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10 business metrics that will keep you on top of your game (Proceedings)

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Aug 01, 2011

The monthly statistical analysis report

Consider developing a monthly statistical analysis report for your practice. Take a pulse of your practice by understanding the monthly statistics that are important and track them in a comparative format; month to month, year by year. The information which should be tracked comes from your computer generated monthly reports. The most important statistics are as follows:

1. Monthly gross sales- Just pull from your monthly veterinary software the monthly sales.

2. New clients- how many did you have for the month? You should be looking for 20 per full time equivalent (FTE) doctor in a companion animal hospital.

3. Number of invoices- how may were produced for the month. You should be looking for 450 per month per full time equivalent doctor.

4. Average per invoice (ACT) - This will be either on your veterinary software report or you can compute it by taking your sales for the month and dividing it by the average invoice for the month.

5. Monthly accounts receivable balances- Take this from the monthly accounts receivable aging report that you run every month.

6. Doctor production - share this information with your doctors- For each of the doctors, track their own production with their sales, number of invoices produced and their average invoice. This information is gained from the veterinary software report that tracks individual doctor production by the way the invoice is coded to each doctor. Doctor production should not include income from boarding, grooming, retail or pharmacy items unless you have agreed to pay them these items under a production based system. Typically, prescription refills are not paid for under a production based system unless the doctor is involved in the refill and has to approve it. You should be looking for each full time doctor to produce 300 professional invoices per month in a companion animal practice. They should also produce a professional invoice at 3.2 times your office visit charge.

7. Average daily sales for the month- Take the total sales for the month and divide by the numbers of days you were open for the month. Also calculate the average daily breakeven in sales. Knowing your daily breakeven point will allow you to get a quick handle on weather each day the practice is open, is it a profitable day. All that is required is that you look at your end of day sales report and compare it to your daily breakeven in sales. How do you compute you r daily breakeven? Classify each of your expenses as one that is fixed or variable. A fixed expense does not vary with changes in sales while a variable expense does. Once you have all expenses labeled, add the fixed expenses and divide by the contribution margin. The contribution margin is determined by taking the sales minus the variable expenses as a percentage of sales. The remaining percentage is the contribution margin. You should use yearly expenses when making the calculation. The end result will be a breakeven amount based upon yearly costs. To get to a daily number, divide the yearly number based upon the number of days the hospital is open. This will provide the daily breakeven.

8. The accounts receivable aging report

Print the accounts receivable aging report and review it based upon how it is aged, meaning how old the account balances are. The older the account balance, the less likely it is to collect it. Assign someone in the hospital to be in charge of following up with accounts receivable activity all the way through the collection process. What's the percentage of gross revenue that accounts receivable represent? Accounts receivable should not run more than 2.5% of gross revenue in a small animal practice and 11% in a large animal practice. Develop a good accounts receivable collection policy and keep activity up to date. Go to http://DVM360.com/ business center for an example of an accounts receivable policy. Turn uncollected accounts over to a collection agency in a reasonable time period and follow through to small claims court or write them off. The IRS only recognizes bad debts if you report on an accrual basis of accounting and you have exhausted all means of collection. Otherwise you have a sales allowance. The best accounts receivable aging report I have seen is one that has writing all over it meaning that the accounts receivable person was following up with each person who had an outstanding balance and was writing what the client response was for a follow up plan related to collection with each account. Practice owners should not walk away from this process and make sure monthly statements are going out and that they also have a monthly meeting with the accounts receivable manager to make sure they are in the loop of what's happening with the accounts. Owners should be the only ones authorized to allow a write off of an account.

9. Cash balance and accounts receivable

How much is in the accounts at the beginning of each month. You should also have a cash flow analysis prepared each month and based upon historical performance know how much you can expect in cash deposits for the month. This will allow you to plan bill paying activity and determine if you will have enough cash flow for the month to meet all of your obligations including payroll. When you prepare your cash flow analysis, if you do one for the entire year and determine which months you will have an extra payroll you will be able to better plan for your requirements. There are two months of each year that have an extra payroll and because of how the months fall, they are not the same months each year.

The first rule here is that you should use the accrual basis feature of Quick Books and then maintain the accounts payable ledger even if you report on the cash basis. This will help you keep your bill paying activity organized and your can quickly determine how much you owe any vendor at the press of a button. Using this segment of the program effectively will require you to enter your vendor bills daily but you will not have to enter information to write checks. Once the bill is entered, a click of a button cuts the check. The bottom line is there is no more entry work in getting a bill paid this way, yet you will have a clear picture of where you stand with outstanding bills at all times. You also have an easy way to look at your buying history with any vendor.

Once the aging is printed, you have an opportunity to determine which bills you would like to pay and when. Never pay by statement, always by invoice and take the full advantage of the payment terms offered by vendors including early payments for discounts. Develop a routine to sit down with your bookkeeper to review the cash flow and determine which bills will be paid and when. Owners should always sign checks and always be presented with the invoice at the time a check is being signed for verifying the payee and amount. Anything that does not look right should be questioned.

10. Employee hours report

Have your payroll service provide you a report that lets you review the monthly hours each employee is working and how many overtime hours each employee is working. Overtime can play a big role in creating employee inefficiency and can be a big drain on profits. This is because you are paying time and one half for hours over 40. If there is enough overtime, you would be better off hiring another person at regular time and avoid the overtime hours and pay. You may want to consider this when an employee begins to work 20 hour per week overtime and does it consistently. We also find that overtime can get abused by employees who are looking for extra pay. A hospital policy should be in place that no overtime is allowed unless authorized by a supervisor. By having oversight, you will be able to monitors the hours and determine how many overtime hours are occurring. Once known, you then have a way to monitor and control what can be a runaway cost. After all, payroll and payroll related fringe benefits account for almost 50% of the operating budget of a hospital. A great way to try to control overtime is by doing a really good job scheduling. Today internet based programs such as http://whentowork.com/ are available to assist with scheduling and allow your employees to keep track of their schedules through the internet. With the use of smart phones and tablets, it's a great way to stay in constant communication with your staff about the hours you expect them to work.