When reviewing financial reports, some practice owners look at their bank account balance, others pull a profit and loss statement, and a few focus on what the data is trying to say. The latter group is interested in replicating or changing the outcome. Did your practice have a bad month? I’m sorry to hear that. But why? The same applies to great months. Congratulations! Did the results surprise you or meet your expectations?
Here are five steps to reveal the story your financial reports are telling you.
1. Where Do You Want to Go?
Setting goals is crucial for financial success. I recommend using the SMART formula (specific, measurable, achievable, relevant and time-bound goals) so you easily see what you want to happen. Consider this example:
You projected $100,000 in revenue last month. However, your practice brought in only $80,000. Why? The answer requires digging deeper. Your SMART goal anticipated 10 appointments a day per veterinarian, and you estimated the average ticket at $238. Your clinic was open 21 days last month, so you expected the two doctors to handle 420 appointments. The average ticket was $250 (slightly higher than forecast), but the appointments totaled only 320. Bingo! Now you know the reason for the revenue shortfall. However, you don’t understand why you scheduled fewer appointments. Yet.
2. Examine the Data
Once you set SMART goals, the second step is to collect accurate, timely and comparable data. If you wait for an end-of-year report to review your clinic’s performance, you might be in for an unpleasant surprise. Therefore, make sure your accounting system can generate reports anytime and from anywhere. Practice management software allows you to explore your revenue and expense numbers and, depending on the platform, your inventory and cost of goods sold. If you have an accountant, request frequent financial details.
3. Know Your Numbers
Now that you accessed the data, the third step is to look for patterns and trends. You might discover that surgery revenue dips every December and dentistry business rises in February. That is good information, especially if you can figure out the whys. Do you promote National Pet Dental Health Month each February? Small observations will tell or lead you to a story.
Remember that your practice might not be average when you examine industry data. Perhaps your focus is on dentistry, so you don’t spend as much time on surgeries. In that case, the expectation is for your surgery revenue to be lower and your dentistry much higher than the industry benchmarks.
Let’s return to the example about projecting $100,000 in revenue last month. Answer these questions to understand your numbers better:
- How many appointments do we usually see each month?
- What is the 12-month rolling average?
- How many appointments did we have during the previous month?
- How many appointments did we have month to month, quarter to quarter, and year to year?
- Do we typically accomplish our SMART goals?
In the example, the rolling monthly average over the past year was 400 appointments. Two months ago, you had 340, and in the same month the previous year, the number was 450. The results tell us the SMART goal of 420 was achievable. You also concluded that the number of appointments last month, 320, was meager based on your practice’s history.
This third step can feel overwhelming since you have so much data to analyze. However, it doesn’t have to be that way, so start by reviewing these categories monthly:
- Each revenue account as a percentage of total revenue.
- Each cost of goods sold account as a percentage of total revenue.
- Labor cost per job classification and as a percentage of total revenue.
- Gross profit.
- Net profit as a percentage of income before and after owner’s compensation.
- Budget variances.
- Accounts receivable as a percentage of total revenue.
- Aged accounts receivable.
- Aged accounts payable.
- Average transaction per veterinarian.
- Balance sheet compared to other periods.
- Active clients.
- New clients.
- New patients.
- Total client appointments.
- Total canceled appointments.
4. Diagnose the Problem
Bloodwork results can indicate normal or concerning values, or they can make you curious. You run a different test and recommend a treatment plan. Approach your financial reports with the same mindset. Do you see anything unusual or out of the ordinary? This step is about cause and effect.
I often hear this: “One of our doctors was sick for two days.” OK, but two days multiplied by 10 appointments is 20 fewer appointments. You’re looking for the missing 100. I also hear, “It was a slower month; it happens.” But why? Uncovering the reason takes patience. Jot down your theory and check it for accuracy.
In our example, let’s look at the patient schedule. Was every day full of appointments for each doctor? If not, why? If they were booked solid, what was the daily revenue? Do you see missed charges?
Then, look at the employee schedule. Do you see anything unusual? Who booked appointments those days? How many phone calls did your practice receive, and what was the client conversion rate? How many online bookings occurred?
The financial report merely alerted you that something was wrong. Yes, a doctor called in sick for two days, and you wrote off one day because of snow. However, those events affected only a few dozen appointments.
Exploring further, you discover 80 cancellations when you usually have 20 each month. Your clinic’s policy is to keep open a few appointment slots for sick patients. However, your newly hired receptionist misunderstood the policy and scheduled some sick visits for the next day. And some clients, annoyed by the wait, went to urgent care instead. Missed opportunities add up.
5. Implement a Treatment Plan
Every report tells a story, reveals causes and effects, and motivates you to respond. One reaction in your case was to retrain the receptionist.
If your practice has a bad month, find out why and make corrections. Change small and change often. After all, you can’t do the same thing over and over and expect different results. Change your story!
BENCHMARK YOUR BUSINESS
To compare your veterinary practice’s performance to peers, check out these resources:
- Well-Managed Practice Benchmarks Study: wmpb.vet
- AVMA Report on the Economic State of the Veterinary Profession: go.navc.com/4ebqHfp
- VHMA Benchmark Reports: go.navc.com/45gjM0C