Practice Management: Business Finances

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The ABCs of Business Finances

Managing your own finances can be challenging – never mind the finances of a small business, because that is essentially what a practice is from an accounting standpoint. Below are some financial processes that might be helpful in managing your practice finances successfully.

1. Follow a Financial Plan

If you have created a Business Plan for your practice then you should have an idea of your monthly expenses, i.e., the overhead costs involved in running your practice. Knowing your monthly expenses means knowing how much revenue you would need to cover the expenses. Some overhead costs might include:

  • Rent/levies.
  • Utilities.
  • Loan repayments.
  • Insurance.
  • Salaries.
  • Tax.
  • Accounting expenses.
  • Legal expenses.
  • Marketing expenses.
  • Travelling expenses.
  • License and registration fees.
  • Office supplies.

Once you know what your expenses are you can start creating a Financial Plan. A Financial Plan essentially involves deciding what your financial goals are and then working backwards to determine what shorter-term goals (KPIs or Key Performance Indicators) you will track to ensure that you reach your financial goals.

:heavy_dollar_sign: Let’s look at an example:

  • Let’s say your practice expenses are R50 000pm.

  • You decide that you also want to give yourself a salary of R50 000pm and still leave another R20 000pm in the business account to build up your practice’s savings/emergency fund.

  • This puts your total monthly expenses at R120 000.

  • R120 000 / 4 weeks = R30 000 per week.

  • R30 000 / 5 days = R6 000 per day.

  • If the current average consultation fee is around R500, then R6 000 / R500 = 12.

  • This means that you will have to see at least 12 patients per day if you work 5 days a week for 4 weeks a month.

This was just an example for illustration purposes, and life tends to be a bit more unpredictable. So, you might also want to include other factors like sick leave, annual leave, unforeseen expenses, etc. To make sure you also cover these, you will need to see more than 12 patients a day or 60 patients a week.

Now you can decide what KPIs you will use to track your progress. For example, you might use the calculations above to determine how many hours you would need to work and the interval time that will be required between patient consultations. Or you might use it to determine patient consultation rates. Whatever you decide, the important thing is to have an idea of your required revenue and to monitor your progress – i.e., have a financial plan!

2. Budget!

Now that you have your Financial Plan, you know where you are going. The next step is creating a budget and sticking to it. This is how you can make sure to reach your goals or perhaps even exceed them. Without sticking to a budget, however, your Financial Plan becomes redundant.

3. Track your Cash Flow

Ok, you’ve created your budget, but how will you know if you are sticking to it? You need to keep track of the practice’s cash flow! Tracking where your money is coming from and going is crucial to managing your practice finances. This is where bookkeeping (accounting) is very important to create status reports of your practice finances at any point in time. Seeing regular reports of your business/practice statements helps you stay on top of your practice finances.

You can either decide to take this task on yourself or utilise the services of medical accounting firms or practice management bureaus, as both of them specialise in medical practice accounting and/or management. Besides managing your accounting, these companies can also assist in optimising cash flow and minimising tax, among other things.

Whichever route you choose, use every opportunity to ask experts in business finance lots of questions and continue to grow in your knowledge of the business side of your practice.

4. Make sure you are covered.

There are few things as tragic as when disaster hits while you were “still going to look at getting insurance”. Don’t get caught unaware – be prepared for unexpected events and circumstances by setting your practice up with adequate insurance from day one!

As mentioned in our Private Practice Startup category, there are various types of business insurance that can help keep you and your practice covered, such as:

  • Building insurance.
  • Content insurance.
  • Product liability insurance.
  • Public liability insurance.

The list is not comprehensive, and you might not need them all.

We suggest that you start by speaking to a reputable business insurance provider, preferably one that specifically caters to medical professionals and private medical practices, and hear what they have to say about what your practice would need.

Rather don’t skimp on this step. Investing in reliable business insurance from the beginning will go a long way in managing ‘disasters’ efficiently and timeously so that you can continue practising and generating income as soon as possible.

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