The other week, one of our Books & Benchmarks clients came to us with a unique request. They wanted to split their Maui Jim statements between Plano and prescription sunglasses. When we inquired further, they explained that they were trying to put spending limits on frame purchases, and the Rx was throwing off their measurements.
Next week, I’ll share the advice we gave them on managing Cost of Goods Sold in general and for frames specifically. But this week, I want to discuss how practices approach financial management and budgeting on a broader scale.
Your Practice is Not a Household
Many practice owners I work with think the key to managing practice finances is cost control and NOT spending money. And there’s absolutely a place for reviewing and trimming expenses regularly, maybe once or twice a year.
But true business budgeting doesn’t assume “We only have so much income coming in, so we can’t spend more than that.” Rather, business budgeting asks the question “How much revenue do we want to generate by serving our customers and how much do we need to spend and invest to achieve those goals?”
“How much do we need to spend and invest to achieve our goals?”
Business budgeting starts from an abundance mentality to quote Dan Sullivan, founder and president of The Strategic Coach. It assumes growth is possible, but only if the right parts of your practice grow too: your staff, your space, your doctors, your technology. In most cases, the biggest financial mistake practices make isn’t spending too much, but not spending enough.
Growth Opportunities are Seen Underneath Financial Ratios
We’ve been announcing for a couple of weeks now that Books & Benchmarks is adding a new suite of metrics to our reports. These benchmarks go a layer deeper than what you see on your P&L and Balance Sheet.
We’re adding productivity and efficiency benchmarks because just knowing that your practice’s space costs are higher or lower than average isn’t a complete story. As an example, if you want to understand the P&L Benchmark “Occupancy Costs as a Percent of Revenue,” we need to know two other things: how much space you have and what that space costs.
Looking at revenue or patient count per square foot will tell you if you’re less efficient or more efficient with your space than other practices. And the cost per square foot will tell you whether you can get away with less efficiency or need to make the most of every nook and cranny in your office.
Yet, there’s a limit to how efficient you can be. At some point, you just need more space. That’s why starting with a revenue growth goal and then asking “What do we lack to get there” not only gives you permission to double your rent in pursuit of more space; it might give you a mandate.
Let Metrics Map the Path
I’ve personally consulted with over 1,000 unique optometry practices. My experience is that what owners need to know most (and what we hope Books & Benchmarks shows most of the time) is that their overhead and profitability look fine, so they can spend their time growing their patient base and increasing their standard of care.
Most owners intuitively know what their practices need. It’s why most practices’ overhead and profitability look similar. Almost organically, practices spend about the same on overhead to see the patients they have. When owners want to grow, though, they sometimes need a nudge to spend what they know they need to spend to take the next step forward.
And that’s business budgeting. Working backward from a goal to ensure your practice has the resources to handle the patient volume needed to reach the desired revenue at a particular standard of care.
If you want to know more about how Books & Benchmarks gives owners the data they need to make great decisions for their practices, contact us to schedule a discovery call with our team.
