Owning and operating a med spa, dental practice, or other small business mimics driving a car: it requires full visibility and a sense of direction. The most sensible way to find your path is to review your finances periodically and set business goals. Learn the five reasons why you should examine your finances, and how to drive consistency or growth in your practice, below!
1. Reviewing your finances provides awareness to your business goals.
Owning and operating a practice without financial awareness is much like driving a car at full speed totally blindfolded. Harvard Business Review professor, Richard Ruback, states that, “If you can speak the language of money, you will be more successful.” Understanding how your company makes a profit will impact day-to-day activity. You can overcome your fears, learn the lingo, and find the value of your business by reviewing your financial statements monthly.
First, start with your profit and loss statement (P&L) to identify your revenue and collections. Understand the breakdown of income from your services offered or goods sold to later help you distinguish which are the most profitable. Next, use your P&L to understand your expenses–wages, cost of goods sold (COGS), marketing, etc. What value came into the practice, and what came out?
Once you’ve discovered these two line items, you can understand your profit. Ultimately, your profit determines the impact to your cash flow. The balance sheet is the bridge between your P&L and cash flow and will include any loan payments or distributions that affect cash flow.
2. Business goals help you avoid tunnel vision.
Now that you understand the language of your finances, you can make decisions with clarity. You wouldn’t make a turn in your car without looking both ways–and you shouldn’t make business shifts without doing so, either.
Business owners wear many hats–CEO, COO, CFO, CMO, and so on. It can be easy to forget to look up from the steering wheel to the road ahead! This makes it even more important to not only assess your financials, but review them with both dollars and percentages.
Begin by viewing your financials with percentages of revenue. This format allows you to understand whether you’re spending too much on payroll or too little on marketing while allowing you to compare and measure short or long-term progress.
Now, compare month-to-month for the period as well as month-over-month and year-over-year. You will be able to assess the big picture and identify opportunities for business shifts and improvements. Are supply costs going down? Is payroll higher than last year? Are revenues and collections decreasing? If you have QuickBooks, it’s easy to to select the time periods and percentages before you export the data. You can also ask your CPA to show you the data in this way.
Use percentage benchmarks to keep your financials on track. Generally, we suggest aiming for 50-60% for total fixed expenses, 25-30% for total COGS, and 15-25% for operating profit. It’s important to make direct correlation to previous years’ performance as well as the ranges you should be targeting for each revenue and expense category.
3. The more you know, the more you can grow.
The devil is in the details. When factoring growth and analyzing your business financials, how you view your financials is important! And knowing which KPIs to measure provides you greater awareness of your business.
Start by digging into your revenue and COGs details. When you break these out by top procedure categories, it allows you to analyze where your income comes from. Identify your margins! Do you know where your revenue or collections are coming from? Your margin on each procedure? Which procedures bring in the most revenue or cost you the most money?
Then, identify your KPIs and track them. From the number of new patients to hours worked to procedures by provider, begin tracking KPIs monthly in a spreadsheet. This method allows for easy visibility of progress, understanding if there’s any regression, and opportunities to celebrate successes or course correct with your team to drive results.
Ask your accountant or CPA to organize your financials with greater revenue details by procedure type. They can also match the categories to your COGS to measure margins.
4. You can choose your destination.
As Dave Ramsey, finance guru, quotes John Maxwell as saying, “A budget is telling your money where to go instead of wondering where it went.” With blindfolds taken off, tunnel vision avoided, and attention to specific details of your practice, you open yourself to the opportunity to choose your own destination. Get there by building a budget and a clear roadmap. Ultimately, consider what you want in the long term and what needs to happen in the short term to make progress toward your vision.
When you fail to plan, you plan to fail! Driving with no plan of action or direction can leave business owners spinning in circles. Clear business goals will lead you on a path of purposeful finances.
Build a 12 to 18 month budget by anticipating your future revenue. Furthermore, use historical data and KPIs while planning for any time off, large purchases, changes to your marketing plan, and increases in payroll from new hires. On a monthly basis, review performance to your budget and course correct or celebrate progress accordingly. Finally, leverage comparison views and anticipate trends in revenue and expenses to project goals each month.
5. Gain control of the trajectory of your business.
To recap, you can paint a clear picture of your destination by doing the following:
- Review your financials monthly.
- View financials with percentages.
- Compare your results month-over-month and year-over-year.
- Show revenue and COGS details.
- Measure and track your KPIs.
- Build a budget and work your plan.
When you have financial goals, you shift from running blind to having clear sights of your intended destination. Skytale Group works with service providers to understand your finances and create goals to drive accountability! We also support scaling and growth of practices through management consulting. To learn more about how we can help you review your dollars and cents and meet your goals, contact us today.