Commit to Monthly Action - Part 2 – Review the practice reports your practice can currently generate
To paraphrase several communications, “I’m overwhelmed with trying to learn to manage my finances in addition to being a full time veterinarian. I don’t know where to start!” I separated the P&L key indicators and Practice Management Software key indicators into two blogs over two weeks to be consistent with Dr Blach and my vision of providing our readers with concise, high impact content that is useful but not overwhelming.
Review of Part 1:
We discussed committing to a new financial management habit starting with your June Profit and Loss Statement. Our plan is to start reviewing reports in July after June books are closed by asking your book keeper to print a Profit and Loss report side by side for the current month (June 2016) vs the same month last year (June 2015). Ask them to spend 30 minutes studying the completed report and highlight any line items that don’t seem right for any reason. Make an appointment with your book keeper to spend 30 minutes together after they review the report so that they can tell you what doesn’t make sense. Your objective is to begin learning what happens in your practice monthly and if it happened at a different level during the same month last year. As you get comfortable with the process you will begin to apply the “test of reasonableness”. If something just doesn’t make sense you may have to ask your accountant to help you understand.
As you look at reports, try to focus on a few key indicators. The free ismypracticehealthy.com Data Dashboard provides you with a way to monitor your own key indicators. You have to enter only 8 number monthly, yet the impact can be very significant. Some of the key indicators that we believe are most useful in managing a practice are:
Drugs and Medical Supplies
Number of transactions
You will find definitions on the ismypracticehealthy.com data input page.
You will find the first 3 key indicators above on the Profit and Loss statement.
The key indicators we will discuss today are:
Accounts Receivable (AR)
Number of transactions
Average Transaction Charge
Your practice management software is the source of these key indicators. As soon as June is closed in your practice management software, look at these three indicators for June 2016 and June 2015. If you have a companion animal practice, your AR as percent of revenue should be close to 0.00%. Large animal practitioners may be carrying a staggering AR burden!
I would suggest that you ask the person in your practice who is most familiar with your practice management software reporting capabilities to meet with you and give you their thoughts on these three key indicators year over year relationships. Spend some time thinking about the trends in these 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.
After reviewing June 2016 compared to June 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 August looking at July 2016 over July 2015 and every month thereafter.
Take the next step and enter your key indicators in the ismypracticehealthy.com Data Dashboard. Since the data dashboard displays ‘trailing 12 month’ data, the trend line eliminates seasonality. In order to see a complete 12 month trend line you need to enter 24 months of historical data points. The impatient among you as well as those looking for a reason not to use this tool may use the 24 months of data as your ‘out’. Those among you who are committed to understanding and improving the financial health of your practices, CHARGE ON!
Our users tell us that actually entering the data takes very little time but gathering the data does take a while depending upon the experience of the person running the reports. You can make this process go much more smoothly by explaining to the person who runs your reports that this is an important management exercise which you expect to have a high impact on the practice. If you aren’t enthusiastic about the work, it is hard for your employees to be enthusiastic.
Commit to monthly action. Review your key indicators monthly! Explain the importance to the people running the reports by asking for their input on each indicator. They probably understand the impact of some managerial decisions better than you do. Leverage their knowledge!