Adapting to Change Part 2: A deeper dive into the numbers of running a clinic

A Five Part Series on the Business of Private Practice Physiotherapy in British Columbia

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A really big concern for clinic owners currently is that their numbers don’t allow them to pay their admin and leadership staff a living wage, let alone allow room for raises, benefits, inflation or retention strategies. 

It is a theme with all the clinic owners I have spoken to that the owners have to continue to see patients on top of their administrative role in order to supplement the clinic’s costs (which, as discussed in Part 1 devalues the clinic). 

In fact, many clinic owners are doing a lot of the admin/leadership work themselves because they cannot afford to hire and train quality support staff at all. 

While I can appreciate that many owners want to see patients because they enjoy it, the clinic’s income and expenses should not be in jeopardy without the owner’s billing. Many clinic owners have also expressed that they make significantly less money as a clinic owner and practitioner than they did as solely a practitioner. 

Let’s take a look at some of the numbers that are typical for an average sized clinic in BC. Here’s a snapshot of what a typical mid-sized clinic earning around $800,000/year looks like:

Model A = numbers currently for a typical clinic doing about $800,000/year.

Model B = expenses increase by 5% without a fee increase (typical scenario we have found ourselves in currently with raises and large inflation numbers in recent years).

Model C = a 5% increase in fees to catch back up

As you can see:

Model A we have some basic numbers for revenue and expenses which leave a physiotherapy clinic with a roughly 10% EBITDA (or profit margin, essentially). An EBITDA of 10% is typically considered just barely surviving in business evaluations. Most clinic owners pay themselves out of this line meaning their wages aren’t even factored into the expenses which actually significantly decreases a clinic’s EBITDA. The 58% cost of goods sold is the rough average fee split for practitioners in BC. 

Model B looks at expenses increasing by 5% across the board (which seems like a decent benchmark since we are seeing increases of at least this much  year over year, if not higher) without an increase in fees. This barely allows for  support staff to receive an inflation-based raise, let alone meeting regional cost of living wages and benefits. Profit margins are significantly reduced as a result.

Model C looks at a basic 5% fee increase which essentially negates the increasing costs. A 5% fee increase is not sufficient year over year to create any sort of meaningful change in the health and profitability of a business. It essentially just keeps things status quo and plays catch up to the expense increases from the year before.

As you can see from these examples , year over year fee increases with inflation are just catch-up from expense increases from the year before. This isn’t creating a healthy business, this is just staying afloat. 

This is a very basic profit/loss statement - and of course the intricacies of running a business are much more complex than this simple example - but from this you can see there is no room for error - one unexpected event or one practitioner leaving could tank a clinic. 

Now, let’s redo those numbers with what the PABC  Fee Guide recommends as  rates:

Assuming a 30 minute visit each appointment at the lowest end of the recommended spectrum ($60/15 minute increment):

$120/visit @ 8000 arrived visits = $960,000/year revenue

Assuming a 5% increase in wages (like models B and C):

CoGS: $556,800 

42% Gross Margin: $403,200

Expenses $266,700

Cash Flow: $136,500 = 14.22% EBITDA 

This is a much healthier EBITDA and allows a clinic better margins for incentives, rainy day funds, education and retention strategies. This also allows more income for those who we aren’t currently paying a living wage to - there is now a healthier margin to explore local living wages and offer them to our front desk and admin support staff. 

This price increase and EBITDA change isn’t making clinic owners extremely wealthy. This is merely getting their heads above water and giving them some room to breathe financially. 

In the next piece, we are going to break down the value that physiotherapists provide in the province and some of the mechanics that have previously been used in physiotherapy pricing models. Stay tuned!