The Healthcare Entrepreneur Blog

Adding value to profit with predictability

by Bridget Morehouse PT, MBA | February 27th, 2009 | 1 response

Have you ever asked yourself the question, “How efficient is my practice?” If expenses are the resources invested into the practice to generate revenue, then how good are your expenses at generating revenue? The answer lies within the profit of a practice, which considers your income with the influence of your expenses.  Profit can be analyzed by looking at the following:

  • Total expenses per period
  • Profit per visit
  • Clinician productivity

However, the key to analyzing profit is reviewing revenue and expenses from period to period and determining a range for which these numbers should fall in order to build a practice which can generate profit — with predictability. A predictable profit is difficult to manage during times of change such as when first starting your business, during an economic slowdown, when adding a new program or site, or when first starting to track data. However, just as the art of caring for patients is refined over time and ultimately produces a predictable outcome, the art of management also consists of continually fine tuning one’s practice so that the ranges for income and expenses become less variable over time, resulting in a predictable profit.

 

For example, many practices set an arbitrary management goal of increasing profit by 20%. This is vague and does not reference a specific business strategy on how to achieve the increase. A more practical goal would be to increase profit by 20% by maintaining total expenses within a certain range and maintaining income within a given range as well. From this goal separate business strategies addressing expenses and revenue can be identified.

 

Ultimately, predictable profit allows an owner or manager to make more accurate and confident business decisions, ultimately reduces risk, and adds value to the practice.

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Bridget Morehouse PT, MBA is a consultant with Steffes and Associates, a rehabilitation consulting firm based in Wisconsin.

Bridget Morehouse PT, MBA
  • No matter how long you have been in business you always have to keep your eye on expenses and revenues. It is easy to forget where you came from when your business starts to grow and be profitable. You can start to spend money out of habit vs. necessity only to find your profit margin is going away and you did not discover that until it was too late.

    The experts will tell you that x % of businesses fail after 1 year or 3 years. The reality is, we could probably find evidence to show that 100% of businesses close because of bad management. Don’t be one of them.