It is Financial Friday August 19 What Should I be Managing?

Aug 19, 2016 by Andrew Clark

By this time of the month the financial statements for July should be available.  In an earlier Financial Friday Blog, I suggested that you commit to monthly financial management action.  I hope you have, but since hope is a flawed strategy, so I will remind you again. 

Use the resources you have.  Someone runs your practice management software month end reports and someone runs your accounting (QuickBooks probably) month end reports.  Meet with that person or those people and ask for an exceptions report, things that don’t make sense. 

Armed with key indicators that don’t make sense to the knowledgeable people on your staff, take the following action:  (you will find definitions on the ismypracticehealthy.com data dashboard page)

Ask the person in your practice who is most familiar with your practice management software reports to meet with you and give you her thoughts on these three key indicators for July year over year:

  • Accounts Receivable (AR) as a percent of revenue
  • Number of transactions
  • Average Transaction Charge

Ask the person in your practice who is most familiar with your accounting software reports to meet with you and give you their thoughts on these 4 key indicators for July year over year:

  • Total Revenue
  • Percent Change in Revenue
  • Drugs and Medical Supplies as a percent of revenue
  • Labor expense as a percent of revenue
  • Gross Profit

Spend some time thinking about the trend in all 8 data points.  Again, rely on the test of reasonableness to tell you if that trend is positive or negative in its impact on your practice health/profitability.  Look for explanations.  For example, July 2016 had five Fridays so you if you pay biweekly you may have had three payrolls instead of two and your labor expense may look sky high!  If you don’t look for the explanation you may make staffing changes on the basis of the false assumption that July 2016 labor expense is up 50% over July 2015. 

After reviewing July 2016 compared to July 2015 for the eight data points, you are far, far ahead of the management habits of MOST veterinarians.  Your next step is to repeat this exercise in September looking at August 2016 over August 2015 and every month thereafter.    

If you plot these key indicators on the ismypracticehealthy.com data dashboard page, you will generate trailing 12 month graphs of each key indicator and your month end review will be reduced to minutes and you will understand the financial performance of your practice

Comments

By Dan Woodle on 08/21/2016 18:13:

I think this is basically a good idea to do every month. However I have been doing this for 40 plus years and there are some months where for some reason business is much worse than usual and some months where business is much better that usual. There is no way to predict when either severe up or down will happen. This year I think many people took the week before or after July 4th as vacation. This is earlier than usual. Also for 2015 business was going along well at about an 8% growth rate and then December came along and the yearly growth rate fell to about 3% since December was one of those terrible down months. I think we need to recognize that there are months that are an aberration to nice orderly straight line up or down.

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