financial foundations

Perform a Financial Checkup

Evaluate the first half of your fiscal year.

DAVID MILLS, O.D., M.B.A.

For businesses that start their fiscal year in January, June 30 represents the end of the first half of the year. Here, I discuss some key financial indicators to ensure a successful second half of 2013.

Adjusted gross income

Figure out whether you met or exceeded your expected monies collected. If not, determine whether you fell short for legitimate reasons. For example, perhaps the weather forced the closing of the office more days than last year. Be sure that you don’t just explain away the cause without taking corrective measures, if possible. Evaluate your no-show rate as well as your patient recall efficiencies.

Also, calculate your average gross revenues per patient, and compare it with previous quarters to determine whether it has decreased. If your cash accounts are healthy, consult with your accountant to determine whether any capital investments in new instrumentation or other assets are in order.

Cost of goods sold (COGS)

Evaluate the percentage of COGS to the adjusted gross income to be sure it is not creeping upwards from previous quarters. If you collected more revenue this year due to increased sales, you would expect your COGS would increase. If the ratio between sales and COGS is increasing, you must determine why. Perhaps you have been upgrading the dispensary and purchasing high-priced frames and offering additional premium lens options. If you have not made any significant changes, review acquisition strategies and wholesale lab pricing relationships.

Accounts receivables

Ensure that you do not have an increase in the number of aging accounts past 30 days, for both patient accounts and insurance accounts. Again, if your gross income has increased, you would expect your total value of accounts receivables to also increase. The aggregate value of each is not as important as the amount of accounts past 30 days.

A warning: Many EHRs include patient and insurance credits in the accounts receivable report (negative values). In doing so, the aggregate value of the accounts receivables artificially lowers. These are better posted as “unapplied credits,” as not to dampen the importance of seeing the true value of the uncollected revenues associated with the accounts receivables.

Current inventory levels

If business has been down the first six months, you may find that frame and contact lens inventories are overstocked. Adjust your buying strategies for the next few months to compensate. If the first six months showed increased purchases, restock at a sufficient level.

Net income

If this percent compared with the adjusted gross income is not equal to or higher than the last comparable period, look at your variable expenses (advertising, business-related travel or professional subscriptions). Try to trim these to get back on track.

A positive second half

Spend time now reviewing financial indicators for the first six months, and take corrective actions where indicated. OM

DR. MILLS IS A SENIOR PARTNER AT OCEAN STATE EYE CARE IN WARWICK, R.I., AND HOLDS A M.B.A. FROM PROVIDENCE COLLEGE. E-MAIL HIM AT MILLSD@NECO.EDU, OR SEND COMMENTS TO OPTOMETRICMANAGEMENT@GMAIL.COM.