– Ike Devji
There is a very natural, even logical thought process that the majority of business owners have, that many times, does not mathematically prove to be completely true. The thought is “If I have more patients/customers and increase the revenue that I bring in to my business I WILL ABSOLUTELY make more money”.
After working with hundreds of business in various industries across the country I have found that the Doctors and Dentists I now work with have a very similar mindset. More patients will AUTOMATICALY translate into more profit. In the beginning stages of business this does tend to be true. As a practice is being built there does need to be enough patients treated to cover the staff salaries, loan payments, facility expenses and all other costs of doing business.
A level is finally reached when the Doctor begins to see the fruit of all their schooling and labor begin to manifest and they begin to make money. So naturally the process that got them to that point is the process that will continue to grow their practice/business, which of course MUST translate to more profit. Unfortunately this is not always the case. There isn’t an “automatic” per say when it comes to profit in most businesses.
Let me give you a couple very simple analogies that tend to help understand why this logical thought doesn’t always manifest as reality. If you take a water balloon and poke a few tiny wholes in the bottom of it, a tiny amount of water begins to leak out. Now if we were to turn up the faucet and increase the amount of water that we put in to the balloon… what happens to the tiny little wholes that we poked in the bottom of the balloon? The answer is … they get BIGGER. The challenge now becomes a race to see if we can put more water into the top of the balloon than what is leaking out the bottom otherwise it will collapse. Inevitably in business, the tiny little inefficiencies (wholes in the bottom of the balloon) that are in the practice as a result of not having proper businesssystems and controls in place become greater as we increase the volume of work being done. In a booming economy the “race” isn’t very difficult, there is plenty of money flowing despite the wholes or inefficiencies and increase can still be achieved. In a down economy like we are in now, many times, the systems and controls that “plug the wholes” are the very thing that keeps the practice from collapsing all together. It is also the driving force that elevates a good practice into becoming an elite practice having both the clinical AND the business side of the practice functioning at a very high level. Notice, there are two sides!
Another analogy that helps understand why this logic doesn’t materialize is a sports analogy like Football. Hard work, an amazingly skilled team and determination will win some games but ultimately to be amongst the elite… to be a champion, it is first the coach’s (business owner) responsibility to develop a well-designed game plan. (Even though it is their responsibility to have a well-designed game plan, they rely on the supporting coaches and advisors to assist in its development). After this the team MUST execute the plan that they have been given. The coach’s role however did not end after they developed the game plan. As the game unfolds the coach is monitoring the statistics, making adjustments, changing personnel if necessary, and doing whatever else is required to give their team the best possible opportunity to win the game and ultimately making them one of the elite being recognized as champions in their division. In most practices there is no business plan in writing for the team to execute. They are usually lacking the budgets, benchmarks, systems and controls to give the needed information back to the Doctor/Business Owner to make the adjustments to “win the game” ultimately maximizing profit. Without these fundamentals in place the team can continue to add highly skilled players, work even harder to serve the new patients but not significantly increase profit.
Hopefully by now you can see why the increased patient base doesn’t automatically increase profit. The good news is that once these business systems and controls are set up and monitored the increase of patients typically will exponentially increase profit. Over and above that, it can significantly increase the equity of a practice… what the practice is worth. I will be discussing how Business Systems and Controls impact the equity in more detail in next months article so check back.
For more information on how an audit can help your practice contact Chris Amato, MBA CEO/ Senior Advisor at Triton Practice Solutions chris@tritonba.com 480-477-5775 . Prior to founding Triton, Chris traveled across the country analyzing businesses in a vast array of industries. All in all he has seen more than 600 companies literally from coast to coast. He was ranked in the top 5% of over 250 Business Analysts with a large national consulting firm. Chris also earned a number of various awards for his work including the coveted “Directors Circle Award “ for his exemplary business diagnostic skills as well as being nominated by the firm’s senior executives to “Presidents Cabinet” (An advisory counsel). With over 15 years of entrepreneurial experience and his business model to “Empower Your Business”, he is committed to helping business owners succeed.