EPISODE 420: The Profit Share Model

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Dr. Kevin Christie: [00:00:00] Welcome to another episode of Modern Chiropractic Mastery. This is your host, Dr. Kevin Christie, and today I'm bringing a solo episode with you and it is on the idea of a profit sharing model. Uh, I don't think it's for everybody, but I do see a lot of value in it, and I wanna give you a little bit of background.

I. Uh, first with, you know, where the kind of the synthesis of this has come. 'cause I'm, I'm, you know, another disclaimer, I'm, I'm not a financial expert. I've been in practice for 20 years. Um, been fortunate enough to interview a lot of experts and also be taught by a lot of financial experts. And, you know, this isn't.

What I've necessarily created, um, I've applied it to my practice and I'm gonna share, you share with you that, and you can kind of work with your expert, uh, you know, your accountant, uh, maybe you have a financial coach. I. Or maybe you, you bring on someone to help you out with this. But, uh, where this came from was just a little background, was, uh, mastermind [00:01:00] 2023 in the east in Fort Lauderdale.

We had Dr. Ray Tuck, uh, the late Dr. Ray Tuck present to us, uh, his model and just a little background, 10 11 clinics for the Virginia area and they use the profit sharing model for their. Doctors that were with them for some period of time and for their, um, many of their satellite locations. And he taught us a lot about how they structure theirs.

A lot of that was derived from, and I've read, um, the Great Game of Business by Jack Stack, a really good book recommendation I have for you. And they talk a lot about the ESOP model in there, ESOP, basically kind of like a stock option aspect. And I've, um. Read that book. Uh, I've had John Williams on recently, so I recommend, uh, that was just, um, that would've been maybe in February or March of 2025, had him on and, and he is certified in that.

He is actually coming to present for our East West combo [00:02:00] Mastermind in October of 2025 and gonna be discussing the Great Game of Business and I'm excited about that. Uh, also have had Greg Crabtree on the podcast, had him. Uh, come and do a, uh, training session for our Mastermind members, and he talked a lot about different aspects of what we're gonna talk about today.

Always recommend his, his stuff and his book. Simple Numbers 2.0. Uh, and then we've applied this recently to our, uh, practice and that's where we've kind of come up with some of the things that we're doing with our profit sharing model. Now, um, you know, again, some of the disclaimers I have, I do not think this is necessarily for everyone.

I do think almost all clinics could. Make this work. Um, I don't have all the nuances of, of maybe like a 5, 6, 7 doctor practice. Um, no. Some other disclaimers is, you know, uh, not quite sure. Um. Where it would, what it would look [00:03:00] like if you have, uh, partnerships that maybe are not spousal and what that looks like.

Um, again, I'm not a financial expert. I don't have all the answers either. And, um, one of the things I actually did was, um, previous to this recording, me recording this episode, we had our, uh, Charleston Mastermind, our East Group, and we. I, I kind of presented to this and got a lot of good feedback from it as well.

And so always looking for feedback as we go along. But so far, so good as we've applied it, uh, to our, um, practice. I. Now I think some of the, the issues that we see with just overall associate compensation, which has obviously been a struggle for both employer and associate and, and it's made it hard to retain really good talent.

I think that's some of the issues we're seeing with associate compensation. Um, I think the salary only like, or what the salary demands are or [00:04:00] salary desires of associates and what owners can afford is not in line. That's just a harsh reality that a lot of us are seeing, and it's not that the associate isn't quote unquote worth.

Uh, X amount of dollars. It's how many evidence-based chiropractic employers out there can afford to do that on a pure salary for just treating patients. And the reality of it is, is typically the owner is losing money on that doctor for quite some time until they're fully integrated onboard in the practice and actually start building.

A patient base, um, you know, there's the percentage of collections, right? The, the split, and that's a tricky one. Um, you know, that's, that's the most common and still in many cases, the easiest and, and, and can be very, um, beneficial for both parties. Uh, but it's tricky because the percentage of collections, um, doesn't take in the rising cost of overhead.

So, for an example, if you. If you gave a, if you had an associate associate [00:05:00] and they were getting 45% of collections and that started seven years ago and they're still with you, your overhead has probably significantly increased since then. And it doesn't take that into consideration 'cause you're getting a, they're getting a percentage of the top line, not the bottom line.

Um, and then, you know, there's a lot of, uh, I think, you know, Greg Crabtree talks about where. It's really hard for the employer. The real reality of it is, and I know a lot of, a lot of associates may not want to hear this and uh, maybe even some employers don't, but it's really hard to make it work. Um, I. If the associate is getting, uh, above like 40, 45, 50% or more, um, if this person's a W2, you gotta also consider that when you write those checks to that employee, um, you're getting payroll taxed on that.

You're getting another 10% taxed. And so Greg Crabtree talks about really kind of like a between a 30 and 40% [00:06:00] for the treating doctor is where the sweet spot tends to be, to where it actually makes viable sense for the owner to take on that risk and. All the overhead that is part of a business that a lot of times isn't seen there.

And so there's some, you know, issues with, with that. Um, a lot of nuances around the percentage. I still think it's a very good model. Just gotta, you gotta be teased out appropriately. I think another issue with associate compensation is the lack of either. Perceived growth by the associate or actual growth.

Like they feel like they're stuck and there's no real room for growth, uh, professionally and, you know, financially. Right. And, uh, that's a, that's a, a key thing. Uh, and then lastly, I, and I'm sure there's more than this, but just wanted to kind of tease this out a little bit before we dive into some of the specifics is, you know, fitting, uh, a higher doctor income.

Just like say a straight salary, um, into the 2.0 number, the Greg Crabtree 2.0 number. So let me give a [00:07:00] quick definition of that, and if you need more, you can Google it. Uh, uh, you know, you can jet CPT it, but I. Basically what Greg Crabtree has, uh, written about and teaches about and, and, and has studied for years is that let's say you have a $500,000, uh, a year business.

So you collect $500,000. Your overall labor costs, including payroll taxes, should be about $250,000. So, you know, 2.0, you divide, um, the, the 500,000 by 250,000. Payroll, and that is 2.0. His range he gives is a 1.9 to 2.1. I'll let you do that math, but uh, think about it, right? So if you had a $500,000 revenue practice, you would need to keep your overall labor costs to about $250,000, give or take.

And, um, you know, how much of that is going to you as the, the treating owner, how much is going to your other staff? And then obviously fitting in. [00:08:00] A, you know, 75, 80, $90,000 pure salary into that payroll. To make it make sense financially as a business is really hard. Um, it's why you gotta start getting up there, um, if you're gonna, if you're gonna do that, okay.

And I think, um, you know, some of the benefits of a profit sharing model is one, is it gives the, um, associate doctor an ownership mentality. They're actually going to bear some of the fruit of this. Um, there's gonna be some room for growth for the associate financially 'cause they can grow as the practice grows and how as they help grow the practice.

Two, it's a good education of the associate. I think if you. Um, provide some clarity and training within finances around this. They, they will benefit greatly from that. And that's, I think, a lot of times unfortunate when associates maybe work somewhere for a few years and they don't get any of that type of training and they.

Open up on their own and, and they're kind of, kind of lost financially on what the realities of it are. And [00:09:00] so this, uh, really educates in that I think it lessens the burden on salary creep, right? Like the kind of salaries keep on creeping up. Creeping up. And it's maybe not based on production, but based on just, you know, the fact the person's been there for another year and another year and another year.

Um, it takes into consideration overhead. Right. So if overhead goes up, then that could eat into profits, and that could eat into, um, the profit share. And so you want to, um, make sure everybody is growing appropriately. Um, it's gonna help for ideal practice growth, and we're seeing that, um, uh, in, in our practice since we've implemented this, which has been really nice.

And I think it's an ideal setup for an intrapreneur. Right? So if you had to categorize three, um. Types of chiropractors, uh, associates, which we have in the past on other episodes. But like one might be just your pure clinician on one end of the spectrum. On the other end, end of the spectrum, you're have your entrepreneur type, and in the middle is that builder chiropractor.

That entrepreneur really has a, has a good [00:10:00] entrepreneur spirit to 'em, um, but functions better within the frameworks of an existing practice. And I feel like this profit sharing model has a really good. Um, uh, combination of things to that is ideal for, uh, that intrapreneur, right? So that entrepreneur now, um.

Ray Tuck, when he had, he had, um, taught us this. There's a couple levers you can pull, which is pretty cool, right? So 'cause was like, okay, what percentage of profit are they getting? And it could be arranged, nothing setting stone, but it could be his recommendation was anywhere between 20 and 30% on what that is.

And then, you know, you're gonna have two levers, okay, what's the associate salary and then what's the percentage of. Profit share. And if you go a little on the, you could decide to go a little bit lower on the, um, regular straight salary and a little higher on the percentage. Or you can go a little bit higher on the, uh, salary and a little lower on the percentage.

I [00:11:00] think you definitely need to run your numbers and you, if you do the math and you say. Wow. If I gave them 30% profit on this, that would be, doesn't make sense, right? Like, that'd be just way too much money for, for the production done. And so you gotta look at your own books. I can, you know, there's not a clear cut on this and I'm not gonna give you one on it.

Uh, we do help, uh, chiropractors work through this and figure some of that stuff out and our. Coaching side of things, but it's hard to just give you a straight, okay, you gotta do this. Um, and then the other thing is, is like you're not gonna just hire a doctor with this model, right? You're gonna say, um, okay, you're starting tomorrow and you're gonna get a profit share.

No, they're gonna earn the profit share. There's gonna be a, a doctor after at least one year. I would say give it a year. And they get a salary, and then they can be eligible for the profit share. If you, you know, set some certain metrics, right? Like if you can then answer the question, knowing what I know now, would I hire this doctor again?

And it's a, you know, it's a, a hell yes. Then they're probably [00:12:00] worth putting onto a profit sharing model. So you're not doing this for just because they got a job. Um, they are gonna work towards this and earn it. Then from there, um, you may have to tweak the salary up or down and the percentage, and you can work on those two, uh, knobs and you know, and so maybe it's a 55,000.

Again, this is completely general, but maybe it's a $55,000 salary, but it's a nice 25% profit share. Or maybe you're gonna go up a little bit on the salary and down to a 20%. Or maybe you just got a really profitable practice that brings in a million dollars. And if you just gave them. 30% profit share or even 20% profit share.

It just wouldn't make sense. And so maybe it's a 15% profit share. And when they, you run the numbers, that particular associate doctor, if they do their thing and they get 15% of profit, they're making, uh, the same or more as another doctor in a different practice with a 30% profit share. Right? Because it's all [00:13:00] relative to how much profit there is.

And so I know a lot of you are probably asking if you're on the associate side, it's like, well, can't the owner hide profit? Well, yeah, they can, but not if you do this right and not, if you provide one of the key things in this, which is, um, you, you definitely need to provide. Clarity right now, you don't necessarily, uh, you, you'll, you'll want to give a payroll number for the clinic each month, but not who's getting what, right?

So it might just say, okay, yeah, payroll for the clinic is $25,000, but doesn't tease out who's getting what. So the associate doesn't have to know who's getting paid what, but they'll need to know what the, the expenses are. And so a lot of the, you know, the devils are in the details. With this, and this is gonna be really, you gotta consider your operating expenses and not necessarily all expenses.

Okay? So for instance, if you run your car through your business, that's not gonna go into this overhead. Like that's not [00:14:00] an expense to run the business. And so that shouldn't ding the associate. On the, um, on the profits. Right? And so it's really your operating expenses. And the other one, when people ask like, what about debt payments?

Well, I think if it was a, uh, like an equipment loan that had an RI, you, you know, you would probably consider that in there as, as overhead if it's, you got an EIDL loan from five years ago when you're making a payment on that, I would not put that in there. That is, I wouldn't burden the. The overhead with that, um, that would come out of profits, right?

That would, and on your end of the profits. So, um, debt payments, I think you need to work with your advisor on like what would be included in there. Like if you have a table lease, yes. Could go in your operating expenses and, um, impact that, uh, profit sharing. The other thing, um, yet you need to do in this model typically is paying yourself a fair salary, right?

[00:15:00] And what that looks like, um, as, as a treating doctor, um, you know, and then I'm not gonna get into like the owner's salary versus set distribution, right? So let's say you, you know, I'm gonna, you're gonna pay yourself a hundred thousand dollars a year as the treating owner. Um, for treating patients, but maybe you decide, you and your account decide to pay yourself $60,000 as a W2 salary and $40,000 as a, as an owner's distribution, as a set distribution.

Now that would, um, that full hundred thousand would go into the payroll as an overhead for that profit sharing model. But you're just divvying it up separately. And that particular set distribution, I'll call it for the sake of argument, is different than a profit distribution that you take after the fact.

Because the way this really works, and this is a Greg Crabtree thing, is the. Um, you want to, you wanna maintain at least a, a 15% profit share per him. But that's, again, with you paying yourself a, like a, an industry expected [00:16:00] salary. Like a lot of times what chiropractors say, oh, like, I'm, I'm 50% profitable, but they're counting like.

The 50% overhead is not including what they pay themselves, right? And that's not reality. If you went to go sell that practice, they would want to know what it costs for that doctor to treat patients. So this is all, you know, predicated on you paying yourself a, a fair wage in this model. And then, um. A another thing here is a profit share is not ownership interest.

It doesn't, you know, like if you offer a 25% profit share, it doesn't mean that that doc, that associate owns 25% of your business. Now, that would be a separate thing. They could buy in or however you want to decide to do that. But profit sharing is not ownership interest, it's not shares and things of that nature.

And then. Really what you want to, um, consider some certain things is, um, you know, s sinking funds. So what we have a line item for sinking fund and I go in the beginning of the year because you try to wanna dis distribute [00:17:00] out some of your expenses so it doesn't kill a month because of Oh yeah.

Malpractice insurances for both doctors. Well came up in June, and so then you write all these checks and then there's no profit. So I, what I do is I take all my, you know, malpractice insurances. We have a $2,000 sponsorship that we do for a running group and then equipment repair for a couple thousand dollars.

And, um, a bunch of things like the, are big ticket items and you add it up and then that, uh, let's say, let's just say it's, uh, $16,000 a year. Um. Or lemme just make it easier. Let's say it's, uh, um, $12,000 a year. And then you would have a line item that says sinking fund $1,000 per month. So 1000 times 12 months is 12,000.

And so that's a monthly expense is 1000. Then you're gonna wanna also have a miscellaneous one on there, and that way it shows Okay, yeah, there's certain things I can't predict, you know, and if it pops up I'm gonna provide [00:18:00] you clarity with it. Um, but it's, um. It could be, uh, you know, this, it could be less, but you want to, and then I will show the miscellaneous expenses for that particular month on there, right?

Um, the other thing that I do is for each expense category, I, I, I will market as a fixed expense, right? Like my. Uh, my, my rent is a fixed expense. My phone service is a fixed expense, and then there's some that are estimated, right? So like my merchant processing fees is an estimate. So I provide clarity, but knowing that these estimates could be different.

Uh, and then we, uh, one thing we make sure we do is review each month. So when we get the collection report and I go and I, you know, do all my, my overhead and put it on a Google sheet, we review it together to provide clarity on it. Now. This. Uh, looks potentially different than your QuickBooks. Okay? So your, the Google sheet you put on there and or [00:19:00] however a spreadsheet is gonna look a little bit different than your, your QuickBooks, and I'll talk about that in a second.

Uh, and again, I'm not gonna be able to cover everything today. I want to get you the conceptual idea of this model and how it works. Okay? Uh, one other thing on there is, is you, you, you should, and this is something I learned from. Ray and also another doc that's been doing this for a multi clinic practice is a management fee.

So you would, um, you would charge a management fee in there, um, maybe $2,000 plus or minus, whatever, and that goes into the overhead as well. And that's for you to be the manager of this. Um, so you're paying yourself, um. Your salary for being a treating doctor, whatever that is, that goes into your payroll, that's an expense.

You have a management fee for managing all this stuff and managing the practice. That's an expense. And then your third way of as the owner getting paid would be obviously owners distribution on on profits. Okay. And so that's kind of, you know, the categories, the [00:20:00] different categories you have. Um, on this spreadsheet, and this comes from Ray's work, is you're gonna have a category of wages and benefits and you're gonna tease out the payroll plus the payroll employer taxes your facilities.

That's all things like rent and phones, and. Power bill and cable and all that. You're gonna have professional services such as merchant processing, bookkeeping, EHRs, all that type of stuff. You're gonna have your marketing category, you're gonna have your supplies category, and then you could have a miscellaneous, and that's where I put my syncing fund and, uh, other miscellaneous expenses.

And those would be the categories that you have teased out for, um, breaking that down for the person. And then from there I monitor two key things to make decisions. Right? And that's gonna be the 2.0 number I mentioned and also profit margin. And as Greg Crabtree talks about is he really believes in, um.

The 2.0 number for your payroll [00:21:00] and then profit margin of, of 15%. Now he says you can go down to 10%. If you're investing in something like a, you know, an associate doctor, you might, that might ding your profit for a little bit, but you want to come back up. Uh, and then there's definitely nothing wrong with being more profitable, which is, which is great.

And then the, uh, so you know, like for instance, I felt like in our Q1 we were, uh, really, we did really well with our, uh, 2.0 number, our pay. We were payroll light, but we have some interns, so we weren't, um, burning our staff out. 'cause like, one of the things that, um, Crabtree talks about is that. If you're two payroll light, it might look good for you financially, but you're burning your team out and you can run into problems.

If you're two payroll bloated, then that's obviously an issue. And so there's that sweet spot and that's why it's so important for the team members that you have to be very efficient. Right? So give you an example. Imagine if you had an associate you were paying, uh, $90,000 to, and they just weren't bringing in.

Business or that [00:22:00] you are giving them new patients and they couldn't keep 'em right? So now you've got a problem where the, there's a bad labor efficient ratio there. That person is not bringing in enough revenue to offset the cost, and that's when you know you could be payroll bloated. Whereas if that.

Doc, if she's like killing it and then it makes sense, then that math works out. And so I monitor that 2.0 number and then also the profit margin. And so we were really good on the profit margin. And if, if we say to ourselves, and I go and I talk to, uh, our team and say, okay, we're gonna hire a ca, right?

When I'm gonna hire a ca, I can show it's like, look, we've got the room in our payroll, uh, on this 2.0 scale. And then we're also, uh, you know, we were 28%. Operating profit margin in Q1. And so there's wiggle room on the operating profit margin as well. Um, now that's where I want to give you a differential of what operating profit margin [00:23:00] is.

And, and again, I'm not an expert, but just the way I'm looking at it here. Versus what you might see as actual, uh, profit, profit margin on your QuickBooks, right? So if, um, if you're paying down a bunch of like, let me see if you're, um, you know, paying down certain debts and things like that. You might not show a lot of profit per se.

And then that's where you dive into certain things like ebitda and I'll let you Google that. I'm not gonna do it. So the, I just, I'm bringing it up 'cause I don't want you to get hung up in the weeds on what your QuickBooks and your EBITDA is and this and that and the other thing versus, um, your operating.

So exa example, like let's say you and your wife go out to dinner and you guys have a legitimate talk about business and you, you have a $350 dinner in my opinion. That would not be part of your operating cost in this profit sharing model. So it would, you wouldn't show up on, on as your, uh, as an [00:24:00] expense on that.

And so in that scenario, your operating profit margin would be different, but on your QuickBooks is gonna show up as an expense, as a business expense. And so I think you get that one example and you can extrapolate out the other examples there.

Now the, so then the kind of the last topic on it that I'll, I'll discuss is that, okay, now you got profit, right? And we're doing ours quarterly. So it's quarterly profit share, not monthly. It's just too complicated to do it monthly. Uh, it. It's, um, I think a quarter spreads smooth things out if you, you know, if you have a really good month and a really bad month, it's kind of a kick in the, you know what, so it's nice to spread it out quarterly.

Um, and then from there, let's just say in a particular quarter, you, maybe you do it a month, however you wanna do it, but. If you do it, and let's just say you had 10,000, I'm gonna make it super easy with money. You had $10,000 in profit for the quarter. Um, and [00:25:00] then you did, let's say you did a 25% profit share.

Um, your, the, the associate would get $2,500 of that 10, and then you would get $7,500 of that 10,000. Now, um. That 70, $7,500 is now tr technically the true profit, right? So that's again, where I'm telling you. The QuickBooks profit in your profit based on your operating margin here is different. So obviously if you write that doctor a $2,500 payroll check for his or her profit share, that is actually overhead in your QuickBooks.

That's not gonna be profit, so you're not gonna pay tax on that profit. So even though your operating profit was 10,000, the QuickBooks is gonna. Represent $7,500. I hope that makes sense. Like right. So once you've written that check, the profit really is now $7,500, not the 10. So you wouldn't, um, pay tax on profits of 10.

You would pay tax on profits of the [00:26:00] 7,500. Okay? And so out of that, um. $7,500. Crabtree would talk about his kind of split in thirds. He has like a 40, 30, 30, uh, again, I'll let you work with your accountant on it, and he's kind of super conservative on 40% going to tax on profit. But let's just say you split it up in thirds for the sake of this conversation.

A third to taxes on profit. A third, he recommends reinvesting back into the business. And that could be paying off debt, it could be buying equipment, it could be hiring someone. It could be adding money into a sinking fund or emergency fund, whatever. It's just going back into the business for growth. And the other third would be for your personal distribution.

And so that's that third way of you getting paid. So the more profitable you are, the more money you're gonna make, the more money you're gonna be able to reinvest into the business. And the more. Um, money the associate's gonna make. And so that's the, the contextual aspect of it is that everybody's working to be profitable.

Everybody [00:27:00] cares about profit. When you have an ass own a percentage, they don't really care about profit, they just care about what they've collected. And so there's decisions that are, uh, there's a little, some blind spots on there, but when we're all working towards profit, we know Yeah. How can we do this?

How can we collect as much as we can? How can we collect as much as we can efficiently and go above and beyond to make this happen? And I think that's what we're seeing. By implementing this profit sharing model, and when it works out and you're handsomely profitable, uh, everybody's doing well. And if there's overhead, it's taken into consideration.

Right? And, uh, it's not all in the back of the, of the owner. And so, um, that is. A lot of the details of the profit sharing models, not all the details. Um, but I want you to start thinking about that. I I do. It's going very well for us. I think there's different seasons of practices where it makes sense. I think if you're thinking about, uh, satellite offices really, really think about this.

[00:28:00] 'cause one of the killers, killers, killers of satellite offices, a doctor turnover. And if you've got someone on a profit sharing model, um, that's going to reduce that. So I hope this was helpful again. Um. Our coaching clients and mastermind clients have access to stuff like this and are helping guiding them through unique situations for their practice.

And so check us out@modernchiropracticmarketing.com. We're here to help you in any way we can.