Let me introduce you to my dear, sweet Tiffany. During my freshman year of high school, my neighbor found her in a garbage can covered in ants and brought her straight to our house. I’m convinced there must be a neon, flashing sign over every place I’ve lived that says “Suckers for Animals Live Here!!!”. Anyway, we rushed her to the vet’s office and from that day forward she was ours. Now Tiffany was a little survivor but the poor thing seemed to spend her entire 15 years battling one ailment or another. She spent so much time at our vet’s office, I was pretty sure they were going to make her the mascot. When Tiffany turned 13 we had to move, and unfortunately find a new vet. Before moving, we asked our vet for Tiffany's medical file. After 13 years filled with many vet visits, you can imagine how incredibly thick that file was. As soon as we arrived at our destination, we located a new vet we wanted to visit and took them Tiffany’s medical records. Imagine how upset I was when a few months after our first visit I receive a call from the vet’s office letting me know that they were in the process of transferring all their paper medical files to an online system and had accidentally disposed of Tiffany’s file without transferring it online. All her medical history...just gone. My concern was that when something came up in the future, which was inevitable with this little girl, the vet would not have her medical history as a resource to determine what could be wrong with her and what treatment plan would be best for her.
So here is my question to you. When something goes wrong with your practice’s finances, do you have your practice’s financial equivalent of its medical history? Without it, how can you be sure that whatever changes you make to improve your practice’s finances are the right ones? How will you know whether you are actually addressing the problem or just symptoms of the problem? So what’s the financial equivalent of your practice’s medical history? That would be….your financial statements! Not just your financial statements for this month, or even for this quarter. You need to have a full record of your financial statements and should be studying them each month, or at least each quarter.
An understanding of your financial statements will help you:
- identify opportunities to make more money
- monitor trends that could require you to make changes to your budget and operations
- compare your actual performance to your financial plan
- measure your practice’s performance to others in your industry
You know how important and helpful a pet’s medical history is, so do the same thing for your practice. Each month when your bookkeeper prepares your financial statements, have them review the statements with you. Request a horizontal analysis of your statements. In other words, have them provide the same statement for several periods of time, allowing you to compare and identify trends. You don’t want your practice to display a symptom of a financial "disease" and realize you don’t quite know what could be causing it. Treating that symptom incorrectly could result in you losing even more money.
At the end of each month, after analyzing your financial statements you should, at minimum:
- have a clear understanding of how your practice is doing financially during that month, quarter and year
- have your cash inflow and outflow projections made for the following month
- determine your budgeting goals for the following month
With the help of your bookkeeper, aka your financial co-pilot, this process won’t take you more than 15 to 20 minutes. I promise you, it will be worth so much more than the time you spend on it. If you are ready to create your practice’s financial equivalent to a medical history, send me an email at email@example.com. I would love to help you get started!