Though the profit and loss, statement of cash flow, and balance sheet are necessary for any business, financial statements for a Medical or Dental Practice will in many ways vary from small business statements. Financial statements should tie back to or relate to the operations of the business. How do they finance equipment? How do patients pay bills? What vendors do they use? These among many other questions identify the operational flow of the business. As such the trends that medical or dental businesses follow the will and should be different. Even among specialties, there will be differences in financial statements and how they reflect the financial health of the practice.
Some examples of how financial statements will differ include the following. A specialty dental office will have much higher clinical supplies than a pediatric office. Similarly, a dermatology office that offers cosmetic services will have higher supply costs. For non-billable staff costs, typically a dental and podiatry office will be 5% to 10% less than a medical office. However, if your office is cash, then your overall costs might be 15% or more.
Additional examples include seasonal production highs and lows. For example, an Oral Surgeon may have increased production in the summer months removing wisdom teeth because kids are out of school. Also, pediatric dental clinics notice a big drop in September as kids go back to school. The numbers will tell you when your optimum time to vacation is and when you should be working. Someone told me once, the best time to make money is when other people don’t want to work and then vacation when everyone wants to work.
The main statements that should influence practice business decisions are the profit and loss statement, the balance sheet and the cash flow statement. Profit and loss reports will ultimately show how much revenue your practice is producing. It is a good indicator of how successful your practice is and will drive monthly quarterly, and annual goals. If you have more than 150 accounts, you have too many and we strive for less than 100 including the balance sheet accounts. It is important to structure your profit and loss so that it is easy to read. We organize into larger buckets that have subtotals like this:
- Clinical Supplies
- Facility & Equipment
- Staff Labor
- Associate Labor (Billable staff)
- Owner Labor
- Management Expense
The balance sheet is a snapshot of your net worth at any given time. It will show you the net value (equity) of your practice by taking into account assets and liabilities. Essentially taking a look at what is left over after what you own (assets) and what you owe (liabilities).
The cash-flow statement will include any and all transactions going into and out of the practice’s business account that involves cash. Your operations may be generating a lot of profit, but your rent, equipment loans, lines of credit, practice loans, etc. may be greater, so though you make money, you have no money after paying everything. The income statement or profit and loss statement will not show this.
If at any time you want to sell your practice, finance equipment or space, attract investors, or make good decisions in general, you should be able to understand your practice’s financial health by evaluating these statements.
What Questions Can I Answer By Looking At My Practice’s Financial Statements?
What Does My Profit and Loss Tell Me About My Business?
- Does my administrative, supply, marketing, staff, equipment, facility, etc. costs makes sense this year?
- Did any of those as a dollar and as a percentage change too much from year to year, month to month or quarter to quarter?
Do I Have Adequate Cash Flow?
- Make sure there is enough money in your business account to cover monthly expense obligations.
- What is my expected profit for the month, quarter or year? And is it enough to cover my equipment, loans, and other financing obligations?
- Do I have enough to cover tax, retirement and other expenses?
Where Should I Cut Expenses?
- Staff – Use the Doctors CFO Salary & Raise Planner to simulate raises and bonuses.
- What areas of spending grew the most as a dollar and percentage year over year? How can I do better?
- Am I paying too much overtime?
- Is the person I hired to do billable work covering their cost?
Should I Invest In Equipment?
If your profit and loss is strong enough, perhaps it’s time to invest in equipment. Before you do, please consider an Equipment Simluation from Doctors CFO.
Is It A Good Time To Sell My Practice?
If your profit and loss is strong enough where you are generating 15% or 20% of the collections into cash, then your practice will value well.
Is My Balance Sheet Improving?
- Has your net worth grown?
- What loans or equipment did I pay off this year?
- What loans or equipment do I plan to pay off next year?
- How can I avoid more loans?
- Is my accounts receivable too high and how can I fix it?
To participate in this week’s poll, please subscribe to our mailing list and follow us on Instagram to see the poll results ,“When Was the Last Time You Looked At Your Balance Sheet?”
Prior Article Poll Results
Our last poll asked “How Many Years of History Do You Look At When Evaluating Your Practice’s Financial Condition?” Based on the responses we received, 25% said “I Don’t Look At Historical Data”, 50% said “One Year” and 25% said “More Than Three Years”.
The reason we are publishing these articles is so that your office can increase its success. We appreciate your feedback on how we can help you more and love it when you pass these articles along to other practice owners and office managers.
Developing a management report is not easy and Doctors CFO currently has a robust model for most practice types that is customized for our monthly and bi-monthly clients. If you have questions on how this model applies to your practice or you are interested in applying the Doctors CFO model in your practice, via one of our annual, bi-monthly or monthly assessments, please contact us.
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