Case study: financial statement analysis - part 2

Our financial statement analysis case study rolls on unabated.  If you haven’t read it, you may want to check out part 1 first.  Today, we discuss our approach to the clinical supplies and employee costs portion of the income statement.

The problem: Clinical supplies cost regularly ran roughly around 12% of revenue when we would normally expect something in the 7% range (or less given the solid volume in the practice).  When we evaluated the process, we discovered no controls over the ordering process.  Doctors, the clinical supervisor and clinical staff were allowed to order as they saw fit.  Orders were placed via phone and individual supplier websites instead of consolidated into one place.  Like office supplies, shelves were overflowing with clinical supplies.

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Case study: financial statement analysis - part 1

Financial statement week has now extended into 2 ½ weeks of action, but it is an important enough topic (with still a lot more to go) that merit the extra time.  Today, we show how we applied the knowledge gleaned from part 1, part 2 and part 3 of our series to solve some issues with an actual practice a few years ago (some of the numbers and the quarters contemplated have been changed somewhat, but the overall feel remains the same).  

As always, we hope that the information here proves beneficial to you and the situations shown here might apply in some way to your practice, of if they don’t, at least get the juices flowing on potential solutions to issues that your practice may be facing.

To our case study bureau

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Marketing Monday: Don't be THAT practice

Recently came across this article (scroll down to the 8/11/13 post) in which the author goes through dentists like Kleenex because of the way he was treated at the front desk.  In what will be a series of obvious statements as I go through this, you’ve spent a lot of time and money and put your credibility on the line trying to get patients in the door.  Then, when they walk in, they are immediately turned off by the first 5 minutes of their experience.  You ever walk into a restaurant and have your entire meal be defined by your initial experience with the host or hostess?  Not a whole lot of difference here.

This gives an intro for a perfect Marketing Monday post.  How do you make sure that the patient experience is positive right from the start.  Try to think of it as your front desk person being the host or hostess of a big party.  You need to talk to everyone to make them feel good about themselves even though you don’t have a lot of time to spend with each person because you have a lot of people to which to attend.  A number of folks try to overcomplicate the process (like with a lot of things), but just like any other experience, a productive patient introduction to an office boils down to some basic, simple factors (make sure to stick around for our “melting pot” video at the end of the post):

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Financial statement analysis made easy - part 3

If you’re still with us, you’ve gone through part 1 and part 2 of the process to get ready to analyze your financial statements.  Now, we are ready to get down to the hardcore analysis part to find what the numbers are telling us.  Let’s take one more look at our sample statements.  

Here’s one way to break them down.  There’s no magic to the order in which you do these things, but going through each of the pieces we describe here will put you well on your way to identifying problem areas and putting a solution in place.  

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Financial statement analysis made easy - part 2

When we last left our story, we had a summary income statement, prepared on a consistent basis that looked like this:

What can we tell from this statement?  Not much.  Is $300,000 of revenue good for this practice?  Given this statement, we really don’t know.  We can compare to absolutes (e.g. revenue of $100,000 per month is pretty good).  But if the revenue for this quarter represents a drop of $75,000, there are problems to be addressed.  To set us up for effective analysis, we need 2 more pieces:

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Financial statement analysis made easy - part 1

Over the next several posts, we’re going to go through techniques for analyzing your financial statements along with some preparation tips to enable you to make the best decisions for your practice.  Please note that as we go through this information, we are not discussing reporting for tax purposes (an entire industry and blog unto itself), nor are we planning to discuss the rules of Generally Accepted Accounting Principles as it pertains to your financials.  That is a discussion for you and your accountant.  Here, we are focused on analyzing your financial information to make decisions about the operating needs and opportunities for your orthodontic practice and dental practice.  We’re also focused on the profit and loss statement (income statement) and not other financial statements.  At some point, we will get into those other statements as well.

When performing an analysis, here are some basic tips/techniques:

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Why is My Practice Engine free?

If you haven't visited us before, we can sum up My Practice Engine by stating that we are a service simply focused on providing expert, free advice on the business operations and related services (check out our tool kit to the right) for orthodontic and dental practices.  Among the most frequently asked questions we get on this site are ones like this: “Why do you say that all of your consulting and other services are free?  What’s the catch?  When do you sneak in with the big pitch or start hard-selling me to give up a big piece of my profit for your full range of services?  If not, how do you make money off of me?”

Let me try to answer each of these questions individually.

Why do you say that all of your consulting and other services are free?

You’ve read our history (For part 1, click here.  For part 2, click here).  We’ve been very fortunate to meet some excellent people in this business and we’ve been able to work with those people to achieve significant success, both for them and ourselves.  For evidence of the scope and size of Orthodontic Centers of America, Inc. (or later, OCA, Inc.), you can check out some of our old SEC filings online (here’s one).  For some evidence on the success of our affiliates, you can look at far-reaching practices like Orthodontic Specialists of Florida  and OCA Japan.  The results have been very positive, and now it is our time to pay it forward.  We’ve been able to learn a lot over the years –and we’re still developing practices all day, every day.  We want to share that knowledge with those who want to build their practices, turn around results or are just thinking about starting up a practice.  We’ve seen a lot, made a lot of mistakes and learned a number of important lessons that can benefit just about any other practice out there.  We want to be able to pass that on.

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