One of the best and most succinct business observations is: “Without measurement, there cannot be performance”
As we approach the festive season, it is often a period of reflection for many practice owners. Indeed, this is a period where often we have several days’ vacation and some time with our families & friends away from work. Often this time away from the practice includes some time reflecting on the performance of the past 12 months and setting some forward goals and forecasts for the 2022 financial year.
As noted,” without measurement, there cannot be performance” rings so true when thinking about an analytic on the past or a contemplation of the future of your practice. You need to be intimately across the numbers, not only the metrics, but of course what they mean to you, prior comparisons, the context and some industry comparisons as well. All businesses from small to large need to undertake this kind of analytic. A sole trader veterinary practice or the board of a global company cannot make informed decisions about the allocation and deployment of resources without an understanding on the likely return on investment that such allocations have had in the past or are likely to have in the future.
Focusing the lens more directly on the veterinary industry, it is not an unreasonable comment to say that few, if any, Australian practice principals have unlimited resources coupled with extreme demand for his or her services, in a location with no competing practices.
The number of recent graduates from Australian universities virtually guarantees competition, and in a consumer’s market with information widely available to the consumer, a veterinary practice is a business similar to any other. This is the key concept to success in modern practice. Modern practices not only provide an important community service, but must be a profitable, functioning business. As such, a practice principal, the same as a corner store or a large corporate, needs to look at his or her business in the same way as a corner store or large corporate would, i.e. in terms of an allocation of resources and the potential for this allocation to yield a result.
Readers should note the terminology used here with respect to yield does not just equal profit; it could be a return in terms of revenue or time saved. Further, the term “resource” is not automatically a financial resource; it also encompasses time, training, continuing professional education (CPE), and other intangibles. Fundamentally, what we are looking at is the yield result as a component of an investment of resources. A good example of a lifestyle result or yield would be an investment in better systems and processes that generate similar revenue for a practice, with the principal actually reducing his or her hours.
TYPES OF MEASUREMENT
If yield or return isn’t necessarily profit, and resource isn’t necessarily money, how do you measure these things?
All components of your practice, such as labour, stock, patient flow, appointment book efficiency, patient velocity, recall, cash flow and profit need to be monitored in a regular and systematic approach. At the end of every month you need to be able to look at the numbers and evaluate the performance of the past month, quarter, year.
If appropriate systems are in place, you can quite simply evaluate clinical hours spent, return on hours, number of patients, revenue per patient and so forth at the press of a button, or through some old fashioned pen and paper work with a calculator – comparing this to a prior period again shouldn’t be too difficult.
Again, this is not just profit and cash flow. It also includes the myriad of non-financial key performance indicators (KPIs) including staff turnover, patient retention, new patients as a percentage of total patients, hours worked, clinical time and efficiency, CPE for principal and staff, patient no-shows, reporting KPIs achieved, marketing achievements, project milestones achieved, and so forth.
WHY IS THIS IMPORTANT?
Systems and reporting mechanisms (financial and non-financial) in place ensures you have reliable empirical, statistical, accurate information so that you are not running your practice on the bank account balance and your gut instinct. Without systems, how can you accurately determine staff performance, return on investment for deployed resources, or identify theft or fraud in the practice?
Benchmarking provides a baseline for the performance of your practice. It is important in any industry as it provides a basic yardstick to compare your business with other businesses in your industry. Notwithstanding that every business is different (and they are), most practices adjusted for number of staff, associates and so forth tend to run quite similar financial margins. In addition, practices in certain demographic or geographic belts tend to exhibit similar patient behaviour and other non-financial statistics. A somewhat short-sighted comment we hear too often is:
“My practice is outstanding – why would I want to compare it to, or against, other practices?”
The response is very straightforward. Unless you have actually run the numbers across your practice, benchmarked it against industry standards and looked at your variances and performance, how can you possibly know how your practice is performing relative to the industry? If it is underperforming, wouldn’t you want to know the root cause?
MOVING FORWARD – PLANNING PRE CHRISTMAS
We are not suggesting that all practices rush out and invest vast financial resources and time into developing cutting-edge financial reporting and real time-based reporting systems. However, what we do recommend is reviewing the system and practice reporting you have in place. If you don’t have any, is that really good enough?
If you don’t have systems in place, a good planning initiative may be to use the down time over the festive break to get your systems up to scratch.
As a final observation, all clients of our practice go through at least an annual review, benchmarking analysis, and forward cash flow and taxation planning program. If your adviser isn’t doing this on at least an annual basis, then all they are doing is lodging your tax return. In this scenario, how are your resources yielding in terms of business support and advisory?
By Heath Stewart, Chartered Accountant and Director