Practice financials don't need to be complicated. Keep them simple, up-to-date, and learn from others who have already done what you want to do. Start with a good bookkeeper or accountant who can help you set up your accounting with a proven chart of accounts that will allow you to benchmark your practice against industry standards. The AAHA or VSG chart of accounts (from Marsha Heinke) have been proven effective and serve many practices well. The VSG chart of accounts was adopted from the AAHA version, so they are similar.
Ensure that your accounting is performed in a timely manner to allow you to have current information about the status of your business at all times. Inaccurate or delayed financial information is of no use. Once you have your accounting and practice management systems in place, the following handful of data points will help you keep abreast of the current health of your practice. Use the data dashboard at IsMyPracticeHealthy.com to view your practice data in Trailing 12 format. Trailing 12 format removes seasonality, so the ups and downs you see are real. You will need at least 24 months of data to have your first 12 data points on the charts.
Use the following monthly data points to enter into your dashboard:
- Total revenues
- Number of transactions
- Labor expense (your highest expense category)
- Cost of professional services (inventory, radiology, lab services, food, bedding, and related services)
- EBITDA (Earnings Before Interest Taxes Depreciation and Amortization)
- Accounts receivable, if any
All of these data points should be available from either your accounting software or your practice management system. Keep it simple and timely. It will serve you well.
