How do I manage my practice to generate practice cash? (Proceedings)

Aug 1, 2009

Article

Practice management involves managing staff (the HR issues), managing client and patient care (the quality and control compliance issues) and managing the practice profit, or more importantly, managing the practice cash flow.

If any ancillary issues besides cash flow become a problem and the practice maintains adequate cash flow, the unhappy owner can find a successive buyer to make the needed change from the undesirable circumstance whatever the cause. If cash flow is not able to be maintained by an owner, he or she may have an unsalable business. This may cause crisis in the owner's circumstances that disrupts families, makes owners be slaves to their practices and causes owner burn out.

To assure the cash flow is going to be maintained, an owner must look at several important cash flow regulators. These include, but are not limited to, the following present and historical data items of the practice:

The quality of medicine practiced.

The acceptance or compliance of clients with doctor's recommendations.

The percentage of pets current or not, on all medical recommendations.

The number of clients using the practice including return visits.

The number of new clients coming in each week or month.

The number of pets and/or clients exiting the practice each week or month.

The hours the practice is open and available to provide the client service.

The cash flow of the practice versus expenses and accounts receivable, including;

The current team staffing levels and costs as percentage of revenue,

The current rent as percentage of revenue,

The current management costs as percentage of revenue,

The costs of COGS as percentage of revenue.

Following are significant management points regarding cash flow regulators

The knowledge of the client's compliance with medical recommendations, determines the potential to practice quality medicine. A goal is for 75 percent to 90 percent of the pets to be current with recommendations.

The number of new clients must at a minimum be greater than the number of exiting clients and/or patient deaths. It is preferred to have a net gain of at least 10 percent per year in client numbers per year.

The doctors each should produce over $400,000 of revenue each, per year.

The staff costs, before taxes and benefits must be below 20% of practice gross revenue (less over the counter sales and grooming in some cases).

Rent should be at a maximum 6-8% of practice gross (unless in a new facility).

Management costs should be 2 to 4% of gross revenue.

In summary, if there is sufficient client traffic to support 10-15 doctor patient contacts per day, then generating cash is easy with management and fees set by benchmarks of industry standards, with adjustments for each individual practice's fixed costs.