It is mid September now and your practice financials should be ready for you to review. If you have been following Financial Friday for a while you will remember that in Mid July and Mid August we discussed committing to monthly action and developing strategy for a monthly review your financials and managerial accounting reports.
Review: 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 them to create an exceptions report. An exceptions report is simply a list of results in the reports that don’t make sense. The exceptions report is the starting point for your review. Armed first 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 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 her thoughts on these 4 key indicators year over year:
Percent Change in Revenue
Drugs and Medical Supplies as a percent of revenue
Labor expense as a percent of revenue
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. In August, when reviewing July reports, remember that July 2016 had five Fridays If your practice pays 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 August 2016 compared to August 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 October looking at September 2016 over September 2016. Every month your process will remain similar but as you learn, the process will evolve.
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.
We are in the third month of the Financial Friday financial review exercise. As you go through your P&L you may notice that there is a significant amount of money in a specific category that is used each month, but nothing in the same category in the succeeding month. This is the type of issue that should be on the exceptions report. Dig into it, go back to the check register. It doesn’t matter if it is paper or electronic. Find the category in the two months and see what happened. One of two things is probably the explanation.
In one of the months, the entry may have been made in the wrong account from your chart of accounts. This is a very common discovery when veterinarians begin looking closely at their financial reports. It may be the result of having different people record the payments in successive months or it may simply be a mistaken entry. When you discover this type of error, use it as a teachable moment. Be patient because you may have never given the book keeper the impression that it mattered very much to you if things were not consistently categorized.You are changing the rules and it is a must that the book keeper understands that you are simply learning to do a better job of managing the business.
The second most likely reason for no money appearing in the expense category is that we didn’t pay an account payable this month.Are you short of cash? What else hasn’t been paid? Did you pay an annual invoice in one-month last year and the following month this year?
Whatever you find to be the reason for the discrepancy, it will be an important signal from you to the staff that you are paying more attention to your business than you may have in the past.
It is very likely that a huge percentage of veterinary businesses have been or are being embezzled. Showing interest in the financials will more than likely cause embezzler to stop stealing or maybe even quit their job.
Some of you started a process of reviewing your financials two months ago. Others may still be thinking about it. It will never become easier by waiting. Take the time to get started today.