Time For A Business Health Checkup?
Time For A Business Health Checkup?
Regularly take the pulse of your practice to ensure a healthy bottom line today and an attractive business investment for potential buyers tomorrow.
ALISSA WALD, O.D. AND SCOTT DANIELS, Costa Mesa, Cal.
Even if you don't plan to sell your practice any time soon, today is still a great day for a practice health checkup. Financial planning and wealth-building strategies start with a good foundation of regular, up-to-date record-keeping.
Just as your physician orders tests to determine your current status and then prescribes lifestyle changes based on his findings, so should you determine your practice's financial health status so you can make adjustments if necessary. Here are some questions to ask and some tools to help you with the answers.
Imagine setting out on a journey without a road map or an address for your destination. Even Mapquest needs more information to get you from point A to point B, but once you've input that information, you have options. You can select the fastest route, the shortest route or a route to avoid highways. Now, picture your business in the same context. Where did you start? Where are you now? What products or services do you want to keep, add or avoid? And, of course, when do you want to finish your journey?
It's more important than ever to maintain accurate, up-to-date financial records and statistics on your office. Records reveal which months are your most profitable and which are slowest. In addition, comparative reports can help you identify trends in your practice, so you can take proactive steps to counteract a downturn or maximize an uptick.
ILLUSTRATION BY ERIKA LEBARRE
This information helps you improve your bottom line and offers other benefits as well. You may need a loan for working capital or new equipment, for example, and comparative reports could work in your favor. Banks today require a profit and loss (P&L) statement that's no more than two months old. If your projected revenue for the year is down, based on the current interim P&L statement, it could be more difficult to get a loan. However, if your prior year's figures for the same period show a similar trend (i.e. your better months may be seasonal), your bank may reconsider your loan.
Healthy habits will result in better business performance, improved profit and, ultimately, a higher value when you sell your practice.
Acquire healthy habits
Successful financial planning involves three steps. First, identify where you've been. This is an ongoing process of record-keeping. Second, determine where you are today. And third, determine where you want to go.
Here are some practical tips to achieve steps 1 and 2 without becoming overwhelmed:
- Hire a part-time bookkeeper. Even if you have the know-how to keep your own books, don't do it! Basically, you would be paying a doctor's wage for a bookkeeper. Your time is better spent seeing patients.
- Use QuickBooks or a similar small business accounting software program to record your financial information.
- Use a practice management software program to record daily revenue activity.
- Keep revenue and expense information current for each day and month.
- Finish P&L statements for the prior month by the 15th of each month.
- Separate financial information for each office.
- Keep information for each month — bank statements, vendor invoices — in a binder labeled by year.
- Keep payroll information organized and easily accessible.
With the information you gain from steps 1 and 2, you can easily move to step 3 and compile a financial plan.
Determine your goals
To determine your financial goals — and these often change in the course of business ownership, so be prepared to adapt — more self-examination is required. You'll need to ask yourself:
1. How long do I want to practice? This will help you set a timeline for your exit strategy, whether you will be retiring or selling the practice.
2. What are my short-term and long-term profit goals, and how can I reach them? List 10 ideas that you believe will help you achieve these goals.
4. What is my action plan? For each idea, list specific step-by-step actions you will take to implement each one. See “Take Action To Achieve Goals” (below) for an example.
5. How much should I set aside from profit for business improvement? Allocate a percentage of profit to reinvest in the business and capital improvements. For example, set aside a minimum of 3% of your gross revenue for long-term business re-investment. If you can set aside 5% or more, even better. Set this up on automatic bank transfers into a separate investment account. This way, you will not be tempted to use these investment dollars for everyday expenses. Alternatively, allocate your profit as a percentage, allowing a portion for you, your staff and re-investment. For example: 70% profit to you; 20% for re-investment and 10% for extra staff bonuses or wages. Whatever the allocation, be diligent and stick with your plan. Larger revenue practices should consider higher percentages for re-investment and staff. Review the allocation every quarter and make adjustments based on the need of each category.
6. Measure your progress monthly. See steps 1 and 2 to ensure your progress meets both short- and long-term goals.
7. Adjust. After reviewing your progress against goals, determine if you need to make adjustments to your strategies and tactics.
Implementing healthy lifestyle changes is easier when you have the support of a team. The same holds true for implementing changes to your practice. Share your goals with your staff, and delegate as much as possible. Each person should understand his duties and measurements of performance.
Getting started with a new healthy routine for your practice is the most difficult step in the process. Once the systems are in place and the information is automatic and at your fingertips, maintaining a healthy bottom line will become second nature. Increased profits and equity will be your reward. OM
Take Action To Achieve Goals
Once you select a goal for your practice, commit to action steps that will make the goal a reality. For example, your goal may be to increase the number of patient appointments. For best results, be specific. If you see 30 patients per week, set a promise goal of 33 and a “go for” stretch goal of 36. Phrase the goal and the action steps in the present tense so that they create a sense of urgency for you and your staff.
Your specific goal becomes, “I see 36 patients per week.” Repeat that everyday, write it down every morning. This helps reinforce the goal both consciously and subconsciously.
To make your goal a reality, you might consider the following action steps:
- Get list of all no shows for the last three months. Assign one staff member to call no-shows to schedule appointments. (Call five people per day and speak to them personally.)
- Contact five major employers HR managers and introduce the office. Send letter, brochure, or setup meeting.
- Send a letter to five local employers per week. Introduce them to your practice and provide a special VIP promotion.
- Join a local networking group or community organization and attend meetings.
- After delivering the highest level of patient care, ask patients to “tell a friend” (referrals).
- Ask patients about other family members' last exam. These patients will influence family members to schedule appointments.
- Have each staff member and yourself hand out five business cards every week to people they meet.
- Make the goal a contest and reward a small prize to the staff (buy lunch) if the practice reaches the stretch goal.
- Send a letter to five doctors in the area. Let these doctors (dentists, chiropractors, etc.) know about your services, and so it's not a one-way conversation, inquire about their services.
- Ask your landlord for referrals. Ask facility management to send a promotional letter to their other tenants. (Consider offering tennants a “VIP” savings of 25% off second pairs or sunglasses.) Extend the offer to all local businesses.
||Dr. Wald is the president of Practice Concepts, a firm offering practice sales, brokerage and consulting services. She operates a successful optometric practice, including two associate doctors and staff personnel.|
||Mr. Daniels is a licensed broker with Practice Concepts and has over 20 years experience in business management, financing, marketing, and negotiations and practice sales. E-mail the authors at email@example.com
Optometric Management, Issue: January 2010