To explain the key indicators of a successful practice, I wish to draw focus to a clear parallel. You know a lot about healing patients and keeping them as healthy as possible, but you also need to keep your medical practice healthy. The most profitable medical practices have a lot in common, and one of those common areas is that they take both the health of their patients and their business very seriously. To better clarify the connection, consider preventative care. Patients need this kind of care to stay strong and healthy, and so does your medical practice.
Telling your patients to exercise, eat right, and get enough sleep is important. If they take your advice, they will increase the likelihood of staying healthy. If they do happen to have a medical problem in the future, they will also be more likely to overcome that issue and move on with their lives. To add more specific requirements for your patients, you will need to know their overall health conditions. The very same theory applies to your medical practice performance metrics. How do you know if it is healthy?
One of the best ways to understand your medical practice from a health and profitability standpoint is through assessing the wellbeing of your business across these three categories that I regularly refer to. They are:
- Profit - your financial metrics
- People - your team; and
- Practice - your business and how it operates in the market.
Knowing where your business stands currently, and determining where you want it to be, is the first step in making a plan for optimal business health.
Gaining insight into the financial metrics of your business is at the core of most profitable medical practices. You will have heard about financial metrics before, but it is important to fully understand the unique strengths and weaknesses these metrics present. If you use all of them, you may be using them blindly. Instead of trying to use everything, consider which metrics actually matter for medical practice profitability in your particular situation.
Financial metrics alone are not enough. The next is consideration of the elements that affect your peopleand your practice more broadly.
Just as a patient asks you questions to achieve optimal health, so too should you about your business. Below, I share with you eleven questions that you may know the answers to now, or not. If you don't know the answers to these questions, or the answers are not ideal, use these 11 key indicators of a successful practice as guiding questions to transform your practice.
1. IS THERE MORE MONEY IN OUR ACCOUNT AT THE END OF THIS MONTH THAN THERE WAS LAST MONTH?
While this might sound like a simple place to start, if the answer to this question is no, you are not gaining profit. After you pay all your expenses, you should have more cash left over in your business account every month. Whether you are seeing an increase or not is among the best ways to measure profitability. You may need to consider finding ways to lower your expenses, or even adjusting your rates in order to bring in more profit. Whether or not your cash position is getting better every month is a pretty straightforward way to measure if you're gaining profitability.
2. HOW LONG ARE OUR ACCOUNTS RECEIVABLE OUTSTANDING?
Every medical business is different, and this may not be a relevant metric for you. However, if you are carrying overdue balances for a long time, those balances are becoming less profitable over time. The most profitable medical practices all have the majority of their patients who pay on time. The type of medical practice you have, your location, what kind of insurance options you take, and other factors can all make a difference in whether the majority of your patients pay on time. If this is an issue in your practice, investigate what can be tightened up to help avoid delayed payments. Perhaps the overdue reminder needs to be sent earlier than it is currently.
3. DO WE HAVE A CASH BUFFER?
A cash buffer is all about operating on less than your practice brings in. Setting money aside to address any unforeseen expenses is a good idea, and it's also a sign that your business is healthy. You never can predict emergency expenses that may come up, or surprise opportunities you want to take advantage of. How much is needed will depend on your specific business, along with your risk tolerance and whether you are seeing a profit every month.
4. ARE OUR OVERHEAD EXPENSES INCREASING AT THE SAME RATE AS OUR REVENUE?
As your medical practice continues to grow, your overhead expenses will likely rise. Naturally, your revenue should be rising as well. If not, this should be considered a warning sign. While added expenses can be part of a growth plan, the rate should be closely monitored to ensure it is going in the right direction!
This relates back to the first indicator above. When you review overhead expense growth when compared to revenue, you should be able to see whether your medical practice profitability is on target, or whether changes are required.
5. HOW OFTEN DOES OUR INVENTORY TURN OVER?
The longer any inventory sits in your practice, the less profitable you can expect it to be. Slow or obsolete stock is a problem, and with medical practice performance metrics you also have to be careful of items that expire. If turnover isn't monitored, this can create risk and serious problems for your patients and practice.
Consider how much stock you keep on hand carefully as it can tie up a lot of money, some of which you could be using elsewhere.
The most successful medical practices consider more than revenue and profitability. They consider what their people need - to keep good employees and help them work effectively. After all, they are the faces of your practice and can significantly impact the perception and identity of your practice.
6. HOW OFTEN ARE OUR EMPLOYEES MOVING ON?
It is not just specific financial issues that matter in medical business profitability and health. The people are also important. Naturally, you don't want to be losing your best employees.
The majority of employees quit their boss, not their job. While you may all get along well, what is happening, or not happening within a practice, may be the issue. It is a big red flag for future employees when retention rates are low. If you seem to turn over employees more frequently than is desirable, some investigation or reflection will be required.
7. ARE WE PROVIDING WHAT OUR DOCTORS AND SUPPORT STAFF NEED?
Understanding what your staff need from you is just as important as making sure they understand what you need from them.
Your practice needs to be clear about the agreements you have with contractors, along with the policies and procedures your staff must follow. That way, anyone who works in the practice can be clear about their role, responsibilities and the expectations for all work, actions and behaviours within a practice.
The most successful medical practices consider more than just money coming and going out, along with whether employees are happy. There are some 'overall practice' concerns worth taking a look at, as well.
8. WHAT ARE OUR PATIENTS SAYING ABOUT OUR PRACTICE?
What your patients say about you online and with other people in the community can significantly impact a practice's success. Naturally, you want them to be happy so they return to you and refer people to your practice.
Every medical practice has a bad patient experience occasionally, and you cannot keep everyone happy all the time. However, most patients should be satisfied, so they do not seek out another doctor. If there is some consistency in negative reviews or feedback, what can be done about it?
9. WHAT DOES OUR CREDIT PROFILE LOOK LIKE?
Borrowing money for a medical practice is not uncommon. In order to do that effectively, though, you need to know if your credit profile is strong. Business lenders will look at your business and personal credit profile when determining the health of your medical practice. If you and your business both have good credit, that is an indication that your business is healthy. A healthy medical practice can provide you with more loan options, better loan terms, and a better interest rate when you look for financing.
10. ARE WE CLEAR ON WHERE OUR BUSINESS IS HEADED, AND DO WE KNOW WHAT IT NEEDS TO GET THERE?
To help your patients realise a health goal, you map out the steps for them to get there. Similarly, you need to map out the big picture for your practice's future.
Planning backwards about what you will need, when, where, and why, all matter as you grow and advance your company. If you are unsure about your 'big picture' or 'end goal', you will likely find that your medical practice will not keep up with other practices.
11. DO WE KNOW OUR PRACTICE IS MEETING ALL COMPLIANCE STANDARDS?
The compliance standards for your medical practice are vitally important for its good health. Not being sure means your practice is at risk of fines, lawsuits, and other serious consequences.
In our work we meet practice owners facing governance and compliance issues they never believed they would have to face. These are not ignorant people. They are, more often than not, diligent doctors and practice owners that have not been able to keep up with the many obligations practices have.
As you would be well aware of by now, there are lots to consider to cover a practice's risk. Believing a practice is compliant is often the core issue. Conversely, knowing your practice is compliant is an indicator of success that provides peace of mind as well.
Navigate a new path with the 11 key indicators of a successful practice
It is easy to see that while looking at the numbers is important, there are a number of other important factors when determining if your medical practice is healthy. By taking into account more than just the bottom line financial information, you will be more likely to have a healthy medical practice for the long term. Asking yourself the 11 questions above can give you a high level of insight into the most profitable medical practices, and how to make yours one of them.