E865 | The Growth Paradox (Managing Profit When You're Scaling Your Cash-Based Clinic)

When you run a cash-based physical therapy practice, there’s a moment that separates the side hustlers from the true business owners — the growth cycle. It’s the phase when you move from a cozy subleased space to your own standalone clinic. It’s exciting, but it’s also where most practice owners start to sweat because profitability takes a hit.

In this episode, Doc Danny Matta explains how to manage your money through these transitions, why your profit dips are completely normal, and how to build long-term wealth by reinvesting in your business instead of panicking when the numbers drop.

Understanding Growth Cycles

Every successful business has growing pains. For a PT clinic, a growth cycle happens when you expand — hiring staff, signing a lease, or adding more equipment.

At first, you might keep 70–80% of what you bring in as a solo provider. Once you expand, that drops fast — sometimes down to 10–30%. Rent, payroll, utilities, and overhead all hit at once. But this isn’t failure; it’s investment.

Danny compares it to growing pains in kids. Your business is stretching, and it’s uncomfortable — but necessary.

The Three-Account System

Managing cash flow becomes critical during this phase. Danny simplifies the often-complicated “Profit First” system into three easy accounts:

1. Operating Account:
   This is where all your business income lands. You pay bills, salaries, and overhead from here.

2. Tax Account:
   Always set aside 5–30% of income depending on your profitability. Even when profits dip, taxes still come due.

3. Profit Account:
   The reward account — ideally 10–20% of your income when you’re stable. But during growth, it might drop to zero. And that’s okay. That money should be reinvested to fuel expansion, not pocketed prematurely.

When Profits Drop, Don’t Panic

Profit dips are not a red flag — they’re part of the process. You’re building something bigger than a one-person show. Early hires won’t be fully booked, and your new space won’t be fully optimized.

You might feel like you’re taking a step back. In truth, you’re setting the foundation for exponential growth. The key is to know it’s coming. When you anticipate the punch, you can brace for it.

The Investment Mindset

Your business is your investment.
Instead of putting money into the stock market, you’re putting it into your clinic — an asset you control and understand.

That means temporarily living lean. Avoid big purchases, vacations, or upgrades during the growth stage. Focus on stability. Once you’ve hired your second and third full-time providers, profit margins rebound — often faster than expected.

How to Manage the Growth Stage

• Keep your expenses low: The less personal pressure you have, the more freedom your business has to grow.

• Reinvest profits wisely: Pour money into people, systems, and space before chasing outside investments.

• Build cash reserves: Aim for three to six months of expenses saved. Cash creates calm.

• Don’t obsess over percentages: Profit margins will swing wildly — focus on getting to the next stable stage.

The Reality of Being a Business Owner

Most physical therapists never learn business fundamentals in school. You might be a brilliant clinician, but if you don’t understand how to market, sell, or lead, you’ll hit a ceiling.

Danny’s advice? Be a business owner first, clinician second — at least during the growth stage. Learn to manage money, build a team, and run your company like a CEO.

The Payoff

Once your clinic hits three full-time providers, profitability stabilizes and cash flow improves dramatically. From there, you can cruise, expand, or even open another location.

The second growth cycle will feel easier — because you’ve already built the financial muscle and systems to handle it.

Final Thoughts

Growth cycles are uncomfortable. They test your patience, your discipline, and your confidence. But the clinicians who push through them come out with stronger, more profitable businesses — and more freedom.

As Danny puts it, “Your business is your best investment. Don’t cripple your growth by pulling money out too soon. Ride the wave, stay lean, and play the long game.”

Want to learn how to replace your income and go full-time?
Join the free PT Biz Part-Time to Full-Time 5-Day Challenge: https://physicaltherapybiz.com/challenge 

Learn more at: www.physicaltherapybiz.com

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Ready to elevate your practice? Book a call at the link below with one of our expert consultants today and start your journey to delivering unparalleled physical therapy.

Podcast Transcript

Danny: [00:00:00] Hey, what's going on? Danny here with PT Biz and today we're talking about [00:00:05] profit growth cycles and what to do with your cash along the way. [00:00:10] So this question comes from our mastermind. [00:00:15] So one of the things in the PT Biz Mastermind that we do is we [00:00:20] have internal channels where our clients can reach out, uh, to us with any question that they have.

[00:00:25] And one of the things that I tend to get a lot of is. Questions about finance [00:00:30] and in particular, um. How to manage cash flow. This is a really big [00:00:35] challenge that a lot of business owners face. And in particular when we look at service-based businesses, uh, they're [00:00:40] fairly capital intensive. Meaning you need a physical building, you need to pay, you know, [00:00:45] highly educated staff.

Uh, you, you have, you know, equipment that you need to outfit a space with. It's [00:00:50] not a massive amount, but even still, it costs money, right? It's not a, uh, it's not a website. [00:00:55] Or you're not just selling stuff through social media where maybe it's, it's not very capital intensive. You don't [00:01:00] need too much money for that, but it's just a different business model.

So one of the, [00:01:05] uh, questions that I recently got was about how to manage cash flow during growth [00:01:10] cycles. And we talk about this a lot. It's something that I, I, I'm constantly working with business owners on trying to really help [00:01:15] them understand how to allocate money effectively because. When you go through a growth [00:01:20] cycle, and let me step back and just kinda explain what that is, but a growth cycle would basically [00:01:25] be where you're going from a, typically a sublease space.

So you have a [00:01:30] small footprint maybe within somebody else's facility, and you're moving into a [00:01:35] standalone space. So it's your own space. Maybe it's in a, you know, commercial. Building or a retail building [00:01:40] or whatever it is. But you have your own fixed space that has its own rent and utilities [00:01:45] and you have to build it out and outfit it with equipment and design it and everything else, right?

So [00:01:50] you could jump straight into this. Most people do not. That's probably a smaller percentage. Uh, then people that are going [00:01:55] to. Sort of test the waters with a sub space, low overhead, try to build [00:02:00] their schedule up, build some cash flow and reserves. Then they move into a, a growth [00:02:05] cycle. And a growth cycle is, is very similar to growing pains that people feel [00:02:10] when they're growing physically.

Right? So, like, my kids are in middle school, it's happening to them right now. They're like, why [00:02:15] do my shins hurt? Why my knees hurt? Right? It's like they're going through. Growing pains 'cause they're getting tall, [00:02:20] uh, at this, uh, at this stage they're, they're growing a lot. So when your business does this, we really [00:02:25] feel it is in your profit and in, uh, cash, uh, cash flow and [00:02:30] profitability.

So what happens is for a lot of businesses. At early stage, whenever [00:02:35] you're doing like a sublease route and you have very little overhead, you may end up with, you may [00:02:40] keep 70 to 80% of what you're bringing in, you know, depending on a number of factors. So for [00:02:45] every dollar you make, you're keeping maybe 70 cents to 80 cents of that that is going into your account, [00:02:50] um, before you pay taxes, obviously.

So that's awesome. That's very profitable. But [00:02:55] you're doing everything yourself, right? You're doing everything yourself and, and so you really just have a job at that point, [00:03:00] uh, which a lot of people they. They stay there. That's a lifestyle business for them. Nothing wrong with that if that fits what you [00:03:05] wanna do.

So from there, but if you want to grow a real business and hire other people and have work [00:03:10] done without you doing it, and be able to have a, um, you know, non-active work, we [00:03:15] should say, being done, or potentially even grow to the point where there's a passive entity, uh, in a business [00:03:20] or something that grows well past that, you can't skip a growth cycle.

You just can't, [00:03:25] you know, you have to move into a space and it's painful. For a lot of people, okay. This is a very [00:03:30] painful stage because they go from keeping 70, 80% of every dollar it comes in to. Maybe they're [00:03:35] down to at the lowest, maybe like 10 to 30%. Right? So, uh, [00:03:40] 10 to 30% of what they're bringing in.

They're, they're keeping early on because they have. [00:03:45] All this additional fixed overhead between paying for staff and the building and everything else, the equipment, loans, [00:03:50] whatever it might be. So during that stage, uh, this can be very confusing for [00:03:55] providers about what they should or shouldn't do. So one of the things that we teach is how to sort of manage cash [00:04:00] flow through.

Different accounts. This is a variation of something called Profit First, which is a great book if you wanna read [00:04:05] that. Profit First is a great sort of financial management approach, but it's kind of complex honestly, for the type of [00:04:10] businesses that we run. I think it's a, it's a bit, it's a bit too much.

Um, there's too many accounts going [00:04:15] on and all kinds of things we find. And that really, if you have three different [00:04:20] accounts, it's the simplest way to do it, uh, for most people. So you have an operating [00:04:25] account. That operating account is where all the income from the business, all the revenue for the business is coming in.

You're [00:04:30] paying your bills outta that and everything else you're paying, all your overhead comes outta the operating account. You're also paying yourself outta that, right? [00:04:35] So you have your own salary as a employee in the business. From there, you also have a tax account. [00:04:40] You're gonna have to pay taxes. But I guess when silver lining in a growth stage is [00:04:45] the, you're making far less money, uh, during the stage, you're less profitable.

You actually act, you actually pay less [00:04:50] taxes. So that tax account really can fluctuate. It can be anywhere between five and 30% of what you're [00:04:55] bringing in. To the operating account that you're gonna move over there. So you're always gonna have some tax to pay unless you're losing [00:05:00] money, which is obviously not a, not a great place to be.

Um, but most, most of the time [00:05:05] you're gonna pay taxes. So it's gonna be somewhere between five and 30%. You're gonna move over to that. Now the profit account is where it gets tricky. That's [00:05:10] the third account, and that's where you want people to put money aside for profit so that, you know, quarterly they can [00:05:15] pay themself out.

Um, a a certain amount as, as far as profitability goes. And that could be [00:05:20] anywhere between 0% and 20%. Uh, depends on [00:05:25] the business stage and the profitability. Uh, but you're gonna slide money over there [00:05:30] in a profit account that you're gonna sort of, it's just a secondary account. You're, you're saving money in that you can pay yourself, right?

[00:05:35] So it's, you're, you're just creating these buckets so that you're not spending it all in the business. This is the best way to look at [00:05:40] it. Well. For a lot of folks, they're funding their profit account with 20% or [00:05:45] whatever, whenever they're, uh, they're a single provider, and then it drops to like [00:05:50] zero, uh, during a phase whenever they're going through a growth cycle.

Or maybe they keep funding the profit account and they're [00:05:55] having to take money from the profit account to pay for the actual business operating expenses because their profitability is [00:06:00] so low. And this is where we have a, uh, typically a, a, a challenging moment with folks where [00:06:05] they freak out a little bit and they're like, oh my God, my profit account has I, I'm not putting any money in my profit account.

Like, what am I [00:06:10] gonna do? And this is very normal because here's what you [00:06:15] gotta keep in mind, your business. Is an investment. It's no [00:06:20] different than if you were to buy Google stock or whatever, like some, uh, publicly held [00:06:25] company. You would invest money that you make and you put it into that. Well, [00:06:30] instead of you taking money and putting it into a separate business, you're taking that money and [00:06:35] you're putting it into your own business.

So your business is the investment, your profit [00:06:40] account. May have zero money in it. That's because all the money from that, you're now [00:06:45] reinvesting in the vehicle of your own business. So during that stage, your profitability is very [00:06:50] low. Very low. And what you have to really realize during this stage is [00:06:55] number one, if you know it's coming, it's better.

It's sort of like, like imagine it. Someone's gonna punch you in the [00:07:00] stomach, okay? It's gonna happen. And, and there's two different scenarios. [00:07:05] One, you don't, you don't know it's gonna happen, and you don't know when or who's gonna do it. [00:07:10] Nothing, right? So it's just complete surprise. And someone's probably gonna like, tag you and knock the wind outta you.[00:07:15]

Now, that's one scenario. Or would you prefer that you know it's gonna [00:07:20] happen, you know who's gonna do it and you know when they're gonna do it. And they're gonna tell you ahead of time, like, I'm gonna punch you in the stomach. Get ready and you [00:07:25] can, you can get ready for it, and you can absorb the blow much better.

This is kind of like knowing whether a [00:07:30] growth cycle is coming or not and what to do with it, because it's gonna suck either way. It's a growth [00:07:35] cycle. You have to grow through this, and it feels like a step backward to take a step forward, and in some ways it is [00:07:40] because your net profitability, the money you keep goes down, your top line revenue, your gross revenue goes [00:07:45] up.

So as you see your gross revenue going up. Your profitability is less, but that's because you're doing [00:07:50] less of the overall work. You're not fulfilling on all the patients, you're paying other people to do that. You're not doing all the [00:07:55] administrative work, you're paying other people to do that. You have a facility you can grow into, right?

These are all [00:08:00] the things that you're reinvesting from the profit account, from your operating account, from the business [00:08:05] into, uh, into the actual business itself. So we can continue to grow. [00:08:10] Now during this stage, like I said, if you know it's coming, you can prepare for it better. You've [00:08:15] gotta know that during this, this time of your life, you need to live as lean as you [00:08:20] possibly can.

You need to pay yourself. As little as you can afford to do so for your [00:08:25] family and your lifestyle, because this is a very delicate stage where you need [00:08:30] to ride this out and you need to ride it out until you have, in most cases, yourself, [00:08:35] plus two full-time providers to really get back to a stage where.

Your profit is in [00:08:40] a healthy position. A third full-time provider puts you in a much better spot, like [00:08:45] so much better as far as profitability is concerned. So if you have a space that can absorb that number of [00:08:50] people, you've gotta really try to grow to that, uh, that stage as best you can, as fast as you [00:08:55] can to really get through this, this growth cycle, um, without it dragging on for five years, [00:09:00] hopefully.

And that's because it puts you in a much, much better profitable stage. But if [00:09:05] you're taking your family to Disney and going on a European vacation and buying a new [00:09:10] car during the stage, you're just robbing your ability to reinvest back in your business. And I hate to [00:09:15] say it because you know you don't wanna necessarily like you.

Put off living your life, but in some cases you have [00:09:20] to make these, these, uh, compromises based on what your goals are long term and what you're gonna do [00:09:25] short term. Short term, paying for long-term success is the way you have to look at it. So [00:09:30] your profit account may have absolutely zero money in it, and that's totally normal during these stages.

In fact, you [00:09:35] probably shouldn't have any money in it. It should all reinvest back in the business or to pay yourself whatever it is that you need to [00:09:40] make in order to live your life within reason so that you can get through this growth cycle. So. [00:09:45] In summary, when you go through a growth cycle, don't worry about your profitability [00:09:50] during this stage.

It's gonna suck, okay? Know that it's gonna suck. You cannot maintain [00:09:55] super, super high profit margins while you're expanding to a new space that's not optimized just [00:10:00] yet while you're taking on loans. In order to do that while you're, you know, really. [00:10:05] Driving back into hiring staff and increasing your overhead of your payroll, and they're not fully [00:10:10] optimal.

Like it doesn't, it doesn't work that way. You can't hire somebody and their schedule is completely full immediately, [00:10:15] not not the first person, right? It's very rare if, if that ever happens. Same thing with the second and third. It [00:10:20] gets easier, each person that you hire, but early on, those percentages are gonna be low.

It's [00:10:25] normal. Don't worry about the profit of building your business so much during that stage. Keep an eye on your finances and everything that's, it's [00:10:30] important to, to fiscally understand what you're doing and where things are going. But if you see your [00:10:35] profit dip. If you see your total profitability as far as what you're paying yourself and any [00:10:40] profit you have in the business, and it's like 15, 18%, I mean, we see it go that low [00:10:45] depending on certain areas where people have very, very, you know, high cost of living areas.

Maybe their rent is very expensive [00:10:50] for their space, it may dip a lot and then it shoots back up as they add staff after that. So [00:10:55] remember, your business is the best investment you can possibly make yourself and your business is where it's at. [00:11:00] Take that money, make sure you're putting it back in the business.

And don't take it out and put in other [00:11:05] things, whether it's your lifestyle or even investing outside of the business. During this stage, this very, very delicate time in the business. [00:11:10] You wanna really make sure you have the cash to fund that. You're building reserves along the way. You're trying to get to where you have three to [00:11:15] six months of cash on hand so you can make better decisions in your business.

Like that is [00:11:20] money that you need to have there so that you're not freaking out and hire firing somebody, uh, because you have, [00:11:25] you know, a slower month than you want it. And you gotta let somebody go, that's great. Like, you don't wanna do that. It's gonna slow you down long [00:11:30] term. So keep in mind, growth cycles.

They're tough. They're gonna eat up your profitability. But at the end [00:11:35] of the day, the faster you can get to that second, that third provider, the faster you get back to very healthy [00:11:40] profitability with you not doing everything with you, having built a true business. And then from [00:11:45] there, you can cruise If you wanna do that, if you want to get to a point where you can really start [00:11:50] to stabilize your finances personally, stabilize the business' finances.

Once you're at [00:11:55] that second, third, full-time person that's busy. Your business should be in a very healthy [00:12:00] profitability position and you can chill there, right? You don't have to just up into the right the whole time. That may be the [00:12:05] game you don't wanna play. You might want to go up and then hang, and then maybe you decide you want to add a second [00:12:10] location or grow into a bigger location.

That would go through another growth cycle. And the second one's not nearly as bad as the first. [00:12:15] It's much easier for you to manage 'cause you have. Far more cash flow coming in, and your business is typically in a far better cash [00:12:20] position as well as you are personally. So you might decide that, you know, you wanna take your time and, and, and do that.

You don't [00:12:25] have to just sprint, sprint, sprint, sprint, sprint to a a seven figure business if that's not the game you wanna play. [00:12:30] So anyway, hope this helps. I know this is a frustrating. Uh, stage for people. It's kind of hard to [00:12:35] understand what to do with your cash. This is my recommendations, uh, as far as what we talk [00:12:40] about with our mastermind members.

If you are struggling with things like this yourself, you don't know the [00:12:45] nuts and bolts of finance of how to actually run your practice. You don't know how to market. You don't know how to [00:12:50] sell. You don't know how to hire people or give people feedback. I mean, did you learn that shit in school? Like, be [00:12:55] honest, like you didn't learn shit in school as far as it comes to running a business.

Maybe you had a little business class where [00:13:00] you had to put together a, a mock scenario of a clinic or whatever. That's probably the, the most that you got. Yeah, [00:13:05] you're hurting yourself if you don't know how to run your own business, period. Okay? It's that simple. [00:13:10] Being a great clinician is not enough. It's enough to get your own schedule busy.

In some [00:13:15] cases, if you have an outstanding reputation in your area and you've been there for years, and people will come over [00:13:20] with you, but then after that, that whatcha gonna do. Like, if you wanna stay in, in a small, [00:13:25] you know, lifestyle business, that's totally fine. If you wanna grow past yourself, I'm telling you, you've gotta learn how to run [00:13:30] a business.

It is. You're a liability on the future of your business if you do not [00:13:35] understand how to run a business. Being a great clinician is not enough. It's just not. You need to be a [00:13:40] great business owner as well, and in some cases you need to be a business owner first [00:13:45] and a clinician second, if you really want to grow a big practice, if you're looking to try to, you know, [00:13:50] really grow your knowledge on the business owner side and you want to be a part of more of a business [00:13:55] clinical residency program.

That we've put together. We would love to talk to you about that. That's what we help people with all the time. [00:14:00] We build phenomenal business owners that are clinicians that go on to have success in many, [00:14:05] many places within their clinic, outside of their clinic, other businesses. We teach people how to be great business [00:14:10] owners, you know, and that's something that we've been doing for a long time.

If you're interested. Head of physical therapy biz.com. You can [00:14:15] take a look at what we have going on there. Um, but don't be the liability in your [00:14:20] business during growth cycles and going forward because you are just crippling your ability to grow to [00:14:25] the future vision that you have for your [00:14:30] practice.