Most physicians dislike managing the financial aspect of their businesses. This really shouldn’t come as a surprise since many business owners find financial analysis and revenue projections overwhelming. However, it is an important aspect that cannot be excluded if you desire success.
Having and utilizing a financial plan is a key contributor to the success of many businesses. Conversely, failing to do so has been a consistent factor in numerous business failures.
So, with this in mind, the following tactical approaches will help you create a clear and measurable revenue plan.
1. Planning revenue and measuring expenses
By focusing on revenue and expenses, the financial health of your practice can be attained, if not guaranteed. In business, as with everything else, knowledge is power, and planning of revenue and measuring of expenses bring the necessary knowledge for business success. The objective here is to develop a combination of products that maximize the net profit of the practice. To do so, begin by inspecting past sales results. This will guide you to set realistic sales targets for the future.
2. Categorizing your services
To streamline things further, categorize the products into narrow groups. In a typical medical spa, the list of services would be based on either the name of the service or the part of body receiving treatment. For instance: toxins, fillers, photofacials, laser hair removal, face surgery, among others.
Aim to have narrow and precise categories of services. This will enable you to relate vendor relationships with profit and make the right decisions.
If you currently track revenue or sales as a bulk aggregate, now is a good time to transition into revenue tracking by service. Tracking revenue this way will enable you to easily link cost and revenues to specific services, enabling net profit analysis and development of new sales goals.
3. Developing an optimal service mix ratio
Having categorized your services, you should now aim to develop a service mix ratio primed for profit. A service mix ratio is simply a ratio based on the revenue received from the different profit centers. One of the key goals of developing a ratio is to stabilize revenue by reducing over dependency on one or few profit centers. For instance, if 90% of profit comes from surgical services, the absence of your surgeon would be detrimental to the business.
A healthy ratio should allow different members of staff to enjoy time off without drastic dips in income by preventing a single service from monopolizing your income. When diversifying or reviewing the profit centers, it is of great importance to assess and analyze the trends in the industry. Be keenly mindful of the services gaining popularity and those slowing down in sales.
4. Setting goals and measuring progress
Once a healthy service mix ratio has been created, you need to set clear sales goals and measure continuous progress. Monthly revenue worksheets and weekly status reports will be instrumental here. The activity of your staff working towards known targets not only creates excitement, but also much needed teamwork. Furthermore, having goals and progress data allows for convenient allocation of bonuses and rewards – an essential fuel for employee motivation.
5. Educating your staff
Finally, aim to educate your employees on the inner workings of the business. Teach your staff about revenue, expense and profit relations.
This does two crucial things for your practice. First, there will be better negotiations between you and your employees on their compensation plan. Secondly, it can help save you from the losses attributed to employees leaving the business. The latter benefit comes in when you adequately teach realistic costs of running the business to your staff. By emphasizing the cost of starting and running a practice to your employees, you help them shift their focus to the benefits that can be reaped from bonuses, translating to a more motivated team.
About the author:
Ms. Smith has over 20 years of experience as an entrepreneur, day spa owner, medical spa CFO, business consultant and national speaker. She is currently the founder and CFO of Projected Growth Consulting, a team of industry professionals who understand every challenge facing medspas and plastic surgery practices.