10 important points you need understand about your financial report

I was recently discussing with a young doctor the importance of knowing his practice numbers. I was amazed that the doctor had so little knowledge about the basic accounting in his practice. He even asked me why it was important to know these numbers, since his practice was going fine and he had no financial distress that he knew of.

He just sends his check log to his accountant every month and is sent a report, with little or no concern about what was going on. I ask him some basic questions about his goals and his financial situation, and he knew little to nothing about what was happening. In my opinion this is a flaw in leadership that will eventually lead to a financial disaster.

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The 10 things you need to ask yourself about your understanding of your practice finances are:

• What do you understand and what do you need to understand? There are key things you need to know, and things you can leave to your accountant and CPA.

• What reports do you get from your accountant? You can get the basic information from a couple simple reports. More is not always necessary. At minimum you need an income and expense report each month and a balance sheet, and you need to learn to interpret the information on each of these reports.

• What is your break-even to make a profit? Production is great, but with the insurance write-off’s, collections is king. You cannot spend what you haven’t collected. Are you showing a profit?

• What are your monthly expenses in each category? Are they close to the industry norm? Is anything out of line?

• What is your tax liability? Are you withholding enough, or will you get a big tax surprise at the end of the year?

• How much am I able to put away for my retirement each month? Is it enough? Do I have liability for employee contributions?

• What are my monthly/yearly production and collection goals? Are they attainable and realistic?

• How many new patients are you seeing each month? Is that enough? If not, then what?

• What is my debt service each month and am I covering it correctly? How many years until I pay off the debt? Are we able to make new capital expenditures considering the debt I now have?

• Why worry about this?

Here are two useful clichés I enjoy, the first is: if you are starting on a trip, you need to know where you are going, so you will know when you arrive, and the second: you improve what you measure.

Related article: Should your staff understand your dental practice's finances? 

I hope this young doctor sees the value in this discussion. I firmly believe a knowledge of where you are and where you want to go financially will guide you to more success than being blissfully ignorant of your finances. If you don’t understand these principles and skills, find someone who will help you, and you will become more knowledgeable and more successful.