Functional Medicine Business Institute Podcast

Functional Medicine Business Institute Podcast

Episode 24: Simple Numbers BIG PROFITS

April 25, 2022

Dr. Deb shares what it takes to evaluate your business and why the new breakeven point is 10%.

Do not miss these highlights:

02:21 Profit in your business is like oxygen and money is your fuel

03:21 It's really important for your business to be profitable enough for you to pay yourself a living wage

04:47 Find the right accountant who really knows the laws, learn about what is tax-deductible and what is not, this can save you a ton of money

06:04 You don’t just have to look at what your profit is, but also what your salary is - You have to include that salary into your expenses

07:22 Within three months of marketing, you should see your profit change, you should see more clients, if that's not happening, you need to change your marketing strategy or your marketing person

08:10 Your lab profit should exceed your lab expenses by a minimum of 25%

09:27 Certain things in your business are going to have a higher profit margin than others

11:55 How to become profitable day in day out 

13:43 Pre-tax profit is your earnings before taxes. This is a revenue-generating activity that you should look at to see how your business produces for your benefit

14:09 Pull your P&L from quarter to quarter and year to year, to see where your expenses lie and see where you're spending all your cash

15:13 You need to have the clients paying you cash, before you can start doing a lot of big expensive things like marketing, videos and photography

19:04 If you have all expenses and very little profit, your focus needs to be on getting patients in the door, getting the services done in your practice so that your profit margin comes up

Resources Mentioned

Join Us in the FMBI Mastermind Group on Facebook.  You can find the Group at

Transcript of Episode #24:

Debra Muth 0:01
You're listening to the Functional Medicine Business Podcast featuring Dr. Deb, one of the most creative functional medicine business practitioners in her industry. She shares the wisdom and knowledge that she has gained over 25 years of functional medicine, a pioneer in functional medicine, scheduling, leadership and Practice Management. Dr. Devin has a wealth of knowledge and he's eager to share to help functional medicine become more productive, and for the practitioners and patients to live better lives. Our podcast shares the good and the bad of our industry because Dr. Deb knows the pain you live every day building a functional medicine practice with practical tools on how to manage money, taxes and patient care. She will discuss it all with you.

Hello, hello. Hello, and welcome back to FMBI podcasts. I'm your host, Dr. Deb. Today I'm going to talk to you about what does it take for a percentage of your business to be breakeven. And the new breakeven is actually 10%. At FM bi, we understand how it feels created by medical professionals for medical professionals. Are you racing from one patient to the next, skipping lunch and not sure how you're going to show up to your kids events? Not quite sure what that p&l sheet really means to your practice? And are you struggling to find the right partners in your business? Our program is based on the values of efficiency organization and prioritization. The FMBI 15k a day program will help you discover how to run an efficient operation and introduce healthy generating therapies for more income. Our business roadmap will help you scale your functional medicine practice using proven business approaches. We would like to invite you today to book a free discovery call with our founder Dr. Deb, simply go to our website at functional free call and schedule your time today. So the truth of the matter is our profit in your business is like oxygen that we breathe every single day, your business can't hold its breath very long, without oxygen, right? Because we won't survive, we have to have fuel and in our businesses, our money is our fuel. So we all know in business that you have to pay yourself. But many of us when we start out, there's not enough profit, there's not enough money for us to pay ourselves. So we live off of the business in a slower fashion. Maybe we take money out to pay our car payment, or we take money out to pay our insurance, we take money out to go to the movies or have dinner, and we live off of the business. When we continue to do that we'll never get to a place of profit, where you're actually paying yourself a salary.

Now, I think that it's really important for your business to be profitable enough for you to pay yourself a living wage. So if you're a nurse practitioner, if you're a PA, if you're a doc, look at what the average salary is for that profession for the number of hours that you work in a week. And that is the goal that you should be paying yourself. Now, your accountant may tell you that you want to break this up. And if they don't, I'm going to tell you to get a new accountant. So from a tax perspective, there's a difference in the way that we pay ourselves. You can pay yourself W-2 income, you can pay yourself dividend income, you can pay yourself, distribution and dividend are very much the same. But there are also ways that you can pay for things that you do on a regular basis that are business oriented, they have to be linked to your business. So there are different ways that you can take money out of the business besides just w two. And I'm going to encourage you to find an accountant that's willing to talk to you about this. Because the reality is when we only pay ourselves w two income that is the highest taxed income that we could pay. And many of us are paying way more taxes than what we should for the money that we're taking in. And if it was any other business, we wouldn't be paying those kinds of taxes. So you want a creative accountant, one that really knows the laws and you also need to learn about what is tax deductible and what is not. This can save you a ton of money now I know it's Not the most favorite topic, nobody wants to listen to it, because it's kind of boring. But the truth of the matter is, there are a lot of things that we can do to take advantage of the tax system that is in place today. And our tax rate is always going to go up, it's never going to go down. So learning how to take advantage of legal tax breaks, I think is extremely important. And finding the right accountant is even more important, I've gone through at least seven or eight accountants in 10 years, because of the same reason, either they don't understand the tax law, they won't apply the tax law, the way it's supposed to be applied. Or they're just lazy, and they don't want to do what they need to do. And as a result, it ends up in me paying a lot higher taxes than I should have to pay, because somebody doesn't want to do their job properly. So that's my rant on accountants these days. Sorry if I'm insulting anyone, but it is the reality and it is the truth.

So once we've figured out that you're committed to this business, you're going to make it work no matter what we need to figure out what your salary is going to be. So not only do you have to look at what your profit is, but what is your salary, and you have to include that salary into your expenses, it's really important to do that. So start out with even a projection. I want my salary to be 120,000, by, you know, the end of next year. Put that down. And then let's work backwards in your company to figure out how are we going to do that? What are you going to have to do to make that salary? So I'm not a big budgeting person, I don't like budgets, I think budgets can get people in trouble. But I think forecasting is really important. So from year to year, actually, probably twice a year at least I look at my expenses. And I compare them to the previous year. So I want to know, how much did I spend on marketing this year compared to last year, and have my profits gone up as a result of that, you need to be tracking this otherwise, you are wasting money on marketing, if you're not getting a return on investment, marketing dollars are expensive. And within three months of marketing, you should see your profit change, you should see more clients in the door, you should see more sales, you should see more people calling you. If that's not happening, you need to change your marketing strategy, or you need to change your marketing person because you're not getting a good return on investment.

One of the other things that I like to look at our my office supply costs, my lab supply costs, my employees typically stays about the same, that doesn't change very much. And it's hard to change that right unless you're going to hire somebody or fire somebody that cost relatively stays consistent. But there are costs that you have power and control over. Office supplies are one of them. Lab expenses are another. And so what I want to see in my lab expenses is does my profit from my lab, exceed my lab expenses by a minimum of 25%. That's what I want to see. Because I want that lab making money for me. And if that lab isn't making money for me, then I have a problem. And I do include the salary of my lab tech in that evaluation, sometimes, it depends on how I'm looking at it. But I want to see a really good strong profit margin in every service center of the practice. So for instance, if I'm looking at our thermography, from year to year, I want to see that what it costed me to run that demography in my office. So that's the cost of the equipment, the cost of the reading, I want to see that number stay within a certain range. Now, certainly, if I see 150 more clients in a month than I did the month before, those costs are going up a little bit. But I should be able to account for that. And I should be able to see the profit margin has increased as a result of that. If not, I need to go back to the drawing board and figure out why I don't have that profit margin there. And what am I going to do to fix it? Now certain things in your business are going to have a higher profit margin than others, especially if there's not a lot of costs associated with it, where other things may have a smaller market. You know, some things may only have a 10% margin where other things may have a 50% margin. But I'm going to caution you in that. Oftentimes as integrative practitioners, we think that if we sell a supplement, we mark it up for 100% Most people say it's 50% but it's actually 100% We're marking it up 100%. If it's $20 it's gone to $40, it's 100% markup.

And we're, we're saying that the profit margin on that is 50%. But I'm going to question you about that, is it truly 50%? Now, by the time my staff has to unpack that supplement, mark the supplement for sale, stock it on the shelf, sell it to the person, either mail it to the person or give it to the person, I pay sales tax on that. And I paid for that either on my credit card, or if you're lucky enough to have a 30 day financing with the company. That's great, because you don't pay tax on that you don't pay interest on that you don't pay anything. But if you're putting it on a credit card, you're paying interest on it if you're not paying that credit card off in full. And you have to take those costs into account when you're looking at your profit margin. So your profit margin may really not be 50%. On those supplements, it may really be closer to 40%, which is still a great profit margin, don't get me wrong, but you have to consider those kinds of things. And remember, interest is not tax deductible. So oftentimes, we think, well, it's okay, if I let my credit card run for a month or two, I can write off the interest. No, it's not tax deductible in in many cases. So you have to be cautious of that, because you don't want to run up really high amounts of interest otherwise, it's it's just lost money, in my opinion.

So when we look at things in the finance world, we're looking at things that are pre tax profits. Now, if you understand the concept of profit, profit is actually the lifeblood of your business. Your business isn't profitable. If you're not taking business from others, you'll eventually fade away. So it's really important for you to understand that to be profitable, you have to be the best game in town, we have to have people know that you're there, know what you do, and want to come and see you and hand you money for what it is you do. That's how you become profitable, day in and day out, you need to feed this profit machine, just like you would feed a baby, it has to be worked every single day. If you take time off, you're losing that traction, and you're not getting the momentum that you need for your business to truly be profitable. Now, when I say profit, I'm talking about pre tax profit. And this is the profit that you make, after you take all of your sales minus your costs, cost of goods sold cost of doing business before you pay taxes.

Now, if you can't pay yourself a market based wage, this is the first thing I want you to start focusing on is getting your business to be profitable, so you can pay yourself. Now a lot of businesses look at something that we call EBITDA. And even as simply means earnings before interest, taxes, depreciation and amortization. Now, I think it's really a game that the investment banking community plays. But let's face it, unless you're building something that's going to have a huge production, and has a lot of real costs, like a building and equipment and machinery and things like that, you know, EBITDA doesn't really matter if you don't have a lot of equipment involved. So pre tax profit is your earnings before taxes. And this is a revenue generating activity that I want you to look at, to see how your business produces for your benefit. In most businesses that we look at, it's very hard for us to see a true pre tax profit, which is so important, you really need that if you're going to survive. Now, I want you to pull what's called a p&l. If you use QuickBooks or use any of the other software for managing your expenses. You can pull a p&l or profit and loss statement. And I want you to pull it from quarter to quarter and year to year. And I want you to see where your expenses lie. See where you're spending all your cash. And if what you're spending on is bringing you a return in your business, then I think that's great. But if what you're spending on like meals and entertainment or what's another good one, um, gifts in into your employees and your people who refer clients to you. Well then that's not such a great use of your money. If you can't pay yourself yet, once you can pay yourself and you have a good percentage of profit, you can start doing things like that. But until you start making a profit, and st until you start taking a paycheck, we want you to be really tight on the expenses that you have. It's great to have all these lavish ideas on how you're going to spend money and what you're going to do and how you're going to grow this business and who you're going to work with afterwards. But name dropping, doesn't put money in your pocket, it really doesn't, you have to have the clients in the door paying you cash, before you get to that place where you can start doing a lot of big expensive things like marketing and videos and photography. I mean, yes, that looks great. And many of the marketing people are going to tell you that you need extremely professional photos, you can't use any stock photos, and all of that, but those are huge expenses to put up up front. And I don't see any reason why you can't use stock photos temporarily, till you get some cash in the door till you get some cash flow moving. And then you can change out those photos, as you have income coming in. So that you can build exactly what you're looking for. But in the beginning, don't spend your money there, spend your money where it's going to make you the most money, which is driving clients to your door and giving you what you need to in your practice. You know, I've seen many people who don't stock supplements because they don't have the cash and they haven't been able to get a 30 day account, you know, payment account with their vendor. And so they recommend all the supplements and they give away all the profit to somebody else. Well, luckily today, we have great online dispensaries like Full Script and Wellevate, and these companies can actually be your online store. Now back in the day, when I started out, we would have had to create a store and sink millions of dollars into it in a warehouse and all of those things. And that's not necessary today, you can get a great percentage profit from these companies by not having to outlay dollars, not having to stock things not having to deal with the taxes of it all.

Now, granted, you're gonna give up a little bit of the profit for that. But for some people, if they lack space, and they lack assistance and employees, and they lack a lack of time and money, this is a really great benefit for them. So look into some of these things, I think it's super important that you have a stock option there that you can draw from whether it's physical stock in your office of supplements, or you're getting stock from someplace like elevator fullscript. Now, once you've pulled these p&l reports, I want you to take a look at them side by side, look at every single category, see where you're spending money, how you're spending money. And then I want you to decide if that's the best use of how you spend your money. Or if it makes sense to change some of the things that you're doing. This is, you know, it seems daunting, and it seems frightening. And for some people, it can be really overwhelming. But it is truly eye opening and truth telling, when you actually look at your numbers. Numbers don't lie. People can make excuses for what we spend. But the actual numbers don't lie. So you'll know where to tighten things up. Now, when I say that, I don't mean go back to your office staff and yell at them for buying 20 pens in the office. Don't do that, you know, don't get nitpicky with this. Look at big categories where you can really make a difference at spending that will bring you profit. And if you have all expenses and very little profit, then your focus needs to be on getting patients in the door, getting the services done in your practice so that your profit margin comes up. So you actually have income. This is so important because so many times people are looking for that needle in the haystack of where they could save, instead of focusing their time and energy on how to get more clients in the door and how to bring more money in. If you're at that place where it's that tight. You need to focus on people in the door, not expenses necessarily.

And if you're a numbers person, there's a really great book called "Simple Numbers: Straight talk, Big profits. It's by Greg, Greg Crabtree. I actually worked with their company for a while. And he's got a really great book that explains how to look at profit, how to look at numbers, and I would really encourage to take a look at this book. If you're new, and you don't understand numbers, this is a great book to get you started. I think it's a great way to start having some conversations about getting your business profitable by simply looking at numbers.

So I hope you enjoyed today's show, please share it and like us. It really helps with our ratings. And there's so many people out there struggling in business right now. They really need help in this medical world. So I'm always happy to share this information with as many people as we possibly can. You guys have a fantastic day. Make your business as profitable as you possibly can today.

Thanks for listening. If you enjoyed this episode, and you'd like to help support the podcast, please share it with others. post about it on social media, or leave a rating and review. To catch all the latest for me. You can follow me on Facebook at FMBI, join our free group where we support one another and share our struggles. Thanks again. And I'll see you next time.