Your practice’s finances are the key to long-term business success and understanding them doesn’t have to feel like a puzzle.
Dermatology practice owners have a lot on their plates. In addition to treating patients, dermatologists juggle scheduling, marketing, hiring, and keeping the business afloat. Managing the finances can sometimes feel like another item on the to-do list—and a complicated one at that.
The truth is that your practice’s finances are the key to long-term business success and understanding them doesn’t have to feel like a puzzle. Finances play a key role in helping you carry out your business vision. Read on to learn how to measure the right numbers, set up a pay structure, incur smart debt, and keep track of inventory to ultimately benefit your medspa.
Measure the Right Financial Numbers
A common mistake many business owners make is spending too much time measuring all the wrong numbers. Benchmarks that are helpful for a retailer or tech company may not be as helpful for your practice. Here’s how to collect data you actually need:
Use your software correctly. Input determines output. Thus, the data you enter needs to be right because it predicts future performance.
Predict your revenue. Revenue is the driver behind your practice’s success, so calculate various revenue benchmarks like revenue per hour and revenue per provider.
Cost of goods sold. How much does it cost your practice to do the job and care for the patient? This can include general expenses like equipment and interior aesthetics. Expenses also include big items like service discounts, payroll, and rent. If your discounts are too high, your team members aren’t bringing enough business, or your rented space is ill-equipped, it’s time to reconsider your investments.
There’s no point in having data that isn’t informing your strategy. That’s why it’s important to create processes and reporting around the specific data so you have the freedom to watch your business grow.
Set Up a Successful Pay Structure
Every patient has different payment needs, so set up a system that makes payments easy and affordable for them if you are doing large cosmetic or elective procedures.
If your practice is more insurance-based, reviewing your adjustments collection rate every month is critical. You won’t know if there’s a problem if you’re not looking for trends.
Also, understand your fees in relation to your costs. A decade ago, industry fees were not the same as they are today; your practice should reflect the current standards. You may need to raise fees in the current market based on rising cost of goods sold, employees’ expectations for raises, and so on. And don’t worry, patients aren’t as sensitive to fee increases as providers often think. Their relationship with their provider combined with the hassle of switching practices makes them unlikely to leave because of a relatively small price raise.
Lastly, don’t underestimate the value of re-care. Dental practices have perfected the method where a patient doesn’t leave the office without scheduling their next appointment. Keep patients coming through the doors by scheduling their next appointment ahead of time, enabling them to schedule online, or personally calling them. Remember that it costs more to acquire new patients than to keep current ones. Instead of fishing in the pond next door, take a look at your own pond and how you can better retain your loyal customers!
Don’t Be Afraid of Financial Debt
Many business owners shy away from debt, but it can actually be a useful tool when growing a practice. The key is to acquire debt responsibly and with a plan. Buy things that make sense for your practice. Whether you conduct industry research, ask your marketing department about Google search results in your area, or have a number of patients requesting a service, it’s critical to know whether your audience wants the investment.
Do keep 3 to 6 months’ worth of working capital, but a stable practice with monthly recurring revenue can and should get a line of credit for the future. It takes risk, but so did starting a practice. Risk comes with reward. If you believe in your investment and can finance it wisely, then do it.
A tip about smart financing is to accept smaller payments over a longer term. Having more capital available to you each month is likely worth more than the incrementally smaller interest rate you would get by making bigger payments over a shorter term. You can put down a significant investment in the beginning if you’d like, but free your practice’s finances in the future by not overcommitting to a high monthly payment.
Keep Track of Inventory
Here are a few simple tips for managing your practice’s inventory and medical supplies:
Remember that even with the smallest item, everything adds up. With many hands in the pot, it can be hard to see what’s happening in inventory. An effective tracking system and good communication will ensure supplies stay in stock and do not expire.
Work With a Good Financial Professional
A great financial professional can help you track and measure your financial data to achieve your goals. They can keep you on the right path and spot issues before they become major financial problems.
Jessica Nunn, CPA, is the founder and CEO of Maven Financial Partners. She can be reached at Jessica.Nunn@mavenfp.com or 972-999-6947. David B. Mandell, JD, MBA, is an attorney and author of more than a dozen books for doctors, including Wealth Planning for the Modern Physician. He is a partner in the wealth management firm OJM Group (www.ojmgroup.com), where he can be reached at 877-656-4362 or email@example.com.
Wealth Planning for the Modern Physician and Wealth Management Made Simple are available free in print or by ebook download by texting DERM to 844-418-1212.
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