Following the conclusion of the 2016/17 financial year, practices and practitioners are at various stages of assessing the financial outcomes for the tax process.
While the ‘compliance’ element of reporting to the ATO and lodging income tax returns is the main driver of this process, you should be paying particular attention to the results in front of you for your practice, and perform critical analysis including:
- Is this result in line with expectations?
- How does it compare to any forecasts/budgets prepared?
- How does it trend over a longer term, for example 5 years?
- Does it follow any expected macro-economic events, such as the prolonged freeze in Medicare rebates?
- Does this result represent an adequate return for the investment, including time, money and risk of the owners?
In the rapidly changing business world we are often caught moving on without ensuring we have maximised the value of experience. The turn of a financial year can be an ideal time to do this.
With this theme in mind we will run a mini-series of articles, taking a high-level look at three key areas of practice performance for you to compare with your own experience that may help you define your focus in the upcoming year:
Part 1 – Revenue
Part 2 – Expenses Analysis
Part 3 – Practice Value
This month’s article looks at the steps to take to understand your practice’s revenue to ensure you take the right action going forward.
Part 1 – Revenue
Assessing the state of your revenue is arguably the most critical element of practice performance. Understanding this is necessary in taking action to address any unwanted trends and allocate resources appropriately.
Furthermore, in recent times where GP practice profit margins have been subject to pressure, it has highlighted the need for a thorough understanding of revenue as an important planning element to enhance future profits and practice value.
The first step is to know the ‘split’ of your revenue and the trends within as it is a key part of your understanding and will likely support any positioning your practice has taken or will take going forward. You may consider assessing the following:
- Bulk billing vs. private billing by dollar amount and consultations
- Medicare Item Number usage
- Service fees derived from owners vs non-owners
- Government incentives, such as PIP and PNIP
- Non-GP service fees, for example allied health
- Leasing income, for example pathology and diagnostic imaging
By understanding above and building some basis for comparison in future years you will be able to more effectively influence the outcome. For example, look at your best performing doctors for elements of their billing practices that may assist others who are either learning the ropes or may struggle in one particular area.
The next step is to revisit and understand your practice value proposition. With a year’s results to examine the following questions may be answered:
- Have we positioned ourselves appropriately? For example, have we seen a return on investment for our advertising expenditure?
- How are we differentiating ourselves? This could be through price, quality, convenience or depth of offering.
- Why would I choose our practice as a patient over a competing practice?
Keep in mind that appreciating the state of your revenue should not just be considered retrospectively and you may want to consider utilising some ‘Measures that Matter’ to underpin performance going forward. These could include:
- Resource utilisation targets, for example consulting room usage expressed as a percentage
- Average revenue per consulting room
- Number of new patient bookings per month
- Patient complaints
- Patient refunds
- New services offered
Through my experience, most of the information required for a practice to understand the state of their revenue is on hand without the need for significant manual input.
If you need assistance with reviewing your revenue to assess your practice performance or any other financial matter, please feel free to contact Tom Laundy, Health Services Director at William Buck on (08) 8409 4333 or by email firstname.lastname@example.org.
Click here to read Part 2 – Expenses Analysis
Click Here to read Part 3 – Practice Value
Disclaimer: The contents of this article are in the nature of general comments only, and are not to be used, relied or acted upon without seeking further professional advice. William Buck accepts no liability for errors or omissions, or for any loss or damage suffered as a result of any person acting without such advice. Liability limited by a scheme approved under Professional Standards Legislation.