Managing profitability through the noise of financial statements
At a high level, you’ll want to glance at Income and itemized expenses as a total percentage of income. Plain and simple, this will show you where your money goes.
For most businesses, people are typically the highest expense. Medical practices are no different.
Your staff is expensive.
Staffing costs are inching upward toward an all time high of nearly 30% for primary care physicians. Managing these costs is essential to improving your bottom line.
Not only do you need to look at the variable salaries across your staff, you’ll also want to look at overtime trends. Healthcare lends itself to working long hours. It’s the doctrine instilled in every young care provider.
But remember, when people work overtime you are paying a premium pay rate for the hours they are tired and likely to be less productive. This is a real business concern.
Monitoring your top expenses and how they relate to revenue will give you a better understanding of how to manage them.
Beyond revenue lines and expenses, it’s important to monitor cashflow
Deposits: It’s important to keep track of how much money is received by your practice. At the most basic level, you need to track exactly what hits the bank account so that you always maintain the funds required to run your daily operation. As we’ll get to later, some payers pay faster than others, so cash flow can be a real issue for some practices.
Outstanding A/R (billed, value and days): How long is it taking you to get paid? This will show you what to optimize for in the future.
Charges: Keep track of what charges were created, and also track where those charges are in the process. What’s the breakdown of these charges? Private insurance or patient collections?
Payables: What do you owe? You need to maintain that bank balance to pay what is owed to your various vendors and financiers.
