In a recent blog post, I shared my re-Discover vision through 2024 for my practice. One of the big goals that I have for the business is to obtain profitability of 15 to 20% .
So, just how profitable have I been over the past 15 years, and how am I doing now? The answer: It is never consistent, and some years, it is better than others.
I have always taken the approach that we should treat our staff and our patients well – and it will all work out. And, it has – sort of. Yes, we have grown a lot and our top-line earnings have surpassed my expectations. But the establishment of profitability has been much more reactive than proactive. It has felt like a constant struggle trying to manage cash flow, build a reserve and turn a healthy profit with this approach.
I really enjoy the thrill of building a team, and practicing great medicine. This has really been the motivator to stay in practice. If only I could summon the same results and excitement for the financial progress as my leadership progress and growth – that would be totally awesome!
Confession time: I don’t like looking at all the accounting reports, P&Ls, balance sheets, budget vs actual, and EBITA (I don’t even know what this is?). To me, it is all confusing – a rear view mirror perspective that is not only unmotivating – it is quite frankly depressing and overwhelming.
However, when I started to think about my IRA and retirement accounts, I told my AR/HR billing manager to deduct 12% from my paycheck and add a 3% contribution from the company for a total of 15%. I just decided to do it and learn to live on the rest. Over time, I checked my accounts and was surprised to see a nice nest-egg. And it was almost effortless to acquire.
I now understand that my previous approach to profitability was flawed. Income minus expenses = profit. Like the retirement savings, I need to take profit first, then run the business on the rest. I don’t wait until the end of the month to see what is left over before sending a check to my IRA broker. I just make a habit of taking out 12% first, and I adjust and live on the rest. IT WORKS!!!
I needed to adjust to a mindset that profitability is a habit, not an event. A great read on this type of approach is Profit First by Mike Michalowics. In the book, Michalowics talks about Parkinson’s Law developed by Cyril Northcote Parkinson in 1955. It states:
Parkinson’s Law is the old adage that work expands to fill the time allotted. Put simply, the amount of work required adjusts (usually increasing) to the time available for its completion. If you have 1 week to organize the garage it will take 1 week. If you have 2 days to organize the garage it will only take you 2 days.
It is the same with money; if you have $1,000 to spend on a weekend get-away, it will cost you $1,000. If you have $500, it will cost you $500. With your practice, the amount of money required adjusts to the amount of money you have allotted to run your business. So, if you decide to run your practice on 90% of what you bring in, you will do it. Then, you will have 10% left over as profit. The key is to take out the profit first!!!
Of course, you should start small with this approach, beginning with a small goal of 1 to 3% proftibility, and readjusting that percentage each year.
As I look at all areas of my life – college, medical training, marriage, parenting, running my practice – I have always felt ill-prepared and inadequate, especially at the beginning. I moved forward in faith and with a clear vision of what I wanted despite the odds, obstacles and challenges. And every time, things worked out well, and made a positive impact on my life and those around me.
When it comes to profit, I set a goal: The What. The How will follow eventually. When we start small and steady, like a habit, amazing things will happen and you will reach your goal through consistency, focus, efficiency and alignment of your team rowing in the same direction. Start winning both in leadership and finances!!!
Grateful to be on this journey with you,
Dr. Matthew Harkness