Are you looking for growth in your practice? Whether your goal is a sale, a merger, or internal growth, your success will require a foundation of strong financial management.
Fiscal management begins with establishing the basics: solid financial operations, healthy cash flow, and a trustworthy team of professionals who can advise you along the way. These fundamentals will support the next step on your journey; so let's look at how each of them can be implemented in your practice.
Think of your day-to-day financial operations as the bedrock your practice is built on. The ability to manage money is what allows you to deliver services, pay your colleagues and employees, and literally keep the lights on.
When your daily finance operations are running smoothly—as they should be—it's easy to forget how central they are to growth. But in addition to supporting the work of your practice, “fin ops” can also give you a consistent and streamlined picture of your practice's financial health and growth potential. This checklist of operational basics will inform your decisions about whether, when, and how to expand:
- Do you receive and review your practice's financial reports? Any practice that's poised for growth must confront financial questions like these: Does your level of profitability provide a solid foundation for internal growth? Will it appeal to potential partners or buyers? To answer these questions, you need accurate, reliable and timely financial reporting. And it's not enough to request these reports and then leave them in a folder on your desk. Each month, you should be reviewing these financial statements with a qualified staff professional or external consultant. A finance professional can walk you through not just the numbers, but their implications for your practice's future health. And because billing is the lifeblood of any practice, be sure that the monthly review includes a discussion of your cash receipts and outstanding accounts receivable.
- Have you implemented internal controls? (And if not, how soon can you do so?) Internal financial controls are a common-sense way to safeguard the assets of your practice. No single employee should have total, unchecked control over any aspect of your operation, which makes it critically important to divide the work of overseeing your finances among employees. This internal control process can be difficult to achieve in a small practice; but as you continue to grow and hire new people, be sure to separate responsibility for sensitive tasks such as processing invoices, issuing payment, and completing the monthly bank reconciliation.
- Do you have a robust payroll vendor? Your dedicated and reliable staff members deserve to be paid in a timely and accurate way. (Not incidentally, attention to this area will also reduce dissatisfaction and turnover.) A reliable payroll vendor will help you deliver consistent benefits and compensation to all of your employees, and will track functions—in addition to employee hours worked—that your bookkeeper may not be prepared to handle, such as automated PTO accruals and balances, and accurate calculation of overtime according to federal guidelines. Importantly, your vendor will collect and aggregate personnel and payment data, information that is critical in every due diligence review, whether in the sale or merger process.
The simplest concept in financial management is “cash flow.” We all know from managing our household finances that when money received and money spent don't align, we're in trouble. The same is true for business, where healthy cash flow is considered a prime metric for success.
Important measures that can result in healthy cash flow are to:
- Manage accounts payable. Although it might seem counter intuitive, your practice should not pay invoices as soon as you receive them. Many small firms are unaware of the benefits of this approach, but your financial operations manager should be advising you to collect funds quickly and then to hold them for as long as possible. Managing cash flow in this way creates liquidity, gives you flexibility, and provides cash on hand when it's needed.
- Evaluate your bank. It's likely that your practice started with a small, local bank. As you grow, you'll need more sophisticated technology that may be outside the offerings of your original bank. Examples include everything from paying bills online to collecting payments from patients when they walk into your office. Make sure that your bank offers “positive pay” (positive pay notifies the bank of issued checks, which is critical to fraud prevention), and double check that you've enabled this functionality. And be sure to use the bank's download capabilities to streamline bank reconciliations.
- Obtain a line of credit (LOC). Financial issues and economic uncertainty are inevitable. That's why your practice must have access to an LOC before an emergency strikes. LOCs cushion economic shocks and are your practice's lifeline when cash flows are interrupted, as they were during the early days of COVID.
A TRUSTWORTHY TEAM
Many audiology practices start out small, relying on professional advisors to help get the practice started. As your practice grows and your needs change, your advisors may not have the right skill set to support your growth. Whether your ultimate goal is internal growth or a merger or sale, you'll want a solid team of knowledgeable professionals to help you achieve it.
Industry experience is most critical to your success in these areas:
- Legal and insurance. Your patients come to you for your audiology expertise; you should seek this same level of expertise in your legal and insurance professionals. Health care is among the most highly regulated industries in the United States. That's why your practice needs to rely on professionals who are deeply knowledgeable in health care law and insurance, and who can help you navigate the system's complex and seemingly endless requirements.
- Finance advisor. As with your legal and insurance advisors, your finance professional must be deeply versed in health care industry protocols. This advisor—often, your accountant or a trusted consultant—must understand the entire scope of your practice to help guide you on your growth path. An experienced advisor will offer invaluable business insight and can direct you to resources to implement all of the practices discussed in this article.
Remember, the expertise required to expand your practice is different than the expertise required to start your practice. If your professional team has been evolving, professionalizing, and specializing—in other words, if they've been growing with you—they may be just what you need at this stage. But if not, it's time to level up.
We've talked about three ways to strengthen your practice's foundation: Improve your daily financial operations; secure your cash flow; and retain a team of knowledgeable and experienced industry experts. But in the day-to-day rush of patients, personalities, and little fires everywhere, it's easy to forget about the fundamentals that keep your practice growing strong.
It's hard to make time to address these longer-term issues. But scrambling to resolve them in the midst of merger talks or a hiring spree is a sure way to make mistakes or settle for less than optimal solutions. The sooner you can lay a solid foundation for future growth, the more secure your footing will be when you're ready to take the next step.
That's why the time to begin is now.