Superior Operations and Finance Performance
When better performance equals more revenue, a stealth approach to operations and financial management is key.
By Paul Martin, MPT*
In a market of declining reimbursements, increased professional salaries, and intense competition, you better know your numbers.
With so much uncertainty surrounding the future of your market and our industry, you will be required to manage your company to achieve profitability while also reinvesting a portion of those profits in your clinics, people, and growth. A formal operations and financial budget will be your roadmap for maximum profitability over the next year.
As the most successful rehabilitation businesses have already learned, budgets are absolutely essential to compete in this new “land of the giants.” Here are seven key steps to establishing operations and financial budgets for your rehabilitation business.
1. ANALYZE HISTORICAL OPERATIONS RESULTS AND CREATE OPERATIONS BUDGETS
The first step is to do a thorough analysis of your operations results over the past three years. By month, analyze the number of new patients, visits, units, charges, visits per new patient, units per visit, charge per visit, cash per visit, and visits/per professional per day and hour (the key measure of productivity).
Study the trends over the three-year period, as well as the most recent three- and six-month period. Consider what growth you anticipate in new patients and build the budget based on that increase and the other metrics that the business has historically achieved, and/or what the benchmarks are for your market. Now, create a mechanism to analyze your actual results against the budget on an annual, quarterly, monthly, and weekly basis. That’s right: the “best” companies that produce the best performance measure their operations performance against budget on a weekly basis!
2. ATTAIN BUY-IN FROM YOUR STAFF
Once the budgets have been established in a draft form, get your staff involved. Depending upon the size of your business, start with your key leaders and eventually work toward sharing and getting feedback from all staff. It is critical that all staff has a complete understanding of how the budgets were developed, how they can work together to attain the desired results, and their accountability for attaining the results.
In the “new age” of practice ownership, staff wants to understand why. Providing your staff with a clear explanation as to why operations and financial performance is critical to compete in today’s market is a huge step toward your staff taking ownership in meeting and exceeding the targets. In addition, this helps illustrate to them how they benefit from achieving the results (i.e., performance-based incentives, and making the practice a better place to work!).
3. UTILIZE OPERATIONS BUDGETS TO BUILD FINANCIAL BUDGETS
Once you have established budgets for charges and collections (and/or revenues), you have the information you need to create the top-line targets for your financial budgets. In most budgeting processes, determining the top line is the most difficult. We typically utilize charges for a specific month and create the target based on a 30- to 60-day payment cycle, subtracting the disallowance, or what you do not expect to be paid by insurance companies, patients, etc. If you are disciplined with creating the operations budgets, this task is very simple!
4. CREATE THE FINANCIAL STATEMENT FORMAT
The financial statement should be formatted with five major expense categories:
- Salaries and related expenses
- Facility
- Clinical
- Direct Administrative
- Corporate overhead
Within each of these categories, there will also be five to 10 sub-categories as well. In addition, each main expense category should be shown as an expense, as well as what percentage of the revenue the line item represents. This allows you to clearly analyze how the expense compares to the large publicly traded rehabilitation companies as well as other industry comparative data. This format also enables you to see improvement in the bottom line not only by a reduction in expense, but by an improvement in your top line.
5. ANALYZE HISTORICAL EXPENSES TO COMPLETE FINANCIAL BUDGET
The next step is to carefully analyze expense line items over the past three years, and, more important, the most recent year, six months, and three months. The most important expense category is salaries; analyzing how much will be spent in the upcoming year will consume the majority of your time.
This is also a great opportunity to clearly see the connection between the operations productivity performance and how those employees and salaries will impact the bottom line. This is eye opening for most small business owners!
6. SHARE FINANCIAL AND OPERATION BUDGETS WITH YOUR LEADERSHIP TEAM
This step is most commonly missed by small business owners. Establish who the key leaders are in your organization, pull them together as a team, and go through the details of the operations and financial budgets. This is a great opportunity to discuss strategies and tactics to enhance performance and attain buy-in that the budgets are achievable. Going through this process allows you to create accountability and responsibility for your team to meet and exceed the forecasts that have been established by the company as a whole. That team dynamic will establish a culture of monitoring and measuring performance and working as a team to meet and exceed goals. You have essentially created a “performance-based culture,” which will enable you to focus on continuing to promote, develop, and innovate your company!
7. ESTABLISH DISCIPLINE
The most important step is to establish a discipline in your company to review operations results against targets weekly, and to establish brief action plans to correct deficiencies and meet and exceed targets. This can be done in a 10- to 15-minute meeting each week, and should be done at the clinic level, led by the clinical director. We call this the weekly huddle, and it should be done in every clinic, every week. Again, ongoing feedback regarding performance is well received by staff in the “new age,” especially if it can be displayed in visual formats (graphs and charts are highly recommended). Like a football huddle, this gathering should be brief, everyone should be standing, and feedback is paramount.
A monthly review of the financial statements should be performed with your leadership group. Those monthly statements should compare actual against budget and against the previous year’s performance. This discipline will keep you and your leaders focused on driving operations to achieve financial success and making management decisions based on objective data.
This seven-step process will enable you to be in control of your operations and financial results while creating accountability and ownership of your staff for those very same results. That is the description of operations and financial excellence!
Paul Martin, MPT, is founder and owner of Martin Healthcare Advisors and a PPS Member of 27 years. He can be reached at pmartin@martinhealthcareadvisors.com.
*The author has a professional affiliation with this subject.