Episode 33
Allison Jones
Good morning, good afternoon, and good evening, and welcome to the Therapy Matters podcast, your one-stop resource for expert insights and advice on everything therapy and rehab. I’m your host, Allison Jones. Today, I am joined by Christopher Music, a wealth coach for private practice owners. Christopher, welcome. It’s great to have you.
Christopher Music
Well, thank you, Allison. I’m happy to be here. I appreciate it.
Allison Jones
Excellent. Before we dive into today’s topic, why don’t you take a moment to just give us a little background on who you are, what has brought you to your point today in your journey, and just give us a little bit of background.
Christopher Music
Sure. I’ve been a financial advisor for 31 years now. I’ve built and sold two practices myself. I am now on my third iteration of what I do. The unique part of what I do is that I have taken a scientific and engineering approach to the subject of financial planning and the holistic experience a person has with their money and economics over a lifetime. I’ve found that private practice professionals, especially in health care, tend to be the public that I’ve been able to provide the most value for through my networking, my background and training, and so on. That led us here today where I have an opportunity to share some of the wisdom I’ve accumulated over 31 years and working with well over 3,000 practice owners in all different phases of practice ownership.
Allison Jones
Excellent. All right. In today’s episode, we’re going to be discussing how to build a therapy practice to maximum value. Many practice owners today are looking to create value and wealth from their practice, so they can sell it or have it acquired by a larger entity later in their career. That’s what we’re going to talk about. Christopher, as you mentioned, you’ve coached over 3,000 practice owners on this specific topic for almost 20 years now. We’ve come to the right source. You are the expert in this area. I’m going to start off with a pretty big question right out of the gate, and we’ll probably be breaking it down over the next 25-30 minutes. Tell me, is there a secret formula, a secret plan, or a special approach to build a physical therapy practice or a rehab practice to maximum value? How do you do it?
Christopher Music
Well, there is a formula to do that. It’s a learnable formula, and it’s multifaceted. I’m going to back this up by saying where does your practice fit into your overall wealth? You see, my clients are the households that own the practice. I do what I do strictly from the owner’s perspective because you, as a practice owner, you’re a practitioner first and foremost. You have been trained in physical therapy. You decided, for whatever reason, that you’re going to go out and start your own practice. The reason why people do that is because they want to practice the right way, which coincidentally, happens to be their way.
Then, without any business training at all, you’d go out there and say I’m going to start a business, which is courageous in the extreme actually. I have an MBA in finance and economics. When I started my own practices, I had no idea what I was doing. But it’s fascinating. It would teach you how to be an employee, not how to be an entrepreneur.
But what happens is that you get out there in practice, then you start working with other practice owners and networking with them and finding out best practices and what works. Then these consulting groups start to pop up who are masters of how to build a business, how to build the systems of a business. I am fortunately certified as a business consultant and learned how to build those systems.
I think the most important perspective is to understand that if you’re going to go into private practice, you’re an entrepreneur now, and there are three major roles that you have to be really good at. One is the practitioner, because you have to have the highest quality service delivered to your public. You also have to be trained as an executive because we’re not trained as executives. That’s usually trial by fire. You have to learn the functions of business, like planning and personnel, sales and marketing, finance, the delivery of your services, the quality control of those services to make sure they stay at an excellent level, and finally, public relations and reaching new public. If you’re missing any one of those functions, you’re going to fail. It’s just how it is.
Then of course you have to be a really good owner. The biggest piece of advice I would give there as an owner is, as Stephen Covey said, begin with the end in mind. The end should always be the intention to turn that practice over to someone to carry on your mission when you’re done with the practice. If you walk into the practice with that mindset, then every single day you go to work, you’re doing something larger than you. It’s more than just a place of practice now. It is a machine that can create economic value for generations if you want it to.
Allison Jones
All right. I love that. Where is the first place that an owner needs to focus?
Christopher Music
Well, it’s mindset. It’s mindset. The way life is lived, if you look at the law of attraction, the law of growth, all these different, more spiritual concepts, every action begins with a thought. You have to get it in your mind’s eye. You’ve got to get a really clear vision of what your practice would look like when you have “arrived”. When you have manifested your mission and you’re clear on your mission and you get an exact picture in your mind, you write it down in detail of what exactly it would look like when you have accomplished that game or that goal in that game. I think once you do that, then it becomes obvious what actions you need to take, what vendors you need to hire, in what sequence because you’re working toward a defined end rather than ‘I just need to make some money this week or this year, and we’re just going to try to spin all the plates to keep that going.’ Mindset is certainly the first important step.”
Allison Jones
Once you have your vision in place, then it becomes obvious, almost like a roadmap in reverse, what you have to do from day one to get to the final day.
Christopher Music
I think the biggest omission in planning is an omission of what it would look like if it were perfect. If you want to get into bodybuilding, you certainly have to get a vision of what your body would look like when it was perfect for you. Then you work backwards to work out the exact sequence to get there. The biggest problem is that we never get that idea, so we’re very inefficient and very haphazard. We spend a lot of energy and not get a lot of return.
Allison Jones
I think that’s a good point. The bodybuilder visual is a good way to illustrate that. You’re absolutely right. You wouldn’t go into a bodybuilding competition without having a clear picture of what you want to look like when you go onto that stage the day of the competition.
Christopher Music
Yes, because if you don’t, how in the world can you possibly identify departures from your idea of perfection if you haven’t first defined what perfection is?
Allison Jones
Exactly. Let’s talk about some of the elements along the way to getting to that final departure point. let’s talk a little bit about financial management. That’s a big component of it. Tell me a little bit about the importance of effective financial management in running your business.
Christopher Music
Well, your finance is your energy. Just like breathing, oxygen comes in, it’s turned into fuel in the body, and carbon dioxide comes out. In any business, the money comes in. It is used as efficiently as possible to increase the service. You then outflow that in results in society, the improved bodies that you’ve worked on. There’s a couple of basic rules of finance. These are shocking. Number one, don’t spend more than you make. You would think that would be like a kindergarten level understanding, but people violate that all day, every day. It’s fascinating. You can’t expend more energy than you can create because you’d go into debt and you owe somebody, which of course adds stress and all the other negative things in life. That’s the first rule.
Now what I tell practice owners is because the practice is your engine to deliver your genius to the world, you as the owner need to be compensated first because you’re the one taking all the risk and to even not employ yourselves, but employ all your staff and to interface with the public in the health care field. You’re taking all kinds of risk, so you need to be compensated first. But what most owners do is they try to spend money on everybody else first and hope they get a little money coming out of the bottom to pay for them. Well, that’s an inversion.
What you need to do, this is what I tell my doctors, take 10% of practice gross off the top and put it into your financial future to create solid financial conditions for your household so that if your practice ever does falter, you have a pool of money to pull from, to lend back into the practice, to salvage it if you need to or expand or do whatever. When I say that, people look at me like there’s no way I can do that. Well, there is a miracle that happens in business. This is the second rule of finance I’ll tell you.
Do you ever notice that the mark of a good executive is when you can pay your bills? No one wants to be a bad executive and not be able to pay your bills. There’s enough social pressure and legal pressure on you to produce enough value and get paid for it so you can pay your bills. It’s interesting to observe that as your bills go up in your business, you produce more income. It just happens miraculously like that. If we know that that’s a basic law, because it is, you always have to cover your bills, even the household. I gotta get to work today because I got bills to pay. Of course.
What I say for a practice owner is add that 10%, that first 10% of your practice gross as a bill. It’s a bill. You’re paying yourself first because you deserve it first. Why should anybody be ahead of you in the pecking order? Because without you, there’s no game, there’s no business. What will happen is you’ll struggle for a couple months, 3 or 4 months to get adjusted to this new big expense that you have. But by some miracle, your practice is just going to make 10% more income to cover your bills. I know this because I’ve done this with, I don’t know, maybe at least a thousand practice owners over the years and not one time did it ever not work that way. Clearly, it must be a law if you actually mechanically do the functions of it, and then of course, you then can expand because you’re making more than you’re spending.
Allison Jones
Is there ever a situation where you go against that rule or it makes sense to go against that rule where it does make sense to spend more than what you’re bringing in to take advantage of a situation? Maybe you’re looking to acquire another practice to expand out, so you’re taking on some additional debt that way. Does it ever make sense in those types of scenarios to add a little extra financial burden?
Christopher Music
Well, of course, I mean debt is a tool. Just like money is a tool, debt is a tool if you have a successful practice and you’re producing more than you spend and you can comfortably take on an additional debt burden, and you want to use that debt to acquire an asset.
There’s basically three rules of borrowing. It should create tax benefits. The thing that you invest in should create income, number two. Number three, the asset that you buy should appreciate in value. If you’re borrowing to create tax breaks like tax deductible interest or depreciation, if you are buying an asset that will go up in value like a business or even your training, if you get trained on a new technique that you know that you can go out there and there’s a demand for it and you can deliver it, that’s worth going into debt for.
Then of course, it creates more income. You can’t go wrong if you use those three rules and you have to at times use debt to acquire the asset and put it to use so that you can be able to manifest the greater value to both yourself and the public by having acquired and used that asset.
Allison Jones
Excellent. What else should we know about debt?
Christopher Music
I think the biggest thing is, stick to those three rules and you won’t go wrong, and eliminate all the debt that is not business debt or it violates those three rules. People say, should I pay off my house or should I not pay off my house? With the higher interest rates now, there’s a compelling argument to pay off your house versus what it was, say, five years ago.
You certainly want to pay off your cars. Don’t hold car debt, don’t hold student loan debt—you have to eliminate that one way or another because those are really dead assets. They violate the three rules. They don’t create income. They don’t appreciate in value. For consumer debt now there’s no deductions for interest cost in many cases. That’s where I would eliminate that debt and just focus on the good debt.
Allison Jones
Earlier, you talked a little bit about tax breaks. Let’s talk a little bit about everybody’s favorite topic: taxes. But what are some of the common tax challenges that are faced by business owners, and what should they know about that?
Christopher Music
The biggest thing I hear is, well, my accountant didn’t tell me about that tax break. Let’s get a reality check on who your accountant is, what they are and what they aren’t. Most business owners will go to a CPA to get their taxes done or enroll the agent to prepare taxes. Now remember, accountants are trained in accounting. They’re not trained in tax.
But when they go from a corporate job, from an accounting job and they go out and put their shingle out and say, hey, I’m going to now do accounting for the public, for small business owners, the biggest service that’s demanded is tax preparation, so they get into tax preparation. But tax preparation is only filling out the forms. They do bookkeeping with QuickBooks to do your accounting and that kind of stuff. But they don’t do tax planning, which is a very different subject.
This is where the big confusion is with business owners is that they think they have a good accountant who does tax forms. I did a study of 25 returns randomly in 2014, ten years ago now, and found that on average of my clients ranging from $100,000 business to a $1.8 million practice, their average was $20,400 too much in income tax every year with just five to eight basic strategies that they all could use.
I learned pretty quickly that accountants don’t save you taxes. They do your returns in a compliant way. Every business owner should be working with a tax planner. What I mean by that is someone who has a system by which to go through your tax return as a business owner and get you educated and taking the deductions that you’re entitled to as a business owner. Unless you learn that, that’s an incredibly expensive error to not know the tax laws well enough.
I say everybody has a side hustle now. As a tax planner, you gotta learn your own taxes. I think that’s the biggest thing because I would say on average, you’re paying $20,000 a year more than you need to on average.
Allison Jones
I understand that you are not a tax expert. We’re not giving tax advice on this episode. Are there common tax breaks that you see that businesses are not commonly taking?
Christopher Music
I’ll just name, rapid-fire, a few things to look at. First of all, pretty much every practice should be an S corporation for tax reasons–there’s a lot of benefits to that—in conjunction with other LLCs to do other things in your overall business empire.
How do you rent your house out for 14 days a year tax-free? You can hire your children. You can have your business, an LLC, own your cars and get benefit deductions that way. Home office, everybody can have a home office. A proper retirement plan, every practice should have a retirement plan. There are 14 different options. There are about three that tend to work with private practice better than the other 11. But I think every practice needs to have a retirement plan in it.
Then of course, finally, planning to not pay income tax on retirement income 20, 30 years down the line. That’s the investments and the other options that you take now to plan because tax planning is a lifetime event. Taxes aren’t going to go away. Those are a few things, just rapid fire.
Allison Jones
Excellent. Related to that, let’s talk a little bit about the importance of safeguarding your business assets. What can owners do to ensure that they are safeguarding their business assets?
Christopher Music
Okay, just a couple of ideas. First of all, think of a practice as three entities or more. The one that you interface with the public, that’s the one that would be first sued if anything went wrong, it doesn’t own anything. It has computers, it has office furniture, but you don’t keep cash in an LLC that interfaces with the public. That’s the first thing that I would say.
Take your cash out, and if you’re doing the financial planning for your household, you pull the cash out of your practice into your household, into assets for safekeeping that you can access back into the practice by way of loan if you ever need the cash back in the practice.
Your intellectual property, your brand is what the public knows you by. Your logo, your company name, get trademarks on those. Your tagline, trademark that. That protects your brand in the marketplace, and it gives a warranty to the public that they’re getting a certain level of professionalism and result by your brand. Which is why quality control is so important.
Then what you can do is pull cash out of your practice by paying royalties to another LLC that owns your copyrights and trademarks. Your policy and procedure manual should be copyrighted. That should be owned by an LLC so that your entity that has the employees in it can then hire or release through copyrights, agreements, and trademark agreements, the brand and the operations to run the practice. If you’re ever in a position where your practice gets attacked and you can lose, all your intellectual property is already protected elsewhere.
Then you just move cash out of the high risk business. The third thing I’d tell you is look at limited partnership for your household. Like Alaska, for example, because the asset protection laws are really good in Alaska for partnerships. What you really want to do is take your high risk assets and separate them from your low risk assets, which is basically what I’ve been telling you to do.
Then, of course with a partnership, you can hold the trademarks and copyrights in the partnership. You could also hold gold and silver. You can also hold conservative investments so that that is all sequestered away from any personal liability that you could create or professional liability you could do through your practice.
But yes, absolutely you want to use the state laws to protect like life insurance and annuities and your home and all of those plus trust. You want to use a living trust for your estate plan, and your trust should own all of these different LLCs, primarily LLCs and limited partnerships, that structure, your empire. It allows you to expand into real estate and other ventures that separate out those assets so that an attack on any one area would not infect the rest.
Allison Jones
You mentioned estate planning just now. How does that estate planning tie into the business continuity?
Christopher Music
Excellent question. Everybody has to have an estate plan because if you don’t give instructions, the state will. I don’t know anybody who agrees with the state wholeheartedly on the plan that they have for their assets. Let’s start with a living trust. A living trust is for your household or you as an individual or you and your spouse, a family trust. That trust will then be funded, funded means that the assets, the membership interest of your LLC, the deed for your home, whatever would be funded into that trust or retitled into the name of the trust. That gives it full legal effect. Of course, the trust can avoid probate. That’s the big value of the trust. It keeps privacy and it keeps it from going to probate.
Then of course, you have other documents that you need to protect your assets such as a pour-over will. If you forget to put an asset in your trust when you purchase it or start it, a will is read in probate court to say, any assets that are not tied to the trust pours over into the trust. You definitely need to have that as part of your package. Powers of attorney for financial decisions, if you can’t make them, you have somebody that you trust to be able to make those decisions for you, and health care power of attorney so that people can make decisions regarding your body if you can’t. Finally, living will, end of life decisions. You have complete control over your body until you cede that to somebody else. You obviously want to do that.
Typically, your practice will not go to the next generation. We think sometimes that we have a kid who has a propensity for doing physical therapy and we’re going to sell the practice to the kid. That happens like 1 in 1000 times. It’s so rare that that actually happens because the kid’s not you. They have different purposes in life and different abilities and competencies and interests. I wouldn’t plan on that, but you certainly need to have like, for example, a buy sell agreement. If something happens to you and you’re in there running the practice, do you have an agreement to sell the practice to an associate or to a partner? Is that all written out? Is the agreed upon formula for the valuation figured out?
Everybody that’s in partnership absolutely must have a buy sell agreement and a way to fund it so that if one of you dies, the other person has money there to be able to buy the spouse out if it’s going through your estate plan. But if you don’t have a partner and own 100% by yourself, you got to think about, if I drop dead tomorrow, what’s going to happen to the practice? What’s going to happen to my family and the value of that? Which is why life insurance is really important and a buy sell agreement with either an associate in the practice or why not the competitor down the street? If you have two people that are single and we’re friendly competitors, you buy me out if I die, I’ll buy you out if you die. It’s all good. Those are valuable considerations that people just don’t tend to think about.
Allison Jones
Excellent. Any final thoughts for our audience?
Christopher Music
There’s a beautiful joy in private practice. I have had the good pleasure of meeting and working more closely with hundreds of incredible practice owners, very smart people, very able, purpose-driven, magnetic. It’s a pleasure to work with the caliber of people that do this unique journey.
What I will tell you is that if you’re struggling, there is a solution. There is a blueprint. There are several blueprints that have already been worked out, already tested, already proven. It’s my biggest advice, it’s a point of wisdom to recognize that you don’t have to go and take the school of hard knocks in learning. You can basically execute the blueprint that someone else figured out. That’s the whole expert consultant business model.
I have lost at least a couple million dollars finding out what did not work. I’m a good test case for what not to do, but I have a lot of wisdom for having gone down that road, I guess I got character. That’s great. But a lot of it was kind of unnecessary, to be honest.
That’s the parting idea that I want to give to you is that whatever problem you’re having in business, there is a solution that does not create another problem. If you want to know, contact me. I can turn you on to people that are masters at this game. But you have every right as a practice owner to have a life of abundance and affluence and prosperity and wealth while you’re able to live your art through your practice.
Allison Jones
Excellent. Christopher, if somebody wants to reach out to you, how can they get ahold of you?
Christopher Music
The best way is my email, cm@christophermusic.com
Allison Jones
Excellent. All right. Well, I really appreciate you sharing all of this really valuable information with our audience today. I know they’re going to walk away with a lot of great nuggets of information to help them out. Thank you so much for joining me for today’s podcast.
Thank you to the audience for tuning into the Therapy Matters podcast, your one-stop resource for expert insights and advice on everything therapy and rehab. We look forward to seeing you on the next episode. Thank you so much.
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