When you’re in a growth phase, there are so many areas where you could focus, the key is knowing which ones are the most important. Often times it can be financial, and about figuring out the flow of revenue in and out of a company. It can feel overwhelming. Some businesses shut down. Others spread themselves so thin that nothing goes properly. If this sounds familiar, you’re not alone. One of our favorite clients, Dr. Morgan struggled with this, and we’d like to share her story with you.
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Dr. Morgan's Story
Doctor Morgan own and operates a successful dermatologist practice. She has more patient demand than she can see. She and her partner, a cosmetic surgeon, own a thriving anti-aging center in Manhattan. It’s one of the few remaining fields in Medicine where fee-for-service is still the main model of payment. Fee-for-service doctors are like painters in that you pay them directly for the service performed. There is no middleman. This takes insurance out the equation but adds some complexity due to the need to provide patient financing. Few patients can afford complex procedure with cash, so they work with a financing partner to help reduce the burden.
Dr. Morgan and her partner were so busy performing procedures that the basic day-to-day operations of the office were seeing some strain. Patient wait times had increased. Patients were having a harder time booking appointments. Bills were getting pay on-time, but just barely. The list goes on. She and her partner needed help, but neither could afford time away to get it done.
Where to Start When Understanding Revenue
Revenue Forecasting Model
Knowing what your revenue is and could be over the next 6 to 12 months helps you determine your resource needs: people, equipment, etc. Keeping accurate records of your sales figures can help you build a forecast model. Thankfully, it isn’t as hard as it sounds. All that Dr. Morgan’s practice required were a few simple tools on Excel, although it does take time to set it up at first.
Importantly, it does require keeping current. However, the benefit is knowing what you can reasonably expect from the future of your business. This will help you tremendously when trying to regain control of your business. Dr. Morgan didn’t have a revenue forecast, so she couldn’t say for certain the staff she might need, or whether her growth was becoming constrained, or if she and her partner did have enough doctors, and so on.
Getting Paid – Accounts Receivable
As simple as this sounds, getting paid isn’t as easy as it seems. If you don’t have resources dedicated to following up with getting money owed to you, you give your customers an interest free loan. Dr. Morgan had an office manager, but the manager was so busy running the day-to-day of the office that bill collecting often fell on the wayside. Some of Dr. Morgan’s accounts without receiving funds reached up to 60 days. She had enough revenue that this wasn’t noticed right away, but it was costing her money that could have been helping her grow.
Paying your Bills – Accounts Payable
Your business credit score is almost as important as your personal credit score. It’s how you develop and maintain a trustworthy reputation. Too many strikes, and your banks or suppliers might no longer want to do business with you. Dr. Morgan’s office manager was responsible for both. If getting paid is problem, then paying bills is almost assuredly an issue as well. And for Dr. Morgan, this was all too true.
Having Enough Cash on Hand
As a saying goes, “Profit is like food. Cash is like air”. You can live a few days without food, but you’ll die instantly without air. Cash wasn’t a problem for Dr. Morgan, but it could have been managed better. She didn’t have the right financial revenue flow in place, or she would have seen the problems. Dr. Morgan’s accounts receivable and accounts payable were out of whack, which meant that cash was tied up. What could have been used for other things like expansion instead were lost.
Having Enough of the Right People
Human resources are the raw material of today’s economy, and that means you need the best resources to survive. Just like how low quality iron creates low quality steel, low quality people provide low quality service. Even if you have high quality people, your capacity is limited, or service suffer if you don’t have enough people. Dr. Morgan had a great team, just not enough of them.
Getting a Grip on the Fixed Assets You Hold
A business can have a lot of capital tied up in fixed assets – equipment, furniture, etc. This may seem super boring, but smart depreciation can help when it comes to tax time. Keeping good records of major ticket items is important. Dr. Morgan was very good about this, so it wasn’t an issue for her. However, my small business owners can misclassify their assets, so talk to your account to make sure this doesn’t happen to you.
How We Helped Dr. Morgan
First, we started with revenue forecasting. Neither Dr. Morgan, her partner, or her office manager had the time to build one. So, we built one for them. We used their past 2 years of appointments and built a 12-month rolling forecast. All her business manager, a new hire, would need to do was upload the latest appointments for the month and the total revenue at the end of each month, and the model did the rest.
Next, as we implied, the forecast enabled us to justify the need for a new hire to separate the office manager role from a business manager role. The office manager role was changed to focus solely on the office operations, e.g. appointments, wait time, release, etc. The business manager was now responsible for A/R, A/P, monthly reconciliations, assets, and revenue. This addressed and partially solved all the points above. Now there were people responsible for the day-to-day operations and for the financial survival of the office.
Besides systems and the business manager role, we also recommended including other staff in terms of Nurse Practitioner or Physician Assistant to cover the simpler procedures and free up Dr. Morgan and her partner for those that require their higher level of skills.
Results for Dr. Morgan
These additions greatly helped Dr. Morgan gain control of her business. She and her partner and continued to grow. She was able to take a long vacation for the first time in years. In the past 12 months, she expanded to an additional location in Manhattan.