Why You Need To Know The Four Numbers That Matter Most In Your Business, Part 1

As a small practice owner you wear many hats throughout the day; it’s probably second nature to you by now.

Throughout the day you’re not only the provider; there are times you may also be the:

  • Marketer
  • Communicator
  • Front Desk Helper
  • Medical Assistant
  • Techie
  • Human Resource Director
  • Bookkeeper
  • Bill collector
  • Number cruncher
  • Coder and Biller
  • Money Handler
  • Code Enforcer
  • Systems creator
  • Planner
  • Buyer of supplies

In other words, as a small practice owner, you own the title to

Chief Cook & Bottle Washer

Some of these hats don’t fit you well; many you don’t like to wear. Luckily you can delegate most of their related tasks or hire experts to take care of them.

But there are hats you wear that are non-negotiable. You are the one who has to wear them and complete associated tasks.

For example, you are the only provider in your clinic; no one else can do it for you. Besides, it’s what you do, and you love doing it.

Then there is the money hat. Another hat that’s non-negotiable. As the owner of the practice, it’s up to you to monitor the financial side of your business.

Think of the finances of your business as its pulse. Monitoring the Pulse lets you keep track of the health of your business.

Ignoring the pulse robs you of the chance to intervene and take corrective action. It would be a recipe for disaster.

Clinicians Monitor

As a clinician you are used to monitoring numbers; you know just how important they are. From experience you know that often it’s not the patient telling you the story; frequently it’s their numbers that do the talking for them.

Practicing medicine without knowing the numbers would be like shooting in the dark. It’s hard to hit a target you cannot see or even know is there.

Well, it’s the same in your business, numbers tell the story. Appearances can be misleading. But numbers don’t lie; they tell the truth.

While there are a lot of numbers you could be tracking, there are some that are more important than others.

Four Numbers To Monitor

Specifically, there are four numbers to pay close attention to:

  1. Revenue
  2. Expenses
  3. Cash Flow
  4. Pricing

Today, I’ll discuss the first two numbers, revenue, and expenses.

Keep your eyes open for next week’s article. In it, I’ll cover the other two numbers to monitor, cash flow and pricing.

Revenue… From Selling

Revenue numbers paint the most basic picture of the performance of your business.

It reveals in no uncertain terms how successful your business has been selling products and services over a period of time.

But that’s just part of the picture. Revenue is made up of two component numbers: quantity and price point.

Here is what I mean… Revenue is determined by how many units of a product or service are sold and at what price point.

Let’s say you see 20 patients a day at an average reimbursement of $75. Your revenue would be 20 x 75, which is $1,500.00 for the day.

It’s a simple calculation. All you need are the two component numbers to project different revenue levels.

But revenue alone does not tell you everything. It doesn’t tell if your business turns a profit or just breaks even.

Not The Same

Mind you, revenue and profit are not the same, even though they are similar. A business can bring in lots of revenue, but still not turn a profit and actually lose money.

Revenue and profit both describe the amount of money the business generates. The difference is this:

Revenue is the amount of money before any expenses are subtracted. That’s why you may hear revenue referred to as gross revenue or top line revenue.

Profit, on the other hand, is the amount of money left over after all expenses have been subtracted from the top line or gross revenue. That’s why profit is also referred to as net profit or as the bottom line.

Wondering why it’s called top line and bottom line?

Because that’s how revenue, expenses, and profit are listed on the income statement. Revenues get listed first, next are expenses, and profit or net profit are listed last.

Frequently people use the terms revenue and profit interchangeably. But they are not the same and should not be used like that.

Important is you understand that your revenue is not your profit. Only after you subtract all expenses from revenue will you know if there is a profit for the business.

Why does your revenue number matter? Simple… it all starts with revenue. If there isn’t enough revenue, not much else matters.

Therefore, you must know what your revenue numbers are. How much you generate from providing medical services, selling add-on products, or perhaps offering consulting.

Whatever your product mix may be, you need to know what all the products and services your offer add up to at the end of the day.

Expenses… 

This brings us to the next key number in your business, your expenses.

Do you know what your expenses are? I’m not just talking about the total number. I am also referring to individual expense categories.

Do you know how much you’re paying for:

  • Insurance
  • Wages
  • Utilities
  • Bookkeeping and Accounting
  • Billing
  • Continuing Education for yourself
  • Staff development
  • Hiring, Human Resources
  • Clinic supplies
  • Technology in the Office
  • Marketing and Advertising
  • Website Development and Maintenance
  • Cleaning
  • Equipment
  • … and more

Ask yourself this: “Do my expenses help me generate or increase my revenue?” At first glance, it would seem obvious that expenses help generate revenue.

But that’s not always the case. Expenses don’t always contribute to the bottom line. At times, certain expenses may no longer be necessary and should be canceled altogether.

Monitor your expenses closely. Keep an eye on items you no longer need. Also, evaluate if you could decrease expenses by choosing different levels of service or coverage.

For example, you might be able to choose a different internet package and significantly lower your cost.

At the end of the day, you want your expenses to be far less than your revenue. So by all means, if you can lower an expense, do it. If something is no longer needed, get rid of it.

Be vigilant in monitoring your expenses. Reduce them when possible and appropriate. It could mean taking home more profit from your business

Here is what to do next:

Set aside some time and review revenue and expenses for your business. Take a good and close look at both numbers.

Ask yourself if there are adjustments you can make to create more profit for your clinic. Could you increase your revenue, reduce some expenses, or do a combination of both?

In closing let me say this… I realize that generating the most profit for your clinic may not be that important to you.

But consider this…

Generating more profit from your business will allow you to:

  • do more for your patients
  • do more for your employees
  • do more for your family
  • and do more for yourself.

As always, we’d love to hear from you. Tell us what you think about the controversial topic of “profit.”

 

By Johanna Hofmann, MBA, author of “Smart Business Planning for Clinicians” and a regular contributor to the NPBusiness blog.

Comments 5

  1. I am going into my sixth year of private practice. Now that the dust has settled I realize how much revenue means and how to look at ways to cut back on my expenses. Example this week I contacted my cable company and decreased my bill by $40 per month it may not sound like much but over time it will. On the other hand I have contracted with a new Web consultant. I have had to put money upfront but I’m hoping it will pay off with new patients coming to the practice. So much of running a solo practice is learning the business aspect of it. All the best.

    Carol

  2. Carol, you are so right! You need to look at where it makes sense to put your money. And certainly, good marketing is a perfect place to help bring more patients into the practice.

    Thanks so much for stopping by and commenting!

    Barbara

  3. Thank you Beverly. Unfortunately, you are a correct, a lot of healthcare professionals do not understand this – I certainly did not when I worked in the hospital as a RN.

    Thaks for stopping by and commenting.

Leave a Reply

Your email address will not be published. Required fields are marked *