Medical Practice Management
Oct 20

Managing by the numbers – Part I

One of my prior articles cautioned readers on the use of overhead rates as a financial indicator of practice performance. I called it “diddling” the overhead since overhead is an easy target in every medical practice. The point I want to make now is that numbers are important in managing a business. But never confuse fixating on numbers as managing the business.

Numbers are data. What any manager needs is information. In many clinical situations, the numbers are information. In business situations, most numbers are data – the value a practice manager brings to the business is applying his or her knowledge, experience and judgment to turn data into information, information that is the basis for decision making.

For the smaller of small businesses, which would encompass most physician practices, cash is king. On a weekly basis, know what your cash position is – the cash available for use by the practice. You should be budgeting cash each week for payables and payroll. Payroll is pretty fixed, so you have to pay the bills that are starting to get closer to the due date. While you don’t have to pay bills the moment they come in, you do need to be setting aside cash and paying every 1-2 weeks to stay current.

On a regular basis – usually monthly, but for solo practices on a quarterly basis – look at actual revenue and expenses compared to the prior year (notice I don’t make mention of comparing these to your budget; in my opinion most budgets are worthless in a medical practice). Items that are in excess when compared to the prior year are neither a cue to be upset nor a cue to stop spending. You have to ask constant questions – why is an item higher this year than last year? Why are revenues lower or stagnant this year versus last year? Many times, there are seasonal variations in both revenues and costs. Also, sometimes you might order a quantity of supplies in order to gain discounts.

About Reed Tinsley, CPA

As a top advisor to physicians, I help increase practice profits by delivering hands-on, expert medical accounting/tax support, practice counsel, and revenue-building strategies. Read more →