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This is what you need to run your practice like a business

A typical attitude among health care professionals is to pay someone else to take care of the financial management of the business. The key to taking control of the business side of the practice is to have a software package that will provide the right information in the right format at the right time. Running the practice on the revenue line only, meaning the appointment book, is a bad idea. A full appointment book does not automatically translate to handsome profits. Maximising net profit requires good information and dedicated management. No one else is ever going to care more about your business than you do.

Benchmarks

Benchmarks allow one to measure performance against what should be possible, they motivate by providing a target to aim at, and they provide an early warning system. Benchmarks are usually, but not always, expressed as a percentage of turn over.

Examples:

  • Net profit percentage
  • Gross profit percentage
  • Expenses as percentage of turnover
  • Salaries as percentage of turnover
  • Rent as percentage of turnover
  • Debtors days (debtors/turnover X 365)

Benchmarks expressed as a percentage of turnover will obviously be directly affected as turnover goes up or down. Increasing turnover, therefore, can quickly make everything look great. Net profit for an optometry practice should be 20%, and the aim should be to get all other benchmarks to fall in line with this. This becomes clearer when viewed in the mini income statement. Benchmarks are not the same in optometry. They will differ across different locations, types of practice, markets, etc. It is easy to develop benchmarks over time, as long as you start off by aiming for 20% on the bottom line.

The mini Income Statement

The monthly turnover is governed by the forecast/budget.

  Forecast Actual  Benchmarks  Variance
Turnover 250 000      
Gross profit % 167 000     67%  

Expenses

Rent  30 000    12%  
Salaries 45 000    18%  
Funding/loands      0%  
Other  25 000    10%  
Net profit   50 000    20%  

This is what happens when the forecast is missed:

  Forecast Actual Benchmarks Actual Variance
Turnover 250 000 220 000      12%
Gross profit %  167 000 147 400  67%    

Expenses

Rent  30 000    12%  13,6%  1,6%
Salaries 45 000    18%  20,45% 2,45%
Funding/loands     0%    
Other  25 000   10%  11,3% 1,3%
Net profit   50 000 44 000 20%  17,6% 2,4%

If this information is available by the 10th of the month, it becomes a simple task to keep your finger on the pulse of your practice. One cannot stress enough how important it is to keep a constant watch on your GP% (Understanding GP%). The easiest way to mess up profits is by letting your GP% slide.

Stock-take

A monthly stock-take is essential for verifying the physical stock holding. This is important to present an accurate GP%. By using barcoding and a scanner, this becomes a simple task.

Average invoice

This number is derived by dividing the monthly turnover by the number of transactions done over the same period. This is not the average cost of a pair of spectacles – it includes all transactions.  Over time, this becomes a very good indicator of how the team is selling. It is also very useful in planning and doing your forecast.) (Planning the optometric year)

Pulse Report

Apart from the income statement, the kind of timely, user-friendly information the optometrist needs on a monthly basis is shown here in the Pulse Report. With the right management software, it is easy to set up these reports and even easier to generate every month.

  • Average turnover per patient
  • Sales per staff member
  • Frame sales analysis
  • Lens sales analysis
  • Stock value
  • Stock-take variance
  • Remakes as a percentage of turnover
  • Late job report
  • New patients seen
  • Walk-ins
  • No shows
  • Private vs. medical aid
  • Debtors age analysis
  • Sick leave taken
  • Top 20 medical aids by sales
  • Empty chair slots

Month-end cut off

In order to receive accurate management accounts, it is imperative to ensure that cut-off rules are enforced. This is because, to date, all optometric management software systems do not have integrated accounting systems. Humint, which apparently will be launched soon, is an online system and incorporates an accounting component, which makes generating accurate reports a treat.

Summary

Armed with this information, the optometrist can truly keep a finger on the pulse of the business, by spending just a few minutes on these reports every month. Most of this information can have an impact on net profit and must be managed to protect and grow the net profit.

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