Timely, regular assessment of your inventory and related costs (Cost of Professional Services - COPS) is important, because it represents the second highest cost area in most practices. COPS can range from approximately 15% to 35% as a percent of revenue for most practices, and in almost all cases, lower is better. If your COPS is at 35% of revenue, and it should be at 20%, you're losing 15% of your revenue to an unknown and most likely, unintended end. Think about driving down the highway with stacks of $100 bills on your dashboard and your window down. You know you're losing money out the window, but you just don't know who is ending up with it. That needs to stop, and it can.
It's mid-April, and it is important to have access to updated financials so that you can examine your COPS and make adjustments if they are out of your 'normal' range. If you use the data dashboard at IsMyPracticeHealthy, you will recognize the chart below. This is a Trailing 12 chart of the COPS as a percent of revenue and shows the true trend of COPS over the past year (2013 in this chart). Trailing 12 format removes all seasonality, so trends are real. Each data point represents the previous 12 months of data for COPS as a percent of revenue. In the chart below, the trend over the past year is generally downward from about 25.5% to about 24%, with slight increase in the recent two months. So, the declining trend is good, but we'd want to see this continue towards a goal of 20% or less. The fact that it's not at our goal tells us that we have to find where we're leaking inventory. Is it lack of capturing charges? Is it theft? We want to find out and get this number further down. Get access to your updated financials no later than two weeks after months end, and use the data dashboard to help identify where you need to devote attention.
