot of it is bringing um a goal to that so that's where we start in the beginning you're still kind of figuring out data so a lot of the times we're coaching around okay what is your break-even point number of hours because it's easy it's hard for someone especially if they're not of a financial background or financial mindset or that's not what they're interested in to say like okay we need to bill you know twenty thousand dollars to break even okay so what does that really mean so then we want to look at that and like the number.

[ 00:09:25 ] Of hours they need to get on a weekly basis because that's something someone can really take and then go out and run with, um, so we look and track and say okay, so on average last month you had 200 hours; you need another 200 hours to break even, and then it's really around that conversation. And sometimes I think home care, especially there's just so much going on, you can easily get caught up in trying to think about where the hour is coming from or like, you know, all these metrics around it. But really, at that point, you're just saying, 'What is the market rate and how do I get to these 400 hours so

[ 00:09:57 ] that I can become stable to really grow.' Into different payer sources and start to entertain you know, some of the more advanced metrics that they should be looking at so it's an it's understanding the market both on the the revenue like price per hour and the pay rate per hour and then really focusing on like the number of hours you need to become a stable business so that you have a great foundation to grow from and there are a lot of factors, so I don't know if you'll have a sense of this but I was going to ask like average time it takes for a startup a new owner to break even again, I know there's a lot of factors there but if you had to throw out you know kind of a range of Time, what would you say or what have you seen with younger businesses?

[ 00:10:33 ] We've seen I mean, if you come into the business with there's different ways to structure it too, which I know we'll get into overhead, but if you are higher if you're running it yourself and you're really new into home care, but you're following like a process and you're working towards building those relationships. I think in you know four to six months if you're really you know you're in the business, you're in the business, you're in the like strategic and you're really good about keeping up with what's going on in the number side, but if you hire somebody. and obviously, that's an additional expense that already has like a relationship in that agency space. You might see it a little bit more quickly, like three four months, because they're able to bring on business that they have, you know, community connections with already.

[ 00:11:13 ] And then really, in my experience, if you're engaged as an owner or the leadership in the business and you're really reaching out to the community and being genuine about how you're working in the business, it will happen. But it is definitely like a game of you know, you've invested a lot of money and you want to see that come back, but six months I think. Is a fair number, to really at least be at the break-even point, yeah I I was yeah curious what you would say and I would say I've seen similar again everyone's a little bit different, you know, you see a lot of people starting their home care working full-time elsewhere and so it takes a lot longer and you know it's all just like a matter of time and money and investment and time commitment, etc.

[ 00:11:59 ] and so again, a lot of factors, but I would say yeah four to six months you can break even, you know, and really start building a successful business that quickly which may surprise some people, may seem long to other people, it's really a range. but I agree with you there let's let's shift gears and talk about kind of mid-sized businesses I know you consume the benchmarking report when we talk about kind of mid-range businesses I know you consume the benchmarking report when we talk about kind of range I guess my take on that is kind of like two to five million the average agency in the industry is about you know 1.7 1.8 to 2 million and so when we talk about mid-size we're talking kind of two to five I think the biggest kind of lens that they're looking at revenue through is cash flow how to manage cash flow like we were talking about before so what what's your take on or advice on kind of managing cash flow and thinking about revenue when you're at that stage

[ 00:12:51 ] yeah so that's a good question I think it's a good question I think it's a good question I think it's a good that's like an interesting another interesting group and it is like you do feel all of your cat all of your growth feels like it's going to payroll because it depends on the payer source mix again because if you have private pay you might feel that you might feel the cash in the bank is growing a little bit faster than if you have different payer sources um but really that at that point depending on your growth rate you just feel Like, okay I'm keeping up with making sure I'm making payroll every week or every other week so there we're really evaluating and that's where we track you know by payer source how are we fluctuating and if you're looking for you know either expanding your relationship

[ 00:13:28 ] or potentially adding a new payer source what is that what are their payment terms and then what percentage of our overall overall revenue are we comfortable with bringing in because we want to make sure that we're comfortable from a cash flow perspective and that that doesn't actually consume the business when we're focusing on growth and that's. Easy to do, because when you kind of get to that point, you're like, 'You know I'm going to make sure that I'm making sure that I'm doing a lot of things right,' and so now you're trying to open up new avenues for revenue and so evaluating those and making sure that they fit with the overall strategy, and like you're not kind of going down this other path that's going to consume resources not only cash but also like in the office and you're having to you know increase headcount and all of that, so it it's really helpful and we'll get into budgeting later, but to have a really strong budgeting process at that point because then you have.

[ 00:14:17 ] a path you know you're like this is the roadmap and are we executing or not and then you're like okay I'm going to make sure that I'm making sure that I'm that really helps bring guidance to it because once you're at five million I mean it's hard to just sit down and brainstorm each day like what are you going to do and that's where a budget really helps yeah yeah I want to jump to margins because I feel like that's like the relevant next step but let's talk um briefly about like large businesses that are scaling you know they're a lot of their focus is the same you know in home care it's a lot of the same but you know their their financial focus how they analyze and look at revenue can change so what what lens are much larger businesses looking through and when I say that I'm talking about

[ 00:14:52 ] say larger you know 10 million plus obviously there's kind of a huge range of like enterprise in this industry but much larger businesses where is their focus and how are they thinking about revenue so at that point I mean when you're getting into that size in my experience you're typically you might have more than one one office or more than one location and that's where it's helpful to kind of slice the revenue in that way as well so then you're saying like okay what location Is performing well, or what location is there opportunity for growth, or do we need to expand into a new location? And then you're saying, like, okay, what location is performing well, or what location like is there an adjacent area that

[ 00:15:24 ] we want to look at um and so I think, you know, and they might be totally maybe they have different structures and different payer sources and there's learning from one to the other but really as much as you can segment the revenue so by payer source and by location is huge because then you can see like this is really performing or this isn't and then that's where you can like shift your focus and and You know, Grow work on either growing or managing one of the you know, like if you've segmented the revenue and you're like, 'By payer source' and then 'by location', and you find that there's a hot spot, something that's going really well, can you replicate that elsewhere? Or if there's an opportunity, like how do you focus resources to grow it so it's really at that point $10 million and higher.

[ 00:16:05 ] The more the data is separated and presented in a way that you have detail about where it's coming from, the more helpful it is. One thing that I want to add, you've mentioned several times, like different payer sources, I think that's like the Place to start is breaking down revenue by payer source. I would go maybe one step further, thinking about private pay especially, you know, say you're, you know, a heavily private paid business. You may have different service lines and when I say service lines, you think of maybe hourly versus live-in or you may have a transportation service or a meal service or, you know, medication management care management. Even within private pay, you may have different services and structure your services differently or, you or different counties, you know, that have different rates or different tax rates.

[ 00:16:50 ] So I just wanted to elaborate. On that a little bit. On breaking down revenue by payer source, but even if it's just private pay, thinking about how you structure different service lines and breaking it down that way, you know maybe you're you have care management and that could be you know maybe 10% of the business but 40% of your revenue. So what does that mean and how does it influence you know the hourly care as well? So lots of different ways to slice and dice revenue, like you said it's kind of up and down a month over a month but you can start to predict the future based off you know like looking back to predict the future. So I just wanted to add some of those thoughts.

[ 00:17:27 ] Yeah, and that's one thing too; there with it's a really good point, and with the way the a lot of the client management systems now interface with like the accounting software, you can do really robust reporting if it's set up a certain way, so the data is there, it's just really like structuring it a way that you can look at on a regular basis and really understand and use it to your business. And yeah, making sure you take the time to do it, I think it's really easy to look at revenue and say oh it's up or down, but when it's down, you know taking an extra hour, 15-30 minutes an hour or you know a week to like really dive into and say okay why is it going up or down and what are the factors and how do we figure out how to like pull those levers so that this happens or doesn't happen again.

[ 00:18:12 ] Let's talk about margins I think that's a huge factor here and you mentioned you know setting targets so I want to just kind of start out of the gate, do you encourage businesses to be managing and analyzing both gross and net or do you focus heavily on gross and less on net or is it kind of up to the businesses that you work with or what's your take on managing measuring gross and or net? I think looking at both is important. I would say the difference in my mind around the two is gross. I would say regardless, I think there's in the industry sort of numbers that we would see on the gross that we think would be a good gross margin versus a bad gross margin.

[ 00:18:54 ] You're kind of using the term 'there is' like a room for improvement gross margin, I guess. But so there's a range there that you know you really want to see to because your gross margin is telling you: for every hour I'm billing, how much of that is going to client delivery versus am I keeping as my gross profit? And so that gives us an idea of like what do we have to work with for our overhead. And so I would say that's a big part of it. I would say that that would be pretty consistent or like the target would be consistent from agency to agency within a range where net income is a little bit different. I would say is a lot of that comes down to like how you structure your business and what kind of what works for you in your personal life, and like how do you want that business to to interact with you in a way.

[ 00:19:36 ] So for example if you're an owner that's like this is my day job and I'm going to do this and this is my 100% focus and you're drawing your salary from that, you might see that your net income there might be more cash flow to owner because they're not having to hire out somebody. Else and taking on that overhead cost, whereas if you're saying like 'you know this is' or maybe you're focusing on more than one location so you're hiring people to run the business for you that's where you might see that net income impact so that's where I think that there's some like flexibility in the net income as like a target just based on how you structure the business for your lifestyle.

[ 00:20:17 ] Can you clarify what I how you calculate net because there's a little bit of variance there to my understanding, I guess I see different people factor in like different deductions so what what would you suggest for calculating net and could you maybe speak to some of like the fluctuation there that you've seen? Yeah, so like if we just like kind of run down the P&L we would say like your gross margin is your revenue less your cost of sales which in the home community is like the cost of sales. In the healthcare industry what we look at is your caregiver wages the employer tax on the caregiver wages workers compensation that's what we say is like you know the cost of sales which will get you to your gross profit and then your gross margin and then your net income is really

[ 00:21:07 ] other expenses related to the business that are there to support it but don't necessarily go to like direct delivery of care so a lot of the times it's like people you know it's your office administrative side of things. Staff any operations that you have maybe marketing is in there and then other costs that we see quite often are like onboarding costs so if you're doing any sort of recruitment background checks medical testing all of that we would see as your as your net so we try to keep like your gross margin purely caregiver cost related and then anything else would really come into play as a net income like impact the bottom line. Okay and what are healthy margins? There's kind of a range here, what would you say a healthy margin is for a business for both gross and net?

[ 00:21:54 ] Yeah, there's different ranges I we see anything from like gross ungrossed to like from 35 to 50 as a gross margin. 50 is really the challenging one to hit but if you manage your your rates really well it's doable still. 35 you're probably like billing Medicaid and that's more of a volume space. And so one I would say the big thing about gross margin is like one isn't right or wrong it's just the business strategy so like if your gross margin is lower you're just looking for higher volume I would say anything below that you probably just want to maybe do some market analysis and really check to make sure your rates are competitive. I know it's tougher you know just as the economy and things have evolved to really try to hit that but I think that when you go below I don't know I don't know I don't know I don't know I don't know I don't know

[ 00:22:47 ] anything below 30 is really hard because then you're just going to have to have you're the volume of hours required is you start to really struggle on then the overhead side because you have to step up in the office so much to keep up with the volume of hours so a lot of them your your margin is going to you know overhead staff. And on the net side what would you say are kind of healthy or you know needs room for improvement on net? It all so my opinion it all depends on also like kind of the size but if you're like a mature business and it'll also depends on the strategy around like you know if you're staffing it with other people or doing it yourself.

[ 00:23:23 ] I think 15 to 25 percent are still like healthy net income like return on sales. I will say like if you're kind of one of the agencies that are you know they've broken even and then they're kind of figuring out like that next leap that's hard to achieve because you do have to staff up your office to like enable yourself to go to that next level. So, you might see that that your growth is still going. To overhead because you've added you know someone in recruiting or scheduling. So that's why I say it also depends on like the stage of the business and and sometimes the structure. Yeah, I think I think you're probably referring to especially like payer sources like you said you know with private pay you may be able to hit that you know maybe 50 percent gross margin but Medicaid you're probably closer to maybe 30 percent.

[ 00:24:11 ] And so it's important to track margin by payer source you know. So, you know your payer so your your generic gross may be you know 35-40 percent, but then to break it down by payer source and be analyzing those targets, you know, is private pay going up or down? Is Medicaid going up or down? You know how do you manage all of that and know what to expect for each payer source. Yeah, and one of the things too that we look at so on revenue, we talked about like the fluctuation in price for average price per hour, and then also looking at the individual rates by payer source. One thing we try to keep a pulse on as well is the pay rate per hour and a big thing on that one is you know market dynamics and the labor force it's different in every territory, in every geography.

[ 00:25:02 ] But if you're starting to see like your your pay rate per hour trending up that's really helpful to monitor because then you can give instruction to your office staff maybe it's you're not your your roster of caregivers you know we need to really work on recruiting. So we look at overtime payroll as a percent of total payroll because that's a really telling figure, you know. If it goes up five percent month on month, that means your caregivers are probably happy because they're making overtime, but then it's probably you know we need to focus on recruitment or we need to like re-engage caregivers that aren't working you know more than like 10 hours a week and see what we can do to get them on a fuller schedule.

[ 00:25:42 ] So on gross margin it's helpful to keep an eye on both what you're doing and what you're doing and what you're doing. So I think that's one of the things that's really important to keep in mind when you're looking at your pay rate per hour because those are really the two that you can influence on like a daily or weekly basis. I mean workers comp you can impact over time but that's harder to do like when you're looking at it each month. Yeah, let's talk about rates for a second and like we know it fluctuates state to state, geography like you've got to do kind of your own local analysis. It was really interesting like pre-pandemic, you heard of a lot of businesses that their rate was the same for you know maybe years, you know, several years, and then the pandemic came and it was like oh my god, I'm a kid, and everyone was strapped, and it was just really tough.

[ 00:26:20 ] And you know, I just heard this kind of influx of like oh we need to be like raising our rates and we you know account for annual rates etc. So I think a lot has changed just the last several years in home care, and just cost of living, you know, no one's a stranger to that, and so rates are going up. What's your, you know, professional recommendation on rates? Let's start on rates and we could talk about wages but you know, like an annual increase on rates or is it just looking at the market or how should people approach increasing rates regularly? Yeah, it's a good question so I think there's a couple of things that are helpful there.

[ 00:26:55 ] First, I would say when you're first onboarding a client and you're assessing care, you also want to think about, you know, if let's say they start out with like four hour shifts, okay how does that change? So, I would say starting to price potentially at a higher rate for shorter shifts because they're harder to staff, you know there's like the whole dynamic there. So, pricing based on shift duration is one trend that is helpful. You know if it's a short-term or once-off case maybe you do like a flat rate that is a favorable rate for you and there's different ways to structure it, but really thinking about rather than just like having like one flat rate, this is how it looks, you know, getting a little bit more creative with duration or like once-off.

[ 00:27:39 ] And then I do think building into your contract, your client agreement, just sort of a clause around 'we do annual reviews'. I would say people aren't always opposed to it. Like everyone does kind of understand cost of living and then you have the conversation with the client that a lot of the times it is, you need to pay your caregiver more to retain your talent, but if they have an awareness of it ahead of time, it's in the client agreement, it's not a surprise that you know, they can have that, you can, it allows you to have that conversation from like a place of, 'hey this is the annual rate review time', it's not 'hey we need to raise our rates because of this'.

[ 00:28:13 ] And, you can do once-off I mean, if there is like a need and I think it's a good thing to have that conversation with the client because it's like keeping an eye on like if more care is needed or there's you know additional service being provided that wasn't initially priced in so there's a catalyst for it, you know you want to have that conversation as well. But yeah, so I think it's matching like pricing with duration and then also just building into your contract so it's not a surprise to your clients. And absolutely factoring in wage, like we talked about, I think a big reason for rate increases the last several years was just the increase in wage, you know minimum wage has gone up around the country and so that's just kind of an obvious like flip side of the coin, you know if the wages go up, the rates have to go up.

[ 00:28:53 ] You talked briefly about overtime again, kind of murky territory, a little bit because every business and how they approach and think about overtime is different. But that can be can be a very large expense; it's most likely an expense on your budget, but you know, every business kind of thinks about it structured differently. So any thoughts about like managing overtime and where that fits in here? Yeah, so managing overtime I would say also depending on like where you are sometimes I mean California if you're an agency in California you're required to pay overtime anytime it's depending on it's either eight or nine hours so you're kind of if you're doing like 12 hour shifts you're going to inevitably have overtime so I would say it's really understanding like the tolerance for your agency around it and you know what makes most sense.

[ 00:29:42 ] I would say it's really hard to avoid entirely in the industry, and that's why I said like a tolerance would be like a we like to see it under five percent of overall wages for the period that we're analyzing because you also the biggest thing when we're thinking about it too you know financial analysis and all of this is like great in theory, but there's a human side of the business and like home care is so human, so to say. Like, oh, we're not going to staff a shift because we can't incur overtime, like that's not we would never like recommend that. So it's inevitable, but I think it's just managing it and understanding, like, is it a roster issue or is it just a like we just had this one client and they really want this caregiver?

[ 00:30:20 ] And that's where you might have to have a conversation with the the client's family and saying, like, hey, we're happy to do this, but it will be at this rate for this time. So, yeah, I think it's it's somewhat inevitable and you just don't want to compromise care over overtime, but just keeping an eye on it and making sure we're understanding the root cause. And it comes back to margins, you know, knowing and understanding your margins and looking at the break-even and the profitability of every single shift, you know. I know that's really granular. You see a lot of people like maybe doing that in spreadsheets outside of their software. We built you know

[ 00:30:53 ] Plug for Care Switch these profitability calculators to where you can look at the your target margin gross and net for every single shift to empower schedulers to be thinking about how shifts impact the bottom line because it's really easy to look back okay here's where we lost money this past month but you want to be more proactive and forward thinking how does this shift and this rate or if we incur overtime. You know for this shift how much you know are we losing or how much you know where is that break-even point and so I think it it can be intense you know if you're scheduling hundreds of hours thousands of hours every single week but this is the type of you know focus you have to have if you want to scale is looking at you know the margins and the profitability at the shift level not just you know historical.

[ 00:31:40 ] 100% I think that's like it and it helps in so many ways because you bring awareness to it right, I would say that there could be a tolerance for like this is you know the profitability that we're looking for but then there's an exception right and there might have to be an approval or discussion around it but it makes it more real-time and it also just really helps to empower the staff, that's one of the biggest things I think with like a financial analysis and you know financial performance of a business sometimes it can feel so like siloed and segmented but the more that you can integrate your staff into like not saying that you need to help us make money but here's something you can do to help us make money.

[ 00:32:17 ] To contribute to the growth of the business that really helps, like bringing them into you know the business operations and can really help empower them. I've got a lot of thoughts on that because there's a there's variation in home care you know some office staff: no revenue, no bottom line, no margin; they're a part of this conversation even recently, you know? Talk to owners who think, 'You know, I kind of need to like safeguard our financials' because then people ask questions or get curious or you know question their pay. But you know my personal take is: yeah, training is a big part of it. Transparency you know empower your team to understand and know these numbers we could

[ 00:32:51 ] talk about like performance-based compensation you know these people are motivated to help the business grow and thrive and so the more that they understand and think about and you talk about revenue as a business it gets everyone just kind of accustomed to you know how the operation runs you know what is the bottom line what is the break-even and how are we all working towards because at the end of the day it's the care that's being provided don't get me wrong it's the people but in order to help as many people as possible you know you're going to have to have a lot of you do have to manage and think about the finances of the business and so I like I like what you're saying of incorporating the team make sure everyone's kind of talking and thinking about of course kind of in their lane you know they don't necessarily need to know everything but understanding and knowing the the revenue or the financial aspect that they themselves influence.

[ 00:33:36 ] Agree yeah 100% and that's where it's like great like putting it to them in a way that makes sense to like their role so to tell somebody you know like we have to grow by 20%. That's really hard for a lot of people to grasp and you need I believe you need like a plan and how to do that but then you break it down into like okay, that means if we have to add 10 new clients how many new caregivers do we need to onboard, okay, we need 20 to 30, whatever the metric is that you've decided is your ratio, and then you help like that person because then they feel like included and they like in their way have a goal that will contribute to that $20,000 growth.

[ 00:34:11 ] Exactly exactly let's talk about overhead costs. This again there's a lot of variance here and it can get a little out of hand quickly but what are the common overhead expenses that owners should be watching out for or where are maybe some of the common pitfalls when it comes to overhead expenses? Yeah, it's a good one because I feel like sometimes that's such this like not a great area but there's a lot that can happen in that space and we do see a lot happening. I think the big thing is like home care is a people business no matter like how you look at it so one of the things we really encourage, and I would say this is regardless of agency size, because even if someone is doing multiple roles, you can still allocate their salary to multiple places, is really just understanding where your spend is by department.

[ 00:34:59 ] And I say that more for like wage allocation. So like if you have an operations group, if you have a marketing group, typically you would separate owner pay just as a best practice so that you can really start to see what area, where are we spending a lot of our overhead? And that's the biggest expense that we typically see is payroll. And then the other sort of recommendation or thoughts around overhead is really being timely with your accounting. Because that's the tricky part. Like many of the man, like the client software has, you can run gross, you can run revenue and gross margin, but really until you get into like an accounting software, that's where overhead really comes into play. So really being timely with that and looking at it on like a monthly basis and just being consistent.

[ 00:35:43 ] Like if nothing else, you know, if you have, if you're recruiting through Indeed every month, you just want to make sure you're recording that to like the same line items that you're looking at trends, because that really helps you. Like if you see your Indeed expense tripled last month, but you didn't have corresponding hiring. Okay. What's going on there? So being consistent and timely with it just helps because then you can start to see trending. And the more that you look at the trends, that's where you can focus your attention. Or, like if you're, if you're missing an expense, right? Like, did we not pay workers or it just this other insurance expense miss? Cause that it just really helps to be proactive and keeping track of it.

[ 00:36:20 ] And now with like payroll software, being able to map to those different line items on the profit and loss. Once you get that initial integration set up, it's pretty straightforward. It's just spending time on the initial integration, which can't be its own project, but it allows you to then really critically look at the business each month and saying like, okay, we missed an expense. We missed an expense. We missed an expense. We missed an expense. We missed our target or we hit our target where it was spent up or where it was spent down. Yeah, yeah. I, I am like kind of visualizing a PNL. Um, and I know we talked about this as a podcast. We can't necessarily like pull up a PNL and go through it.

[ 00:36:57 ] Um, and I was looking at the, the benchmarking report before this to just think about, uh, I think about the PNL and I know we can't maybe like get totally into it. I don't know if you've got one pulled up in front of you, but just thinking about kind of like the buckets, what are the key buckets is overhead its own bucket, or is it kind of bedded down with, one of the core buckets? Can you share, yeah, just kind of how you structure PNLs and some of the most important things to call out? Yeah. So when I think of overhead and when I'm saying the term, I just think of basically anything that's below the gross margin line item expense.

[ 00:37:29 ] Um, so that would be anything really that's related to running the business, but isn't directly tied to the delivery of care. Um, and some of the, and typically like what we, yeah. So, we see in, in home care, sort of like an operations group, to sometimes there's a marketing spend or marketing group within that, um, caregiver, like onboarding and recruitment is typically another big line item. I would say one area that can sometimes be a little bit more difficult to really like get into and understand the ROI on is marketing that can sometimes feel just like, you know, we're spending money on marketing. Do we see, corresponding sales, you know, sale and, and there's marketing, there's branding. And it's also, there's not always like an immediate impact on that.

[ 00:38:23 ] So you might have marketing spend, but you only see the impact from the work you're doing like two to three months later. So that's where for us, we, that's where I think it's really helpful. The home care pulse report activated insights, I should say is the, um, client acquisition costs and really measuring that and looking at it. Cause that's a metric, like a way to put some, some numbers to the spend that you're having on the marketing side. Cause it can really feel just like this, um, this bucket of like, you know, we have a budget and we know we should have a budget, but like, what is that really doing for us? Just kind of like we talked about last, last episode around day sales outstanding on the AR piece.

[ 00:39:04 ] It's sort of this other metric that we don't always talk about or look at, but they're really helpful because it gives us an idea, you know, on client acquisition cost of it, you know, what, benefit or like, where's that number. And then, you know, client lifetime value, are we really recouping that and making sure that we're getting back what we're putting out? Yeah. Yeah, exactly. I'm yeah. Looking at this P&L and it is kind of the four buckets. I'm just going to like kind of talk through it so people can kind of conceptually. So yeah, you refer to it as like direct care expenses than these other buckets. The way that it's listed here is like recruitment and retention expenses, sales and marketing expenses, and then also operating expenses.

[ 00:39:40 ] You think of like rent utilities, et cetera. So those, those buckets. And I think you're, you're spot on, you know, sometimes the PNL is just a bunch of lines and a bunch of numbers, but tying recruitment and retention back to cost per hire, tying sales and marketing back to client acquisition cost. Also like lifetime value, lifetime value of the, of the caregiver, lifetime value of the client, these numbers, how do they kind of stack up against those other metrics to basically tell the full story of where, where things need to be tweaked or changed. Um, I was going to ask about like rent utilities, like other operating expenses. I think that's also kind of a black box. You know, you kind of could just like put a bunch of stuff under there because there's one-off expenses that come up.

[ 00:40:24 ] Um, anything that you've seen to kind of keep a rain on what could be just, you know, those one-off expenses that maybe an owner or an empowered administrator could maybe take advantage of. Um, I think the big thing, this kind of ties into budgeting more so though, is like, it's hard to plan for every expense. So, I would say that depending on the organization size, we recommend that there's sort of like a buffer, like an, you know, we know each month we might spend five to $10,000 on something, or maybe it's $2,000, the size of your agency, because there just will be things that come up and it's really hard to say, 'okay, this was, you know, and it might make a lot of sense for the agency at that point.

[ 00:41:06 ] So, it's building in that flex spend so that, and I would say, you know, you just don't want to spend a spend or like, you know, something that's completely unrelated, but just know that if you're, especially when you're creating a budget, that it's really hard to brainstorm and understand like every line item that will come through. Um, and I think, yeah, like rent and utilities; rent. I mean, and that's the other thing, like you can really kind of get creative with like your agency and what space makes most sense for you. Um, the big thing about those is like, we just want to see consistency month on month. So like, if you're like, I don't know, I don't know, I don't know, I don't know, rent expense is going all over the place. That's going to be a question of like, are things in the right place?

[ 00:41:48 ] If are they not, or like, why is this happening? Can we, you know, bring some control to that? So that's for me, the, the routine expenses, we just like to see consistency. And then, if not liking understanding why that is happening and can we do a better job of managing it? Let's, um, I know we're already here at the last 15 minutes. Can you believe it? Let's, uh, let's get into budgeting. I know you have a lot of thoughts here. Um, I don't know why I kind of like laugh when I think about budgeting, maybe, you know, people's personal lives. It's like, oh, it's that thing that you like is in the back of your mind. You hate to talk about in a business.

[ 00:42:18 ] It's like a part of, you know, the foundation is thinking about a budget and sticking to a budget and looking at a P&L. So, um, let, let's get into budgeting, I guess, more high-level, like how do you think about budgeting regularly and how do you coach people to manage a budget long-term? Because again, it's one of those things that you can set it up and feel gung-ho about it initially, but. How do you make it a part of like the culture of, of budgeting? So I think that budgeting is an exercise that organizations like regardless of size is a healthy process to do, probably starting your Q4, because then you're thinking, 'I know it's hard because it's like the holidays and you're trying to figure out the end of the year,' but it's a great time to like reflect on what happened in the prior year and then start to think about the next year.

[ 00:43:09 ] And for me, budgeting is a strategic exercise. So it's not just like, 'Here are some numbers and what we think will happen.' You're really bringing in, if you have different departments, like departmental leaders or like key roles in the company and understanding you'll mean we think about sort of like the profit and loss structure and think about it, you know, in the different categories we talked about with revenue, gross margin, and net income, you know, revenue, especially when you're getting into like that five to ten, you know, you're going to have to think about how do you get to that five to ten million range? And you're looking for growth. It's for us when we work on budgeting, we're thinking about like where are those hours coming from? So we're looking at historical trends to see you know what were the hours by payer source in the prior year?

[ 00:43:52 ] What are the pay rates or the reimbursement rates at that? And those different and then how does that look for the next 12 months? Like where do we have opportunities to grow and expand? So like getting really nitty gritty with that revenue buildup rather than just saying like, we want to grow 30%. So we're going to you know, add another 30%. It's like where whereas that coming from and then that's we're having conversations with whomever is responsible for business, business business growth if you have a marketing group or if it's whatever the team structure is you want their buy-in and they they support that And then we look at that every month when we have a set budget because we can see we can track against like we said hours would be here but they were here Why is there a difference And what was working for us Or what didn't work For us Or if we saw favorability in the price per hour

[ 00:44:44 ] What like why was that Can we continue to work on that? So, you know, I think really encouraging revenue to take a critical look at where will hours come from, because then you start to drive your team in a certain way. And you don't have to tell your team, like, you know, here's the revenue versus the budget, because if you're getting into hours, you can really use hours as the metric and say, like, we said we would have 2,000 hours from this source, we had 2,100. Okay, great. How do we build on that? Or we were down by this many? So how do we how do we recoup? Or like, make that up? So using hours to guide the team is really beneficial, I think, in this in this space.

[ 00:45:21 ] And then, similar to, like with the gross margin, you know, so like top line, you're including people, you know, rev the marketing team, I mean, even scheduling, because they can look and say, like, can we expand hours within current clients? Like, is there a way that they can support that where other opportunities there that there might need additional care? And then we started talking about the components of gross margin, really, we're looking at, you know, like pay rates. And that's where you're bringing in, like your recruitment and your scheduling team and understanding, like, 'Okay, here was our average pay rate over the last 12 months, do we think it's feasible to keep that for the, you know, and how are we doing that?

[ 00:45:54 ] Are we bringing in caregivers and training them, so they're starting at a lower rate, and then they're progressing, you know, what is our strategy around maintaining our average pay rate per hour, or like trying to minimize overtime as much as we can. And then you build up targets from the growth that you've been forecast on the revenue side, to the recruitment side as well, because then they're saying, 'Okay, do I think I can onboard, you know, another 300 caregivers, or whatever the number is, and like, okay, how do we do that?' What's our strategy around that? And then on the overhead buildup, that's really, I mean, you're getting into like, the makeup of the, you know, office staff, and, you know, what are key roles?

[ 00:46:36 ] Okay, if we're going to grow 20% on the revenue side, do we have the right people in place in the office? Do we need to add headcount? If so, when do we do that? And that's where you can start to set like, salary targets, if you're doing incentive-based compensation, you bring that into the mix. So it's a really like strategic exercise. And then you put that all together. And it starts to really paint a picture of, you know, where, where are we going to go? And how are we going to get there over the next year, and then measuring against that on a monthly basis, because it really helps. If you can say like, okay, we overspent here. Why did we do that? Like, so on marketing, okay, we spend another $3,000 this month.

[ 00:47:16 ] It's because we supported this organization in this way. And it opened this referral source. Okay, that makes sense for us. Or, you know, we forgot about something that we didn't budget or, you know, it's looking at it and measuring against on a monthly basis, and then just doing like a quarterly refresh, you know, where things like super off from where we thought they were in the beginning of the year, especially with smaller, younger organizations, like they might have experienced huge growth. And so they're blowing that off. They're blowing that budget out of the water, which is awesome. But then it's like not meaningful to analyze against. So you want to just take a look at it every quarter.

[ 00:47:47 ] If you're a larger organization, maybe you're looking at it, you know, every six months, but really, I think it's healthy, healthy to look at it quarterly, just a good way to bring everyone together again, and make sure everyone's on the same page around, you know, how we're performing and where the business is going. Yeah, a lot of great insights. I think you, you kind of touched on this. But one of the things that is coming to mind is, as you scale, and as you, you know, build up an office team, and you break it down into departments, one of the trickier things of budgeting is like establishing budgets for different departments or for different individuals. And like you said, you know, at the year end, you're kind of forecasting and prepping for the year in advance.

[ 00:48:24 ] And you can look back at expenses and, and kind of allocate budgets. I guess the question is, you know, can you stick to really rigid budgeting in home care? Or is there so much flux that, you know, it's, it's not always easy or predictable to be able to stick to a really rigid budget? I would say for certain line items, like headcount, you can probably unless you're having, you know, like a huge swing in your office staff, it's probably you can, I would say, be pretty accurate with your budgeting there. That's why I say like, though, if you're a growing organization, that might change over time. And then, you know, that's where it goes back to like, the structure of the office and, you know, how you empower employees and like the kind of like the leeway you give them with spend.

[ 00:49:19 ] I think it's healthy to say, you know, like, we have this budget, this is the number. And really, that's where it says, like going back to involving them in the process, like, but where are we like, how are we using that? You know, what are we doing with it? And you don't have to give everybody like the full picture of the whole budget, but just having a conversation around like, okay, if we have, you know, a $6,000 budget, we're going to be able to do that. And then, you know, $6,000 marketing budget, like, what are we doing with that and getting the buy-in from the team on that? Or on the recruitment side, like, do we, you know, how much are we spending on caregiver onboarding? Is there a way that we can get more strategic with that as well?

[ 00:49:53 ] Because I think sometimes we think of, you know, the budgeting as like a CFO or like a director of finance role, but I really do believe it's like bringing the whole organization together because the more buy-in and they have like responsibility for that. Because if you just tell somebody like, okay, you can spend this much money, you know, this is your budget, and they don't have any idea or like say in what's going on, it's really harder to first, you're not empowering them. And then you're also it becomes just kind of like play money. You know, they're not really understanding, like, where does that go? And how is it helping the business? So it's educating the team as well and helping them understand.

[ 00:50:27 ] And getting them to think about like the ROI, you know, we haven't necessarily like thrown out that term a whole lot this session, but like the ROI of their activities, you know, you think about recruitment and retention, sales and marketing, like you said, then a couple of minutes ago, like, oh, this month there was like this $3,000 initiative. It's like, okay, you know, let's, you know, empower the sales team to take that money, go execute on an event, but, you know, then hold them accountable. Like what was the ROI? Did we bring in new clients? Did we bring in a new referral source? Did we bring in new employees? Like what was the ROI of that spend? And that's where it gets, it gets technical and it gets tricky.

[ 00:51:02 ] And, you know, these are a lot of conversations that have to take place, but that's the kind of accountability that budgeting helps. Enforce is, you know, empowering people to manage finances within their department or for them themselves, but then holding them accountable to what, what did that equate to and how is it impacting the business? Yeah, exactly. And, you know, that's where like going back to those metrics, because ROI can feel like, you know, how do we get there? Like what, what do we do? But looking at a lot of those metrics we talked about around like client lifetime value and client acquisition costs, like those help to inform the effectiveness of a lot of the spend. Absolutely. I know we're, we're almost at time here.

[ 00:51:41 ] Any other metrics, you know, we're talking about like analyzing financial performance, any other metrics coming to mind that we haven't really touched on that we could hit on here at the end, just anything else that you all are looking at monthly or quarterly that we maybe haven't mentioned today? I mean, we've talked about a lot over this session and last session. Yeah, it's a lot. And we also, one of the things I didn't touch on in the beginning was we do a lot of like year to date. I don't know if you've heard of it, but we do a lot of like year to date analysis. So looking at like current year to date versus prior year to date, because that's also really helpful in telling, especially, I mean, revenue growth is great because you can see, but like if revenue is growing, but net income is down compared to year on year, okay, what's happening?

[ 00:52:22 ] Are we preparing for growth? And so we're spending more on headcount or are we just being inefficient because we saw more revenue. So we think we can spend more. So year to date is extremely helpful because month on month gives you a snapshot of like right now, but year to date takes you back to, you know, like first half of 2023, which feels so long ago. But when you look at it, you're like, oh, my margin is up or my margin is down. What's happening? Do we need to do something we were doing in 2023 again? Or like what has changed since then? And that's been really helpful with some of my clients that are trying to figure out, like you know, as they're growing, you know, anchoring back to that and seeing, you know, can we keep our fixed costs somewhat flat as we grow so we can see the pickup on the net income side?

[ 00:53:04 ] So year-to-date is extremely helpful. Yeah. And then the other thing that we look at, which I would say like probably isn't as much of like a common metric, but we look at average income by hour. So when we talk a lot about like gross margin and gross profit, but we also like to say like at the end of the day for every hour that we build, like how many of those dollars are we keeping? Because that can be like super insightful if you're, you know, at $2 an hour that you're billing, you know, like, okay, what's going on in the business? Like, how do we, how do we change that? Or if we're at $10 an hour, okay, that's great. Or is there a room for improvement or how is that?

[ 00:53:44 ] Because I think you're doing all this work and then you feel like your bank account is telling you one thing or there's something going on with cash. So that's helpful because you're like, is it because we're not, you know, we're not keeping enough of the cash that we're actually billing or is it like a cashflow challenge? So that's another number that we like to look at and see at the end of the month, then year-to-date, what that looks like. Yeah. I'm glad you called out year-to-date. I also think, even just year-over-year, like we were talking about earlier, just like the flux, the month-to-month flux that is home care, there can be this consolation of, okay, we know that like February is a really tough month for us. We've seen it the last three years.

[ 00:54:22 ] Like we kind of know what to expect going into it. You think of the seasons, you know, the start of the year, summer, fall, winter, like there are just like year-over-year trends that also bring a little bit of like consolation and understanding and expectation to your revenue when you know, okay, the last three, you know, three Februaries have been tough or July gets really tough because people are on vacation or families are traveling. Like there's just, there are trends and factors long-term. And so looking at year-to-date year-over-year, that can help you again, start to like anticipate and know what to expect in the future. Yeah. And one of the things too, you made a good point around like what we were looking because February is a funny month, right?

[ 00:54:59 ] It's like two days or three in this year, I think it was only two days, but typically it's like three days shorter. So we were like, revenue is always down. And you know, that's a reason people like to say, well, it's because of the shorter month. So we look at what was the average billing per day in the month, because that's really insightful. You know, if you're actually revenue in February was down, but we were billing $500 more a day than the prior month. So we did have a good month. It's just that the calendar wasn't as long for us in this month. So that's another, another number that's helpful to look at when we're trying to see what's going on month on month. Yeah. Yeah. Well, great, great sessions, Dana.

[ 00:55:32 ] This has been really fun and really insightful. I know we've got a couple of people in the chat that have reached out for more information. Just briefly here at the end, what's the best way for people to get in contact with you personally or get in contact with the business and what can kind of people expect? And that may be like intro call or out of the gate when they would start to engage with you or your services? Yeah. So I'm on LinkedIn. We're the Home Care CPAs. So I'm responsive on LinkedIn. Our website is the homecarecpas.com. We have a really nice experience when someone kind of just reaches out to our questionnaire just so we can learn a little bit more about your business.

[ 00:56:10 ] So we can have like an informed conversation around some pain points, but really we just book a call, understand like what you're thinking about, you know, how we can support. And then, and then we go from there, but it's, we, we schedule a call. We chat about each agency has its own top of mind. Like this is what we're focusing on. So really for us, it's just understanding how we can best support somebody. Awesome. Well, I would recommend people reach out to you again at every stage. You know, we talked about this last session, you know, this is may not be your strength as you're starting your business and being able to lean on someone that this is their strength is really helpful, but also as you scale, you may want someone to kind of fact check or look at, you know, how things are going.

[ 00:56:48 ] What is top of mind for you? Where are you struggling maybe with cashflow or scaling or thinking about revenue from different payers? So Dana and her team are definitely a resource that I recommend everyone reach out to. So we'll go ahead and cap here. Thank you again for giving me time the last couple of weeks. Hope this information is useful to those listening, and we'll look forward to staying connected. I'm probably rubbing shoulders at some of the conferences this fall. Yeah. Thanks, Miriam. This is a lot of fun. I really appreciate it. Awesome. Well, thanks everyone for being here live. Hope you enjoyed the session and we'll see you back same day, same time next week. Take care. We'll see ya.