I recently wrote a post cautioning readers on the use of overhead rates as a financial indicator of practice performance. Numbers are important in managing a business. But never confuse fixating on numbers as managing the business.
Numbers are data. What a manager needs is information. In many clinical situations, the numbers are information. In business situations, most numbers are data – the value a manager brings to the business is applying 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 your budget. Items that are over budget are not a cue to be upset, stop spending or cut other budget items. You have to ask questions – why is an item over budget? Many times, there are seasonal variations (such as utilities), sometimes you order a quantity of supplies in order to gain discounts.
In addition to financial performance, you also want to look at productivity, such as: how many patient visits (office versus hospital), how many diagnostic tests or other in-house services provided, and the percentage of available time is booked for patient services.
All of these numbers are most useful when put in a context. My first approach is always to look at variations over time. I want to see two years worth of monthly data before I am comfortable making a lot of significant decisions or changes. Usually, the practice hasn’t been capturing data, so we have to start recording data on a monthly basis and build from there. Once we have the basic building block of monthly data, I can look at changes on a quarterly basis. Looking at a data on a quarterly basis smoothes out the month to month variations that occur because of number of days worked (20, 21 or 22), weather, vacations and other factors that impact the workload. Pretty soon, we can see patterns emerge and compare one year to the one past, and then two years and so on.
Data. Information. One leads to the next, but they are not the same thing.