Developing the Mindset that Builds a Successful, Profitable Business

by | Feb 17, 2023 | Entrepreneurship, Ownership

Industry Experts Jay Binkowitz and Mick Kling discuss the common characteristics they observe in profitable business owners.

Jay Binkowitz: Hey! Hello, everybody! It’s Jay Binkowitz here and I am joined by one of my very good friends, Dr. Mick Kling. Many of you know, Mick, as affiliation as a practice management and transition adviser over at Vision Source. He also has a consulting company called Impact Leadership.

Jay Binkowitz: I’ve spoken and shared courses with Mick many times because he’s the P&L Guru. I consider him a dear friend, and one of the most well-versed folks in the industry to talk about the the topic we’re talking about today, which is about the attitude it takes to obtain profitability. You know, really thinking about it. We’re not talking about a P&L per se. Today we’re not talking about, “How much money did you make on the frame, or what does it cost you to run your business today?” We’re really talking about the emotional and psychological disposition that drive the behaviors in order to create profitability. And so I’m gonna jump over to Mick here, who I know has been on every side of the fence on this one.

Mick Kling: Hi, Jay. Thanks so much for having me to talk about one of our favorite topics, business profitability. I love the slant today about sort of the emotional side of it, and the mindset that’s needed for profitability. So I’m looking forward to the conversation.

Jay Binkowitz: Throughout my own career, even going back to when I was when I was running my practice with Dr. Mark Stadlen in Astoria, Queens, I was obsessed with learning what makes us money. What doesn’t make us money? What systems and procedures do we need? How do we reduce the number of steps in order to deliver something more expeditiously? How do we bring in more patients? This is an ongoing list that I think anybody in the industry has thought about. But as we’re talking about trying to uncover and understand how to run our businesses, it’s the drive. It’s that obsession to learn it, to understand it, to talk to people about it, to gather information from others on how they’re doing it. It’s that motivation to go that far that creates the success. Right?

Defining Profit

Mick Kling: Yes. And one of the things that I think is really important in and around this topic is really defining what we’re talking about when we talk about profit. When I have a consulting call with a practice that’s got profitability questions or concerns, the very first thing I want to find out is, “What are we talking about? What type of profit do you mean?”

Our accountant’s opinion and perspective of profitability is not necessarily what we, as business owners, think about profitability. Our accountants think of a Profit and Loss Statement. In other words, money comes into the practice and expenses go out. What’s left at the bottom is called profit.

That’s primarily measured so we can determine our tax liability, but that’s not exactly what we’re looking for as business owners in terms of profitability. It’s possible to show a profit on a Profit and Loss Statement, but actually have expenses that are greater than the money coming in.

So, it’s important to understand that profit on a P&L does not mean that you’re actually making money.

Jay Binkowitz: How many times have you heard folks say “I don’t understand. I’m paying taxes on this profit, but I have no money in the bank?” That’s so much of that, versus folks that really don’t show a lot of profit on their P&Ls, and they’re flush with cash. How does that happen?

Negative Impacts to Cash Flow that Do Not Reduce Profit (Tax Liability)

Mick Kling: There are two big things that happen in a in a practice that cause that scenario which you described, which is ‘I’ve got profit on a profit loss statement. I now have a call from my CPA telling me I owe taxes. But I pull out my phone, and there’s no money in the bank account.”

That happens primarily because we don’t consider the principal payments on the debt that we take out of the practice. For instance, if I borrow money to buy an OCT and I’m making a monthly payment, let’s say it’s $1,000 a month, a portion of that is interest, and a portion of that is principal. Well, the interest is deductible. The IRS says we can charge that as an expense against our business. But the principal portion doesn’t show up on our Profit and Loss Statement. It’s actually taking out the profit of our business. It’s cash coming out of the business, but it’s still taxable income.

The second big one is the draw that we take as an owner out of the business. Sometimes we use our practice as an ATM machine. We pull money for personal expenses whenever we need it. Those are distributions which also take profit from the business. It’s almost like an expense to the business, because you’re pulling cash out of business. Those 2 things are not reflected on the P&L.

Understanding the Source of the Business Profitability

Jay Binkowitz: Thinking about so many of the doctors that you and I have worked with – and I don’t know where that number would be; it’s certainly a 4-digit number of doctors that we’ve talked with, you and I. “Someone makes money despite themselves” is a saying that has come across the table many times. Sometimes a practice is so busy that the fact that they’re not doing everything right doesn’t matter. They’re still making money. They’re just leaving a lot of money on the table, but they’re still making money. But then we always meet those folks who are extraordinary, who know the nuances of their business. They understand how all the pieces of a puzzle fit together. They’re driven to stay in the loop. They don’t just completely say ‘Someone else takes care of that. I don’t know how that works,’ and they build amazing practices.

An amazing practice doesn’t necessarily have to be a five-million-dollar practice. An amazing million-and-a-half-dollar practice sometimes can make more than a two-and-a-half-million-dollar practice, because they’re driven for profit, right? They’re driven to understand their business.

I was just thinking of habits. We said the emotions and drive. But those folks are really making the difference. Because we’re all in the same business, and yet those folks make a lot more money. So what are some of the characteristics of those folks that you’ve met? Fill that in.

Characteristics of Profitable Business Owners

Mick Kling: You know, most optometrists and I would even say optician owners really have very little business acumen training. Most of us really are ill-prepared to really understand the finances of our business to begin with. So we have that big disadvantage to start with.

1. Willing to Learn

Some owners, I find, are very much willing to learn and engage. Some really get to the point where they almost bury their head in the sand. They don’t want to even bother with that because they’re so intimidated by the financial piece. The ones that are willing to go out on a limb and learn new concepts, financial concepts that maybe are outside of their comfort zone. They are the ones that I find are most successful.

One of the most interesting things that that I do on a on a weekly basis in my role with Vision Source is look at the P&L statements of our members. It’s remarkable, Jay. You could have two one-million-dollar revenue generating practices and just subtle, little differences between how their spend is occurring in the practice makes a huge impact on their bottom line. As you and I talk a lot about this concept of how it impacts the EBITDA.

A practice could have costs of goods, for instance, that are just slightly higher than the national averages. Or maybe their staff costs are slightly too high, or maybe their occupancy costs are slightly too high. All of that changes the dynamics of the profitability of the business dramatically. Just one percentage of overspending makes a huge difference.

Jay Binkowitz: So the practices that are really understanding where every dollar goes do so much better than the ones that are just head down, grinding, trying to see patients. But that’s coming from somebody who wants to know that right?

2. Engagement with Peer Groups

Jay Binkowitz: One of the one of the consistencies that I’ve seen across the board for folks that that really have accomplished that profit success are those who are involved, whether it’s alliance groups, peer groups. Get involved in a peer group model. That allows you to learn from others, even if the other businesses are not exactly the same.

Mick Kling: 100%. Practices that align themselves with peers tend to outperform those that are trying to make a go of it independently. No question about that.

3. A Structured Plan for a Profitable Business

Mick Kling: One of the things that a lot of practices don’t have is structure, financial structure. They don’t have a plan. I’ve mentioned to you before one of my favorite practice management strategies or cash flow management strategies is this concept called “Profit First.” It’s based off of a book written by a business author named Mike Michalowicz. In it’s most simple as form it’s just basically a pay-yourself-first concept.

You decide to be profitable on every dollar that you collect in the practice. For instance, you’re taking profitability off the table first, and then you’re learning to run your business on what’s left. Because there’s less less available to run our business, it changes our behavior. It changes the way we decide how to use money. We are forced to become more frugal, more innovative.

It just changes the way that we we run the business. If that sounds like a crazy idea, think for a minute what the IRS does. They have a concept called “taxes first.” Because when we get paid a W2 paycheck, the government figured out If we don’t take our taxes out first. we’ll never get the money at the end of the year. That’s because we, as humans, we consume everything that’s available to us generally.

When you take profitability off the table first, you are forced to live within your the means, running your practice on what’s left. That little mental shift of profit needs to come first before expenses is one of the biggest game changers. Otherwise we pay all the bills, and we hope there’s profitability at the end of the month, but we’re doing it in the wrong order.

The Monday Morning Number

Jay Binkowitz: That very interesting, and it’s very true. You need to have the balance right. Years ago, when I joined Dr. Stadlen, I came up with the phrase the ‘Monday Morning Number.’ It was a lesson I learned when I was a very young man, and opened up my first business. I had walked into a bank. I was a teenager opening up a bank account for a new business. The banker was quite interested in how this young man was coming in to do this. He said to me. “Hey, do you know how much it’s gonna cost you to open your business?”

And the answer was, I didn’t know. I didn’t have a clue. I only knew how much I was spending to open the door. Beyond understanding what my ramp-up was going to be, I had no idea really. I really didn’t understand how much revenue I needed to generate at what gross profit margin in in order to pay these bills.

This concept of the ‘Monday Morning Number’ is basically understanding that every Monday morning you put your key in the door. When you do, you write a check. You need to know what that check is for for the week.

Based on your gross profit margin, you want to generate enough revenue in the first three days – by  Wednesday – in order to pay off the check you wrote on Monday. Then, for me, Thursday and Friday were my profit. It was a funny way of kind of looking at it, but it was really saying I need to understand what it’s costing me to open the door.

Fixed Costs vs. Variable Costs

I believe that those doctors who are driven to profit do know that number. They understand what it costs them to run their business. They understand how the pieces fall together.

Mick Kling: What you’re alluding to is the difference between what we call fixed costs and variable costs. So the fixed costs are all the things that if not one single patient shows up, we still have to write that Monday morning check for: rent, staff, paper clips, insurance, utilities. You have to write that check every Monday morning. The variable costs are our frames, lenses, contact lenses that occur.

Scaling that fixed-cost wall is the biggest challenge, and the concept that I think a lot of business owners don’t really understand. How much revenue do I need to generate just to get over that wall? Because if I can’t get over that wall, I’m never going to see profitability in my business.

Getting Past the Hurdle of Break-Even

Jay Binkowitz: That’s huge. And I talk to folks that open up new practices. I still get phone calls, and and I’ll say to them, “How much cash do you have put aside for the first 18 months after you open the door?” Most of the time it’s close to zero, or some kind of insignificant number, which makes me ask, “Do you really think you’re going to be profitable on day one?

After you see the first patient, do you think you’re going to be able to pay all your bills? How are you going to live and take care of your family? How are you going to eat and put gas in your car? You know it takes time to build, right? Well, in in a year you’d need to be at least break-even. That would be a wonderful thing, quite frankly. But have you backed yourself up so you don’t have the pressure of then going further into debt later?”

Those who walk into business and say, “I’m going to just pay myself x dollars” as soon as they start, aren’t understanding that they may not make money for 18 months. That’s when we see folks get into a lot of trouble. In their entire approach to opening up the door, they didn’t have that attitude to start.

Mick Kling: I work with a fair number of cold starts in the Vision Source ecosystem. We have a lot of cold starts that join our organization. I’ll frequently get a call from an owner about who is 8, 10, 12 months into their ownership, and they’re struggling. They didn’t put enough working capital back, or they thought they would be profitable more quickly.

Setting the Target for a Profitable Business

I always go back to the beginning. I pull up the whiteboard, and I say, let’s do some math and figure out how much revenue you need to generate, just to break even. Once we have that number, then we can get granular and decide how many exams per day that is. You really shouldn’t be pulling any money out of the business for yourself until you’ve exceeded that hurdle.

When they understand where that target is, they can go back to their team. “Okay, our goal is 3 exams a day, or 5 exams a day. . . ” whatever that number is. That’s structure. It’s creating a plan. It’s making sure that we’re thoughtful about what it is that we need to do to be successful.

Jay Binkowitz: Listen! Someone can go get a job in any entity today and be guaranteed income. There’s no question about that. As soon as you step into ownership, with a new practice, or a purchase, the guarantees are out the window. You must have that mindset to really understand your business. If you don’t know the ins and outs of the business, then you allow fate to decide whether or not you’re going to make a living.

Business Finances v. Personal Life

Mick Kling: This is so important because our business finances are so intertwined with our personal lives. Everything about us – stresses at home and our personal life – is so intertwined when business finances are not in order.

This disrupts a lot of lives. We aren’t just saying ‘you should think about getting your business life in order,’ you really need to. If you don’t, it’s going to have a negative impact on every other aspect of your life. And so I think that that’s the message that I want to get out to colleagues. Owning a practice involves risk, but it’s also opportunity. We don’t want you to get resentful against your business because you’re stressed out. If you’re overwhelmed or you’re worried about money, and you’re thinking, “Why don’t I just go get a job and be an employee of somebody, because this isn’t worth the heartache.” It doesn’t have to be that way. Owners should be rewarded for that extra effort.

The Risks and Rewards of Ownership

Jay Binkowitz: 100%. Listen, ownership isn’t for everybody. It’s not the mindset of everybody, and that’s okay. There are plenty of great opportunities in this industry. There are unbelievable opportunities in this industry for optometrists. It doesn’t mean you have to be an owner. If the definition of success is being an owner, but you don’t make any money. I don’t know how I don’t know how you achieve success.

I think the word is “owners should own.” That’s the way I look at it. It’s my business. I need to own it: for the good, and for the bad. I need to get my hands dirty, and I need to not turn a blind eye to stuff. They don’t just say, “Hey, that person takes care of it, and so I don’t have to worry about it.” It’s great to have fantastic people that are that competent and that well trained. But I still want to know what’s going on, and make sure that we understand what’s happening. I want to make the best decisions and develop the best relationships. So for me, owners should own it.

Mick Kling: That circles right back to this whole mindset conversation that we started with. That’s the mindset of a successful owner. We can’t just be on autopilot. We have to be willing to make investments in understanding our businesses and constantly growing and learning new concepts. Those are the practices that I see most successful.

By Jay Binkowitz

"Shaking things up." Jay's never been satisfied with the status quo.


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