Ep. 67: 5 Ways to Improve Your Home Care Finances in 2022

Miriam Allred (00:08):

I want to introduce Tim Smith, the Owner of FirstLight Home Care in Oklahoma City. Tim, thanks for joining me!

Tim Smith (00:16):

Hey, I’m glad to be here.

Miriam Allred (00:18):

I could introduce you, but I’d actually love to have you maybe yourself a little bit. You’ve got a colorful background outside of home care and your journey to home care has been a little bit interesting. Do you wanna take a minute and just walk people through your background?

Tim Smith (00:31):

Sure. So my undergraduate degrees in psychology, I worked for a number of years in small businesses and then eventually went and got my BA in finance at Emory Atlanta. Since then I was working in larger companies. I was running businesses or running factories for countries all across the United States. I used to teach classes in quality and process improvement after doing that for a number of years, I decided that, you know, my wife and I wanted to do something ourselves, something connected to the community, something more about helping people. And that’s got us interested in home care. When we were looking at different home care companies to potentially franchise with we really liked first light. First light is a company focused on quality. So I always tell people our aim is to be the, the highest quality provider in Oklahoma city. And so we got licensed in 2017 since then continue to grow the agency in, enjoy, enjoy this industry, enjoy helping people and building a successful business.

Miriam Allred (01:29):

Thanks for sharing that for context, I like to give people a snapshot of your growth. So if you wouldn’t mind maybe overviewing, you know, some metrics around the size of your agency and where you’ve come the last couple years.

Tim Smith (01:41):

I would say and next can’t share some things cuz they’re proprietary, but I would say the first year or so probably just like a lot of agencies out there, you know, having to invest a lot, you know, even losing money your first year, while you’re trying to get up and running then the second year or so starting to get closer to break even. And you know, having that kind of a, a trajectory since the pandemic started of last year, really seeing tremendous growth, you know, a lot of different reasons for that. But I think part of it is, you know, people don’t want their loved one in a, in a hospital or facility really trying to keep them out no matter what also strong relationships we’ve built with organizations like the VA. So since the start of the pandemic, I would say our business has grown by the factor of, you know, three or four times is large. So, you know, now we’re, we’re consistently, you know, breaking even and, and making money, which is, you know, where we want to be.

Miriam Allred (02:31):

Thanks for sharing. In thinking about this conversation,uyou and I had the opportunity to rub shoulders a couple weeks ago at a conference. I was really intrigued by how well you were able to talk about the financial of your business. I think every owner provider has different strengths as a leader and as a business owner. And I think you have kind of honed in on mastering the financials. And so that’s what we wanna speak about today are just a couple of best practices and experiences that you’ve had managing the financials of your home care agency and what, you know, tips and experience you have, but then how other providers can apply some of that. So just to get us started, you kind of overviewed your team, but I’d love to know who owns what, when it to financials. I know you’re very heavily involved, but I think providers are interested in hearing, you know, who owns what piece of the finances.

Tim Smith (03:27):

Yeah, absolutely. And when I think about finance, I always think about a, a quote that was attributed to mark Twain. Everybody talks about the weather, but nobody ever does anything about it. And I’ve always liked that quote. And I think about finance the same way, like when I was talking to people at conference and when I talked to other owners about finance, I always want them to understand your financial performance is not the weather. Okay. Like you don’t have to just sit and watch and watch it happen. And, you know, wait and see if it’s gonna rain today or not. You have influence, you know, you can’t control everything, but there are things that are within your I here at our agency. We’re still, I would say a medium sized agency. So really I’m responsible for most aspects of finance and accounting here at the agency.

Tim Smith (04:09):

I’ve talked to other owners, we do have an accounting firm that does our transactional kind of work, you know, bank reconciliations, transaction coding. So that that piece is outsourced with us. And then I think it’s always a good opportunity when you have people within your organization that are spending money to put, give them some responsibility from a budgeting standpoint. So for example, we have a, a networking manager here, you know, with a credit card and he’s responsible for marketing and all those expenses. And we do we do have him, he, he review he monthly budget that he reviews and then he is you know, he’s, he’s reporting out to me like how he’s spending and, and how it compares to his budget and everything.

Miriam Allred (04:49):

Okay. Yeah. Thanks for breaking that down. And I wanna maybe follow up with some of that later on in the conversation, but to start to kind of preface this next question, it may sound elementary, but budgeting can Dick dictate long term and short term success. So in your business, what has budgeting meant for you

Tim Smith (05:08):

And, and you have an account. Everyone here probably has an accounting package that, that does your basic accounting. We use QuickBooks here at our business and, and it can do reporting. It can say like how you’re spending versus your previous period. You can look at year by month, that kind of thing. But I think it’s good to have a budget because then you have an idea what to expect and every month you can compare your performance by category to a budget. So you know, a couple of ways that this helps you, first of all, you know, think about your own personal finances. Like how many of us have a gym member that you’re paying for every month that you don’t even think about? You’ve never been to the, you maybe never even been to that gym. You know, like I don’t even know where it is, right.

Tim Smith (05:48):

But they’re getting my $10 a month or $50 a month or whatever. So I think those same, those same kinds of expenses accumulate in your business. You know, vendors love to put you on a monthly, like, Hey, 45 bucks a month for whatever. I think having a budget encourages you at least once a year, when you’re establishing your budget for the coming year, it encourages you to look at what’s in that bucket of money. And what do I really wanna plan for this year? So that can help you to, to surface things like that. You know, I have, I think everyone has their strengths. As, as, as you mentioned, I’m, I’m a process driven person and a finance driven person. I actually have a spreadsheet of financial tracking tool that I use once a month. It it’s filled out for the whole year with budget categories and the amounts that I’m expecting.

Tim Smith (06:31):

And then I fill it in with the actuals each month. Now that’s maybe more than some owners want to do, but it does help me to look it and see, you know, what, what categories are performing at the level I’m expecting and where am I surprises? I think a lot of owners, there’s a lot of owners in this, in this industry that are very caring individuals, they’re in it for a very specific reason. And they’re, they’re here to help people, which is great. And, and I love helping people too, but I think some owners, you know, they’re monthly performance is kind of like pulling the lever on a slot machine, you know, like we’ll pull that lever and let’s see where the wheels are turning. And, oh, I think I got cherries this month. Oh no, I didn’t. You know, and I, I think when you’re familiar with your numbers, when you’re familiar with your financial performance, you should almost be able to predict within a range, what’s your performance gonna be this month? And then when you get your financial statements out, you can see how close for you to your prediction.

Miriam Allred (07:19):

Let’s go that route. I I’ll be honest. I’ve seen kind of a sneak peek of, I think this maybe Excel spreadsheet that you’re referring to, you can track as many or as few numbers as you want as an owner, but what are maybe two to three to four of the KPIs that you’re looking at on either daily, we equally and even a monthly basis, what are the few that you’re really honed in on?

Tim Smith (07:43):

I think if you think about, and by the way, the tracker that I have set up is set up in order of the chart of accounts. So when I pull out my profit and loss statement for the month, it takes me 15 minutes to go and just enter in the numbers off that report because everything’s in order, it all matches up for me. I mean, the number one thing you’re gonna look at of course, is everybody loves that first number on the PNL statement, right? Revenue, you know, how am I doing on revenue? And that’s, you know, that’s something that should be pretty easy to budget and plan for everything above the line. So I guess in layman’s terms, the line is where you have your gross margin for those who’ve looked at your financial statements or about, you know, a quarter to a third of the way down, you’ve got, you know, all your cost of goods, accounts all your cost of goods accounts are there. And then you have your margin. So, you know, revenue margin, and then eventually down to net income when, when those numbers, aren’t what you expect when those numbers are outside of a, of sort of the range of what you’re thinking they should be. That’s when you can take it a level deeper and start to look at all the categories that make that make up your costs.

Miriam Allred (08:45):

I know when we spoke, you kind of maybe touched on it, gross margin is one of those things that an agency sh provider, you know, whoever’s overseeing your financials should be dialed into. Why, why do you feel strongly, or why should, is gross margin at the top of the priority list?

Tim Smith (09:01):

There’s a few reasons. So first of all, by the way, just how your business would be performed even by an outsider. One of the most important things they would look at is your gross margin. I’m not a stickler when it comes to accounting. I mean, I’m not gonna spend a lot of, for an expense to figure out if it’s professional fees or legal fees, or, you know, whatever’s on your chart of accounts. I’m not as concerned about that, but for me, it’s critical to understand what’s above the line and below the line above the line are all your variable costs that pretty much grow directly with, with your sales, with your hours. So, you know, of course the biggest one for most of us, the, you know, your caregiver wages, what you’re paying your caregivers every hour that they’re out there, you’re paying them.

Tim Smith (09:40):

And that’s where you’re collecting your revenue, depending on if you’re a franchise or not. You may have a royalty expense that’s directly related to hours revenue. Some other things like, you know, personal protective equipment, all those things are your variable costs. And then you end up with your margin. And I think, think, I, I really suggest that all business owners try to understand what is your margin per unit of activity, you know, in our industry, the unit of activity is ours, the hours build, right? So I think it’s good to understand if you take the price that you’ve set and then you know, take out your caregiver, wages, your care burden, you know, the social security tax, workers comp, all that, your royalty, other things that are above the line, maybe like, you know, background checks, drug tests, that kind of thing. Understanding your margin per hour is, is very powerful.

Tim Smith (10:31):

It can help you with decisions day to day, or just understanding the impact of different things that might happen in your business. For example, let’s say your margin per hour was $8 per hour. You know, a caregiver calls off of a shift and you can’t get it covered. You’re gonna lose that shift. It’s a four hour shift right off the bat, you know, that you just lost $32 a margin, you know, and I think I, I just really feel like making it real like that can you know, change the way you, your business. I think a lot of agencies kind of view canceled visits as sort of, you know, part of running an agency for us, we really focus hard on trying not to have canceled visits. And we do a lot of things in the office to try to prevent that from happening. And it’s because of that margin approach.

Miriam Allred (11:14):

I’d love to get into some tips that you have Tim. I know before we started the conversation, you thought, you know, many people might not be here because finances aren’t the most flashy or exciting topic to talk about, but you have thought long and hard about this and have learned a lot in your years of business, what would be, you know, two to three tips that you think providers should really hone in on, especially as we start the new year,

Tim Smith (11:39):

I think knowing your margin per hour is, is really important. And then you can take that information and you can get to, you know, what we call like a break, even analysis. So if you, you know, you can make a spreadsheet to do all this. And I have a spreadsheet that I update every six months or so, but if you know what your margin per hour is, then you can look and see, okay, here’s all my fixed costs. You know, right now with the size of my agency, where it is, this is how big my fixed costs are. And then you can very easily figure out what are your hours per week that you need to cover those fixed costs. That’s your break even. So, so every week, it, if you know that number, if you know what your break even is either in hours or in sales, you know, if you’re, if you’re covering your nut or not, you know, are you covering that or not?

Tim Smith (12:21):

And I think that that can help make decisions too. You know, for example, let’s say you have a shift that comes open and it’s gonna be difficult to cover. Sometimes you might pay a bonus to cover that shift. You might offer the caregivers, Hey, I’ll pay you a bonus. If you cover this shift on short notice, if you know what your margin is, it’s very easy to tell how much you can afford to pay for that. Similarly, let’s say you have a, a client that’s maybe in a hard to reach location or, you know, somewhere that you, you can’t easily get a caregiver there. If you know what your margin is, you can figure out if you can, you know, potentially afford to pay some mileage to, to help with, with getting that shift covered. Mm-Hmm <affirmative>. So I, I think that understanding break even is important.

Tim Smith (12:59):

I actually started doing now, I’m, I’m looking at it once every six months or so because your business changes over time. So I think just to refresh every six months is very helpful. And if you look at a short period of time, always keep in mind that your results can be distorted due to timing. So for example you know, if you run payroll every two weeks, twice a year, you have three payrolls. If you run billing weekly four times a year, you have five billing periods. So it it’s whenever you’re making any decisions about finance or looking at your performance, it’s always good to look at a little bit of a broader horizon. And, you know, I would say at least three months, typically when you’re looking at something, when I do a break, even analysis, I use the previous six months worth of data. That way a lot of those timing issues get kind of sorted out.

Miriam Allred (13:46):

We’ve got a really good question here in the chat from Connor. Connor, if you’re willing, do you wanna come off mute and ask?

Connor (13:52):

Yes. Thanks Miriam. So my question is about indirect costs of caregiver turnover, and to kind of like frame it a little bit. So there’s always like the estimates that you hear that put the price of RO of replacing one caregiver between, you know, 2000 and 5,000, depending on the research you’re looking at in the organization. And they always mentioned that this is when you factor in like the more hard to find, or like less direct costs of turnover, you know, things, things like lowered morale or you know, more difficulty in recruitment or just having to replace them. I’d love to hear, you know, as a finance, as a home care finance guru kind of person, is this something you’ve put thought into? And can you speak to what some of those costs might be that we don’t always think about being cost of caregiver turnover?

Tim Smith (14:56):

Yeah. for me, I, I think more frequently when I’m thinking about hiring and turnover, I think more frequently about like how little it actually costs to bring someone on board. You know, when you have a potential candidate who you think could potentially, you know, help you with your, your workload to bring them through orient. I think it’s good to know exactly how much, you know, through orientation, you know, you buy ’em lunch when they come here, you pay them for orientation, you do a drug screen, all those kinds of things. How much does that add up to, and then to bring people on board that’s your cost every time that you do that? So I, you know, that cost is typically fairly low. I mean, I, I, I I’ve seen figures like you’ve talked about too. I think the, especially in the current climate, I think the easier way to think about it is that you’re, you’re decent caregivers, good caregivers that give great care and are reasonably reliable.

Tim Smith (15:44):

They’re honestly almost priceless. Mm-Hmm, <affirmative> like, it’s really, they can’t be replaced. So, I mean, I think that putting a price tag on it, you know, you usually what I see when I see that I see people trying to justify the cost of their service, you know, whether it’s, you know, one of the hiring websites or a site that’s supposed to get you all kinds of great candidates. That’s where I see those kinds of costs brought up more, typically I’ve experimented with a lot of companies like that. And I’ve kind of come to the point where I just wanna understand, okay. So if you’re gonna try to get me more candidates, where are they gonna come from? You know? So like, how are you gonna accomplish that? Like, you, you have some kind of, you know, bucket of caregivers that you’re reaching into, are you basically doing what indeed does, but with lower brand recognition and, and, you know, with maybe lower level of success,

Miriam Allred (16:27):

I’d like to use this in kind of get back to your talking about this break even, and now, and making decisions using it. You know, Connor’s brought up this example of turnover. What other decisions have you been able to make by using these financial statements?

Tim Smith (16:43):

I think understanding your break, it even is important because then you can understand if you want to add cost to the organization and if you know your margin per hour, it’s be very easy to understand how many hours per week you would need to add to cover that additional cost. A lot of costs you might add to the organization are not necessarily gonna drive more hours. You know, there might be just necessary costs of like office staff or, or other expenses, but let’s say you’re adding a salesperson, you know, there’s somebody who should be driving hours, right? So if you’re adding a salesperson, you can use the break, even analysis in your margin to figure out, okay. So if I want to add a salesperson, if I look at the salary, I’m gonna pay them, I need 150 more hours per week to justify that the same might apply to something like pay leads or, or other forms of advertising.

Tim Smith (17:28):

So that, that can help to, in terms of making decisions. And I think understanding your budget and your, your fighting financial performance can also lead to you know, other decisions that might benefit your business. So let, let’s say, you’re looking at your, your expenses and you see your mileage expense, you know, for people in the office, your network, or somebody like that. At some point, you might realize that depending on how big your territory is that mileage expense is, is equivalent to a car payment. So maybe instead of paying for mileage, maybe I wanna bring an asset into the organization and just, and, and spend the money that way instead. So when you, when you’re really looking at your financial numbers, those are the kinds of decisions that might jump out at you over time.

Miriam Allred (18:08):

And the nice thing is you’re taking the guesswork out of that, you know, with us in the benchmarking study, we have a lot of people coming to us asking us, you know, when do I bring on a sales rep or when do I, you know, make certain decisions, your financials, from what I’m hearing for you, from you, your financials, take out that guesswork and give you the answers based off of, you know, historical data and financial data versus wondering, you know, just kind of guessing and shooting in the dark is, does that make sense?

Tim Smith (18:37):

Absolutely. And you know, you always wanna understand the impact. And there’s an expression I used to hear in accounting that in the short term, all costs are fixed and the long term, all costs are variable. You know, so some thing that you think is a fixed cost, like the cost of your office, your rent, or, you know, your, your housing, your utilities. If you get to be a bigger agency, at some point, you have to expand, right? So those, even those fixed costs become variable over time. And you just wanna be very careful as you’re adding fixed costs, to make sure that what you’re investing in your fixed costs, that you’re gonna be able to cover that with your, a lot of times, you have to invest in these expenses before the growth happens, right? Because you’re funding your future growth. So it’s important to be, to be aware of that, that in some cases you, you just wanna make sure you come back to that and say, okay, am I able to cover all these fixed costs or not?

Miriam Allred (19:24):

Absolutely. I want to, at the beginning you addressed you know, who owns what you did mention outsourcing some of your financial processes to third parties. I wanted to ask, you know, when’s the right time and what do you recommend the outsource versus taken on in-house?

Tim Smith (19:44):

Yeah. And I think it depends on like if I think about when we started, like I’m a finance person, right. I like to do to transactional things. I like to do mechanical things. When I started the agency, my first day, you know, I had to, my first month I had to do my own bank reconciliation. I did my own transaction coding. I did all that in, in our accounting software. But really, you know, when you’re in, in an owner, in an organization, I think it’s important to think about, you know, you wanna be doing things that you’re good at. You wanna be doing things that are important to the organization and that you enjoy, but you also wanna be doing the things that you’re getting paid for. So as an owner of the organization, I don’t feel like my organization is paying me to do those kinds of transaction. You know, that’s that’s work that can be outsourced to a company for a small fee. Let them go ahead and do it. And that’s more scalable as your organization grows, these things that you did yourself as an owner, every one of those tasks increases in terms of the time commitment. And you can hire people in the office to cover some of that. But the more things you keep as they grow, it’s harder to scale up.

Miriam Allred (20:45):

Yeah, really well said. I wanna put you on the spot and maybe have you share a story. And then Ryan, I saw your comment in the chat. Maybe we can ask you the same question after Tim answers it, but I’d love to hear an example of a mistake that you, as a provider made that probably had some form of a financial consequence. You know, what you learned from that, why other providers may wanna hear that so that they can potentially not make that same mistake. And then, you know, if you change anything in your process to avoid a mistake like that happening in the future.

Tim Smith (21:20):

Yeah. So if I think about finances it’s really important to understand the difference between your profitability and your cashflow. You can be profitable, but your cashflow can, can suffer. If, if you’re doing business with third party provider, you know, third party payers like Medicaid, or the VA, you know, maybe they normally pay you after a month or something. But, you know, I had a period of time a couple years ago where one of my third party providers didn’t pay me for, for three months with no explanation, no, you know, no course of action that I felt like I could really take. And that was, you know, at that time, just to make payroll and to cover our expenses, I had to put in more of my personal funds into the company and, and I had to do it, you know, without a lot of warning.

Tim Smith (22:04):

So it, it’s kind of hard to do that when you don’t have the time to plan. And you know, one of the lessons I’ve learned is that you want to have enough cash on hand, you know, to cover a certain period of time. Every owner, I think, needs to figure out what they’re comfortable with. I’ve heard lots of different figures thrown around at least to cover a couple of payrolls. Right. And then one thing we did as a business to, to try to mitigate that as well is we recently got a line of credit with the financial organization as well. So that if, if, if something bad happens where, you know, one of our major third party payers stops paying for a period of time, now we can, we can take advantage of a line of credit rather than having to go out and figure out where you can get the money from on the personal side.

Miriam Allred (22:45):

Yeah. Really great advice. I know people here and people that listen to this do have diversified revenue streams, and that is a top of mind issue that providers should be aware of if they are having third party payers and just the unpredictability that comes with that. Ryan, if you’ve got a minute, do you want to share, you know, answering that same question and experience you’ve had financially a decision that you, and what it led to in your business?

Ryan (23:13):

Hey, yeah, happy to sorry. I had to navigate back over to zoom, first of all, thanks for setting this call up. Just really pertinent in the life of our, my business. I own a home care company with two locations. I’ve been in the game for about four and a half years now. And love to serve people. I, I like the back end, I like looking at the reporting and I like thinking about how to strategize long term I’m terrible at maintenance tasks. So I recently handed off all of our bookkeeping to a third party company, and that was just a, a win for us in a big way, Tim, I appreciated the wisdom you’ve shared. And even just these two nuggets, you know I, I’ve not been tracking margin per unit and I’ve not been keeping an eye on a break even points.

Ryan (24:01):

It’s just two things I’m gonna implement just via this phone call. I, I love to spend money. I have no problem spending money. Thankfully I married a woman who does not like to spend money, so we balance each other out. And so for me, like just being very conscientious, I can see the upside of just about anything. And so, you know, I got the one thing that I did over the last, probably 18 months that I, I don’t wanna say I regret doing, but I probably would’ve made a different decision in hindsight, was get involved with a coaching program. That just as I’ve learned more about myself was probably not the best fit. And I’ve ended up having to continue paying for that coaching program to, you know, to, to honor an agreement that I made, which is fine to, you know, I’m happy to do this. Would’ve rather had that cash to go elsewhere. So for me, going forward, just having more scrutiny in terms of where I allocate is limited available dollars and, and what, what impact will they have long term? So, yeah, but thanks for this call. Yeah.

Miriam Allred (25:01):

Thanks for sharing Ryan. You’re not alone and liking to spend money. I think we all have that innate in us to some extent, so appreciate you sharing and joining us today. Yeah, I wanna make sure we cover any other questions, Connor. I know you had sent kind of a follow up here in the chat. Do you, does that still feel relevant? Do you wanna chime in and ask that Tim, did you see that come through?

Tim Smith (25:24):

Yeah. About quality assurance. Yeah. Go, go ahead. If you wanna go ahead, Connor, if you wanna give us some more flavor to that or

Connor (25:31):

Sure. I mean, yeah, just kind of, like I mentioned here, like you have kind of a different background than most agency owners and, you know, like you mentioned like a, a lot of background in like more, a more process oriented and quality assurance I of things. And I’m, I would be interested to hear your perspective, especially, you know, as, as, as you talked about before, the idea of how hard it is to replace those really good caregivers can you speak to quality assurance as a cost saver rather than as a cost center, the way it’s often viewed?

Tim Smith (26:09):

Yes. And, you know, I’ll, I’ll kind of go back to my factory experience when I used to run projects like this for factories. One of the things we always talked about is that, you know, variation is the enemy, you know, variation is what leads to defects in any process. So the way we’ve approached that in our organization here is rather than just teaching someone how to do a process, whether it’s hiring or scheduling or things like that, rather than just kind of doing word of mouth and teaching people and, and mentoring them over time. Our goal is to create written procedures for everything we do in the office, all of our major tasks, and then to train people to those procedures, a couple of the benefits. First of all, you, you eliminate some of that variation, which does lead to, you know, in our business defects could be a missed visit or a dissatisfied client, or a caregiver who quits that you didn’t, you know, that you didn’t expect.

Tim Smith (27:00):

Those are, those are what I think of as the defects in our, our business. So that’s the first thing is you start to eliminate that variation. And the second thing is you can’t really improve a process unless it’s standardized. You know, if everybody’s doing something a different way, you can’t make an improvement to that process, cuz everybody’s already doing it differently. If you wanna make a change, you kind of need to have a standard. So I, I find that those procedures are great training aids for our team. But also they do help to eliminate variation and they help to create a, a platform so that we can improve those processes going forward.

Miriam Allred (27:34):

Yeah. Thanks. Thanks for covering that. Good question. Connor. A lot of people are thinking about the new year and it can be really daunting to at goals and start a new on some things at the start of the new year. What are a couple of things that are top of mind for you right now, as you’re doing some form of financial analysis of the past year and looking ahead to 2022.

Tim Smith (27:59):

Yeah. January every year is my time to, you can, it can be as simple as just, you know, printing out or downloading your profit and loss statement for the previous year. And if you don’t have anything intelligent to do in terms of budgeting for those budget categories, divide by 12, you know, just take some, do something simple. It doesn’t matter so much what your budget is set at. It’s more important to have just a line in the sand somewhere so that, you know, I spent $3,000 this month on supplies, is that good or bad? You know, like what was I expecting to spend if I was expecting to spend $6,000, then obviously I, I saved money, but, but maybe like I need supplies. Like why did I spend less, like spending less can be a problem too sometimes. So I just think ha for me having it all kind of laid out like that and, and don’t don’t spend don’t spend too much time on things that are not important.

Tim Smith (28:48):

I remember one time I was running a factory and my accountant pulled the whole leadership team together. We talked for an hour about some accounting discrepancy that he was trying to figure out at the end of the meeting. I, I, I guess I wasn’t really paying attention at the end. I asked him, I’m like, I’m like, can you tell me like, how much was the amount of this discrepancy? He’s like, oh, it’s like $15. I say, can you not just like write that off or something? Like, why are we talking about this? And your business is the same way don’t spend time chasing, you know, 47 cents. Anyone, the nice thing about a, a program like QuickBooks, you can pull up, you know, your profit and loss statement. And if something’s bothering you, you can double click it. And right away you have a list of every transaction that went into there and you can sort it top to bottom and look at what all the heavy hitters are and say, okay, somehow I’m spending a thousand dollars on flowers. I better go see what kind of flowers I got. I hope they’re pretty great. You know, so that’s, that’s kind of what I do in January is that it’s my, a good time to reset the year, figure out what’s my performance looking at for this coming year. And then you can also get an idea if we continue to grow, what are the investments we wanna make to, to drive that growth?

Miriam Allred (29:47):

Yeah. Great insights looks like Ryan’s got another question Ryan Love to hear from you.

Ryan (29:53):

Yeah. Hey Tim, just with respect to budgeting how do you budget for growth? I mean, and maybe that’s, that’s as root as I can get the question. So if you’re planning out, let’s say I’m thinking through whatever the four quarter of 2022, how do you, how do you budget growth?

Tim Smith (30:14):

Yeah. And I think if you look at the cost side so our agency doesn’t spend anything on advertising really like pure advertising, but I think that’s a little bit your philosophy as an agency. I’ve known other agencies that want to invest in that area. And I think from what I’ve seen to make an impact, you have to go pretty big, you know, to really you have to spend a lot of money in that area to really drop to push the needle in that and, and grow when I budgeting for growth. You know, if I’m, if I’m doing my spreadsheet for the year and I’m thinking about what revenue I wanna forecast, you know, a lot of times I’ll just kind of take a, a look at how I did the last year and, and, and keep it pretty linear off of there.

Tim Smith (30:53):

Usually when I’m budgeting on the, on the revenue side, on the profit side, I’m trying to be as conservative as possible. So I don’t kind of let my optimism get away from me. And then on the, on the cost side, I’m being I’m kind of going the other direction. I’m, I’m budgeting, you know, for larger expenses than I’m expecting that way. It can be a pleasant surprise when it comes through. When you under, you know, you, we talked about margin a bit and I, I liked how you talked about the first year or two. We were running this business. I used to tell people that, yeah, my wife and I are really good at spending money. Like I really like spending money. I think, I think it could be like my, my major strength. And I think that the margin philosophy can kind of lead you down a bad path. That way it’s very easy to take a look at every new expense that comes along and say, well, I only need 20 hours per week to cover that. Or I only need 30 hours per week to cover that. But if you add expenses like that, that’s not 30 hours per week. That’s 300 hours per week. So it’s easy to kind of get carried away on that side. I think.

Miriam Allred (31:50):

Great points and good question, Ryan. Connor’s question here in the chat, I think is in a similar vein of growth and marketing and your agency and growing your agency. Maybe you could speak briefly to that, Tim, what portion of your budget do you allocate towards marketing?

Tim Smith (32:07):

Yeah, I don’t know. As a percentage you know, we have a full-time marketing person and that’s an investment that we decided to make. I think it is kind of a, a decision agency by agency in terms of like how much to spend per month on, on all the different marketing activities that person does. I think I almost wanna take the approach of let them do what they feel like makes sense for a month or two, and then maybe revisit after that and say, okay, it looks like you’ve been doing these kinds of activities. I think these are the right things to do. It looks like this is costing us about, you know, $500 a month. Let’s make that the budget let’s make the budget $600 per month. And then to break it down into different categories, like how much do you wanna spend on, on Mar you know, marketing fairs? How much do you wanna spend on advertising? How much do you wanna spend on, on, you know, meals and entertainment, that kind of thing. But I think, you know, if you haven’t really experimented with it, you at, if you were just starting out and you don’t really know, I almost think it’s better to do what you think is right for a few months and then set your budget off that set it off of actuals, versus trying to guess

Miriam Allred (33:07):

Earlier, you had mentioned, you know, a $0 advertising budget Connor’s asking, is that due to COVID or is it always been the case?

Tim Smith (33:15):

Oh, if I, if I had staffing for as much business as I would wanted to do, then I would say that advertising would be more effective in the COVID environment, in our, in our market here. A lot of agencies are just not even accepting clients at the moment. So if I, if I could spend the money and, and drive the business, I would maybe do that. You know, I just have had bad experiences. I think everyone has different experiences. I had an experience where we got sold on some advertising at a hospital that seemed like it was gonna be really good, really be in front of people. And then, you know, we actually had a tracking phone number, so we could tell every single call we got off that specific investment. And in one year we got zero calls, just, just zero. And I think, and when it comes to advertising, it just takes so many repetition and so much exposure to drive behavior. That for me, it’s, it’s, it’s, it’s very hard to justify that level of ex of, of investment

Miriam Allred (34:09):

Absolutely. Connor, let us know if you have any follow up questions. Ryan’s got another great, great question in the chat. He’s coming from my job with all these great questions. You know, he’s asking what’s your hot take on paying for leads?

Tim Smith (34:22):

So when I first started the business, I hated paid leads. I did like 40 or 60 of them and converted one, maybe. So I really was down on them for a while, but part of that too. So I think paid leads are a great way to gain experience because you’re talking to people that are very hard to convert. And if you screw up the conversation, you’re, you know, you’re, you’re screwing up with somebody that, you know, is maybe not a high likelihood to sign anyway. So I think it’s a really, it can be a good training tool from that perspective. But then also recently I suspected that in the current environment that the quality of those leads might be higher. So we actually got back into it recently and started to to do paid leads again and pleasantly surprised. I do think the quality’s higher.

Tim Smith (35:03):

I think the, the possibility to close is much higher. So so, so that’s kind of my philosophy on paid leads. I have, I have a friend who runs an agency in another state and he built his whole business on paid leads. I always thought he was nuts. Like how could he have possibly done that? So I think it is also really market to market too. I think he, I think it’s a great for any agency to try and see how you like them and it, and it doesn’t really matter how many are converting. If it doesn’t bring you joy, if you hate the sound of your phone and you hate to do paid leads, then you’re never gonna be good at it. My friend, who, who did well with it, he loves it. He loves the thrill of, you know, competing and, and to get after them. So I think, I think it’s a little bit of a agency specific decision,

Miriam Allred (35:43):

Hot take, but good take, I like what you’re saying in that it doesn’t hurt to try, you know, I think it, it is a hot take because a lot of providers have different thoughts and feelings on it, but I think a safe bet is try it and see if it works for you, which is a good philosophy for a lot of different areas of your business. And

Tim Smith (36:00):

I see Ryan’s asking about conversion rate. I haven’t measured. That’s one thing I don’t have a great metric on that. I can, I can do it, but it’s all manual. My system doesn’t easily allow us to measure that. But you know, like if you think about like a warm lead, like a good lead from a, a, a valued rural source where maybe you’re the only name they gave, I mean, you might expect the conversion rate to getting a home visit off of that would be something like 80%. That that would be what I would think would be a pretty good conversion rate, maybe higher for paid leaves. I mean, I’m kind of expecting 25 to 30%, you know, in terms of, I mean, a lot of ’em just end up really not needing the help or they didn’t know what they talking about or something, I don’t know. So I mean, you have to, and, and it’s the same thing for internet leads too. I think that all leads are not created equal and I think you need to hold them to a different standard.

Miriam Allred (36:47):

Good question, Ryan, thanks for adding those. I wanna be respectful of everyone’s time, Tim. It’s been a pleasure. You are what I would call a financial guru. You know, someone it’s passionate about it, and that is doing a great job of understanding its importance in your business. I’d love to, you know, maybe let our audience connect with you personally. We’ll, you know, maybe send out your, your LinkedIn or your personal information for those that are interested in connecting more, if that’s all right.

Tim Smith (37:13):

Yeah. You bet. You know, if anyone shows up at my house though, I think that’s little too far, so just, you know, keep it, keep it professional. Okay.

Miriam Allred (37:19):

We kept it open ended at Oklahoma City, but I think Ryan’s over in the Carolinas. And so, yeah, don’t expect any unsolicited visitors. Good deal. Well, we’ll cap at that. Thanks everyone for joining us today. Live Tim. Thank you so much for taking time out of your busy schedule. We wish everyone, you know, happy holidays and best of luck starting 2022.

Tim Smith (37:40):

My pleasure. Thank you for having me.