As eye care professionals you know that it’s better to monitor and manage ocular health through regular check-ups than to wait until something goes wrong. But do you take the same approach to your practice?
Traditionally, small to medium businesses have tended to use financial data as a means to an end – to comply with the obligation to lodge a tax return. It means that financial statements are often prepared long after the period which they reflect has passed.
Most people have a feel for how their business is running long before they see the financial statements of course. And it’s also true that there may be some middle ground. Many business owners may not have a complete set of financial data available to them on a regular basis throughout the year, but it’s likely that most will have access to some key performance indicators – sales, debtors, bank balances, etc. – from their internal systems. Plus, you can often just tell when things are going well and when something is wrong. Even so, this just isn’t the same as having a detailed picture of the financial performance of your business.
Your financial data is your business health chart – it contains everything you need to know about the condition of your business. So it follows that the key to measuring and maintaining business well-being is timely information. Gut-feel can only get you so far. The more information you have, and the more up-to-date it is, the better you can identify problems and seize new opportunities.
One way to manage your financial data better is to take advantage of the new wave of accounting products that are now hitting the market. Applications like Xero and MYOB AccountRight Live use daily bank feeds to automatically input your data, code much of it to the relevant account for you, and store it in the cloud. This means that both you and your accountant can have access to your transactional information in a single shared ledger, as early as the day after the transactions themselves occur.
Progressive accounting firms are taking advantage of this by offering bundled services. Some will do your bookkeeping and reconcile your accounts for you, in the same ledger that you yourself are using (by storing it in the cloud), effectively giving you access to your own qualified CFO. And it may cost less than you think. It’s possible that with the efficiencies gained through bank feeds and automatic coding, an accountant can offer you bookkeeping, reporting and monitoring, and your year-end tax work for the same cost as you are currently paying for separate bookkeeping and accounting services. In most cases your practice software will be able to export data directly into one of these next generation accounting packages.
That takes care of the historical data. But what about projecting for the future? This is where business modelling comes in. Once you have an accurate and up-to-date picture of the performance of your business, you can then take this information and leverage it. Business modelling really involves going through the financial aspects of your practice with a fine-toothed comb, analysing each element and investigating how it is affected by others. You can then use this information to plan for the future.
Perhaps you’re thinking of expanding your operations? Or maybe you’re considering winding back your own hours and taking on someone else to help? Or maybe you just want to know what you need to do to increase your profit by 10%. If you can build a financial model of your business, based on your historical data and the way in which each component affects the other aspects of your practice, you can play with the numbers to see what will work and what won’t.
For example, if you think you can convert 50% of your consultations into sales of frames, lenses, etc., how many consultations do you need to perform per day to make the kind of profit you'd be satisfied with? Or if you do want to take on that second optometrist, how will the cost of his or her salary affect your bottom line, and what kind of growth would you need to see to make it worthwhile? What about discounting - should you discount your products to keep up with the bigger players, or might another marketing strategy be more effective? If you can analyse every component of your business, and then monitor the actual performance of your practice against your plan, you can adapt to change much more quickly. You can identify those things that are working well for you and prepare for upcoming threats in a way that is far more timely.
The good news is that you don’t have to build a model like that yourself. There are tools out there, and your accountant can help you. If you’re in independent practice, we have worked with ODMA to design a model that will help you analyse all of the financial components of your optometry practice and test any number of scenarios for adaptation and growth. You can see a demonstration of the model at http://www.dewings.com.au/resources/eye-care-industry/optometrists-in-practice-getting-the-numbers-right
Obviously, there is some time and effort involved here. It would be nice to have a business that just works - one where we have a cash cow that just continues to produce money or one where customers just come looking for us. A lot of entrepreneurial 'success stories' can make us feel like that's the usual MO for business, and lead us to ask “why isn't this happening for me?!” The reality is that for most of us, business is competitive, and is characterised by peaks and troughs. Simply, it takes hard work to ride these waves and make it successful.
Like people, a regular check-up of the health of your practice is essential. It goes a long way towards ensuring that your business stays in tip-top shape. The more information you can have about the health of your business, the more valuable your check-ups will be. Knowing your business well can help you withstand external pressures, innovate, grow and distinguish yourself from the competition. Ultimately it’s about protecting your investment and making sure that you maximise your return from it.
(You can see this article as it was published in the February 2014 issue of Insight here - it's on page 24)