Lucent Advisory is fortunate to collaborate with businesses from every industry, when it comes to professional services we work with multi-talented Practice Managers.
When we consider all the different hats a Practice Manager wears, one of the most challenging is understanding and reporting on the financial performance and position of the practice and what improvements can be made – right now and in the future.
So how can a Practice Manager do this, especially if you don’t have an accounting qualification and years of training to fall back on?
The trick is, to develop a narrow focus on the specific drivers of profit and cash flow in your business, and then hone in and manage these.
I still see Practice Managers and a lot of business owners and CEO’s alike, trawling through pages and pages of profit and loss statements and balance sheets trying to work out what the heck is going on. Are we making money? Are we paying too much in wages? Should we take on another PA, associate, or specialist? How much cash can I take out of the business without leaving it short for BAS and wages?
The truth is, your pages and pages of P&L and Balance Sheets are just more “noise”.
You won’t find the answers to these important questions anywhere in them and that is why so many practice managers and owners feel like they are literally “in the dark” when it comes to the financial management of their practice. Because the truth is, you do need an accounting qualification to be able to read a Profit and Loss and Balance Sheet and understand what these reports are telling you about the performance of your business or practice. If that wasn’t the case, why would accounting be a profession?
I had some blood tests recently and my doctor after explaining the results to me, printed me off a copy to take with me. When I got home I took one look at it and filed it away in my filing cabinet. It had a column of names on there like ALP, GGT, AST, ALT, and then numbers next to them. Unfortunately, without a degree in medicine, I had no hope of understanding what it all meant. It was literally just letters and numbers on a piece of paper. I’m pretty sure this is what a P&L and Balance Sheet probably looks like to a lot of practice owner’s as well.
Had this report had terms I would understand like Liver function or Kidney function, along with a benchmark of what a person of my age should be scoring and perhaps a chart of how my results have changed over my life so far, I might have stood a chance of understanding it and knowing what areas of my health I need to address.
The same applies to a business.
There are certain performance indicators, we call them KPI’s, that is monitored and improved, will most certainly lead to a healthier, more profitable business, you just need to understand what they are and how to measure and manage them.
In a service-based practice, your people are typically your number one cost so understanding the return you are making on their time is critical to the practice’s financial success.
Some professions have fixed pricing models so managing labour costs become crucial. We see a lot of practices unknowingly overpaying their staff with excessive amounts of overtime, TOIL, and other allowances that they don’t necessarily need to pay or that aren’t being well managed. Contracts are often out of date, notice periods are not in line with the NES, and so on.
Understanding the profit % return on your workforce is far more important than the actual amount in dollars. Practices that only look at the dollar cost of their labour bill in isolation are not going to make effective decisions. For example, we had a client whose labour costs had increased compared to the same quarter the previous year and this was really concerning the practice owner until we pointed out that actually their revenue had increased over this period too and in fact, as a % of the revenue their labour costs had actually come down which meant they had generated more revenue and profit with comparatively less staff!
We have a practice of therapists who now track the average hourly rate recovered on each of their practitioners so not only can they now pinpoint which practitioners are performing well and which aren’t, they can also use this to incentivise and reward the high performing ones and their staff retention has now massively improved.
One of the first things I will do with a new client is to help them implement a KPI dashboard report with all the KPI’s that they need to monitor on one page. We will set a benchmark or target for each KPI so they can monitor how the practice is tracking against those targets each month or quarter. By doing so in less than an hour a month, you can pinpoint the specific areas of your practice that are not performing as expected and you can focus your efforts on the right problems and take advantage of opportunities you may not have seen before too.
Information is power and having a KPI dashboard report in your practice will save you hours of trawling through pages and pages of financial reports that don’t make sense. You can pinpoint within minutes where your business is on or off track, giving you the power to act immediately.
The Lucent Advisory team can take you through the digital transformation process, help to train your staff and establish the KPIs your business needs to thrive.
Get in touch today to start the discussion.