Benchmarking & Management Reporting for your medical practice

BDO Health - Financial Health Series Part 2

How does the financial health of your business stack up against industry standards?

While every medical practice/business will have its own nuances, it is critical to assess each practice’s performance to industry best practice.

Evaluating key performance indicators for your medical business

Now that you’ve cleaned up your Chart of Accounts following Part 1 of our Financial Health series, you’re ready to take the next step. The analysis of the financial results and key performance indicators against industry standards allows you and your advisers to highlight areas to improve practice profitability and performance, for example:

  • Is the staff mix and wage costs appropriate?
  • Is the practice paying too much with its current supplier for clinic consumables?
  • For a practice your size is your rent and outgoings market-appropriate?
  • Is your practice effectively utilising the rooms available to you?
  • Have you reviewed the fees charged to patients?

Considerations in management reporting

From benchmarking your practice results, invaluable conversations can follow with your adviser. For example, a ‘what if’ analysis and impact on financial health if you were to reduce consumables by 2%, re-negotiate your rent, or expand the business.

For many owner-operators, the operation of the business itself is so time-consuming that this analysis is deferred. Unfortunately, in some cases it is never undertaken, even to the extent to which the operating profit figure is not known or observed, leaving business owners directing efforts based on sentiment rather than the numbers.

A common scenario that unfolds, particularly when cashflow is tight is that the owner will spend additional time in the business, instead of on the business. If maintained, this can create a cycle in which business improvement/efficiency is continually postponed, and, relative to industry best practice, has to ‘work harder’ to maintain or improve profit levels. This can have long-term adverse outcomes, such as:

  • Burnout of staff and owners including staff turnover
  • Impact on service standards
  • Market share loss
  • Reduction in the underlying value of the business
  • Reduction in business cash profits available to owners.

Checkpoint between owner and adviser

The management reporting process also acts as a checkpoint between owner and adviser, which can be used to broaden discussions beyond the profit analysis over a period – this might include:

  • Considering debt serviceability and cash flow
  • Considering future strategic planning (i.e. capital expenditure, taking on a new partner, or valuing/selling the business)
  • Consideration towards managing topical issues in the industry (i.e. service facility agreements)

Next steps

  1. Do you know what industry best practice and benchmarks look like for the health sector?
  2. Are you having regular conversations with your adviser regarding the operations of your business?

Please reach out to our team of healthcare specialists if you wish to discuss preparing management reports for your practice to benchmark its results and more.