• Doctors CFO

Why Is It Important to Understand Your Practice's Financial Condition?

Updated: Jan 13

Whether they specialize in dental, chiropractic, podiatry, dermatology, integrative medicine or any other medical or dental specialty; it is important that the practice owner understand the financial condition of their practice. By not considering important financial facts about your practice, you put yourself at risk for making poor business decisions. Poor equipment and other investment decisions, over or under staffing, inferior management strategies and more are only a few of the problems practice owners face when they are unfamiliar with their business's financial situation. With a long and correct history of financial information, forecasting objectives is possible.


In this previous blog, we talked about the importance of tracking Key Performance Indicators (KPIs). The purpose of identifying these numbers is to reveal your practice's ultimate financial condition. Understanding the economics of your practice will help you predict the longevity of your business. It is important that your business lasts at least as long as you want to continue practicing. Ideally, at retirement time you want your practice to be worth enough to sell at an adequate price.


What Will Help You Understand Your Practice's Financial Situation?





Understand the Basics of Profit and Loss Reports

  • This report is important because it shows the net profit of your practice.

  • Once you know the net profit, you can adjust plans to reach your goals.

Know the Difference Between Cash Flow and Profit

  • Profit is the net earnings after expenses and write-offs. It is described over a period of time; months, quarters, or years.

  • Cash flow is the amount of payments going into and out of your business account.

  • For example cash used to pay down a loan is not an expense, but if it is too high it could break you. Therefore it is possible to have profit without adequate cash flow and vice-versa.

Competitive Analysis

  • Taking a look at other practice's in your same profession will help set benchmarks for your business.

  • By comparing yourself with your peers, you keep yourself competitive in your industry.

  • That being said, benchmarks are a guide not an answer because you may purposefully spend more in an area to drive a competitive advantage against your competition. Two examples could be hiring fewer employees but paying the ones you have more because you want the best and paying for more effective marketing.

Analyze Expenses

  • Space and utility expenses should be looked at. Can you afford the space you are in? Is it time to upgrade your location?

  • Marketing should provide you with new patients. By tracking marketing expenses and marketing channels with the Doctors CFO New patient tracker, you can put a value on each new patient and determine if your marketing efforts are paying off

  • Part of overhead expenses includes employee salaries. Use the Doctors CFO Salary and Raise Planner to monitor turnover, employee pay, and bonuses. Simulate raises to ensure you are not putting the business into an unnecessary hardship by increasing employee pay.

Examine Financial History

  • A good history will help you plan for the future. A minimum of three years of history is necessary.

  • Unique business trends can be seen with past information.

Hire a CFO

  • A Chief Financial Officer can organize all of this data into a meaningful analysis ultimately telling you the present financial condition of your practice.

  • Use the Doctors CFO Virtual Practice CFO to track your daily numbers and view data in easy to understand financial reports.

To participate in this week's poll, please subscribe to our mailing list and follow us on Instagram to see the poll results '"How Many Years of History do You Look at When Evaluating Your Practice's Financial Condition?"


Prior Article Poll Results

Our last poll asked "Does Your Practice Use an External CFO?". Based on the responses we received, 75% said "No"and 25% said "Yes".



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. If you have a question that you would like answers to in a blog post, please email it to info@drcfo.com. If you have not signed up for our blog, please do, so you can continue to receive these important insights and participate in our polls.


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 reach out to us as info@drcfo.com. Doctors CFO provides financial analysis and valuations for doctors and dentists in the United States. We also offer programs for new patient marketing, revenue and collection management, medical practice consultant, dental consultant, and practice analysis.


(c) 2019 Doctors CFO, All Rights Reserved.


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©2019 by Doctors CFO LLC, All Rights Reserved.