A couple of years ago a good friend introduced me to Professor Jordan Peterson. Peterson was well renowned for his insight into human psychology. He distills down a life improvement truth into a simple statement that everyone has heard from a parent, or has said as a parent...clean up your room.
The idea being that whatever it is that we are doing, we do it better if our room is properly organized. In other words, we should organize the world around us so that we can operate efficiently within it.
Practice Management is properly cleaning up and organizing a room. There is nothing more important for the success of a practice than to have it properly organized. Everyone then benefits.
One of the often-neglected rooms that need to be cleaned and organized in your practice is the financial room. A clean financial room represents an efficient cost-effective system that will give you, the business owner, the information you need to assess business performance and make the best decisions for your clinic and patients.
Your financial room consists of three distinct systems that ought to be aggregated into your financial management report. The systems are: Billing & Collections, Purchasing & Payments, and Payroll. Your practice management software provides reports for only one of these three – Billing and Collections.
I suggest that you think in this three-system framework to consider if any one of the three is blocking you from getting the information aggregated into a timely set of monthly financial management reports. An organized financial room ought to culminate in the three systems coming together into a financial management report that you can review within the first two weeks after month end. The following ought to be included in the financial management report: Balance Sheet, Profit & Loss and Cash flow statements.
A business owner needs their balance sheet to assess their cash and asset position relative to their current liability and long-term debt position. The assessment can be as generic as, 'does what I'm looking at make me feel good?' Do I have more assets than liabilities available to work with? Life can be very challenging if our assets only equal our liabilities. We perform better if our assets exceed our liabilities by a reasonable margin. This holds true with companies.
A business owner needs their profit and loss (P&L) statement to assess their operating net relative to other clinics in the profession. The P&L measures how well you’re using the assets you have, allowing you to compare how you're performing relative to your peers. To do so your P&L ought to be organized into six main categories to determine your operating income: Collected Receipts, Cost of Goods Sold, Staff HR, Occupancy, Overhead and Marketing. Each of these categories can be compared to national benchmarks to assess your clinic's performance relative to national averages.
A business owner needs their cash flow statement to assess what amount of cash is: #1 is generated from clinic operations, #2 consumed from financing activities (debt service), #3 used in investing activities (equipment purchases, distributions). Your cash flow statement will tell you if your clinic operations are generating sufficient cash to service debt and pay yourself and your taxes. The cash flow statement will give you a very clear understanding of where your cash is going.
From our client base, we have found that the most successful practices are those which have their financial room properly organized.
Chief Financial Officer