Making a Statement About the Practice

Gary W. Ware

For the average optometrist, financial statements are far from the most-interesting aspect of practice – or even practice management. In fact, they are generally considered among the most boring. For too many practitioners, financial statements represent little more than a formality, prepared by a bookkeeper or accountant, to be set aside and largely ignored until tax time. Fortunately, however, many practitioners are now paying more attention to their financial statements and appreciating them for what they are: an objective measure of their practice’s financial performance and, in many cases, an excellent way to spot operational improvements necessary in the practice.

Financial statements can provide an excellent basis for operational improvements in a practice

The Income Statement

The income statement, or profit and loss statement, is the primary financial record used to track how well a business is doing on an ongoing basis. It represents activity for a given period, such as a month or a year. Every practitioner should carefully review his or her income statement each month, looking at these items:

Revenue – As its name implies, this the amount of income or “sales” the practice generated for the period.
Cost of goods – What the practice spent on goods (frames, lenses, and contact lenses), which were then resold to patients.
Operating expenses – Numerous individual line items that represent costs not readily tied to a specific patient’s bill.

“Okay, but how do I use this information?” a practitioner typically might ask.
Revenues, cost of goods, and many line-item operating expenses can be expected to fluctuate somewhat from month to month. In most practices the winter months bring fewer patients than spring and fall. Practice revenues therefore can be expected to dip in

December and rise again in March or April. Utility costs can be expected to increase during the peak heating season of the winter and again during the peak air-conditioning season of the summer. However, consistent review of financial records will generally allow practitioners to recognize a truly unusual amount (such as an unexpected downward “spike” in revenues) or a significant long-term trend (such as a consistent increase in a practice expense) and take appropriate action.
Remember, though, responding is not the same as being proactive. The practitioner must:

Determine areas of concern, probably by tracking or graphing several of the line items;
Establish a plan to positively impact those areas of concern; and
Implement that plan.

A practitioner should begin by establishing some baseline information for comparison – using his or her own practice history as well as statistics from other practices.

Divide total monthly revenue for the most-recent month by the revenue total for the same month last year. Did practice revenue grow by more than a rate of about 6% to 8% on an average annualized basis? If yes, smile; the practice is above average. But don’t get comfortable.
Divide labor costs by total revenue. One survey conducted last year found the average was 20%. Practices can deviate from that average for a number of reasons. Striving harder for increased revenue often will make more sense than cutting labor as a means of improving the ratio. The point is: recognize if a practice varies from the average – and investigate it.
Other comparison ratios to track are: revenue per visit; staff hours per visit; new patients as a percent of total patients; revenue and expenses by department, as a percent of total.

The practitioner who is “better” than average should still investigate “why,” so as to best capitalize on what the practice is already doing well.

An entire textbook can easily be written on analyzing income statements. The critical factor is getting started. Every practitioner should get a complete income statement each month and spend a few minutes going over it.

Gary W. Ware operates an optometric practice management consultancy. He can be reached at (925) 820-6758 or at www.gwwbc.com

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