Discover the key financial data you should be tracking in your private healthcare practice and how to use it to improve business performance.
In the previous Business Series articles, we highlighted the importance of tracking key financial data to help you understand how your private practice business is performing. Understanding the financial performance of your business is vital if you want to see progress and grow your healthcare business.
In this article we will uncover some of the recommended key financial data to track in your private healthcare business and how to use it to support growth, as well as the financial analytics tools to help you do so.
A healthcare practice’s income comes from payments made by patients for their treatment. It is crucial to have a payments software in place through which you can process, track, and take payments from your customers.
A financial integration with your practice management software, such as Xero, Stripe, or Healthcode, facilitates the creation of patient invoices and payments processing. The ability to take payments online is incredibly useful, especially in this digital age and considering the increased use of remote healthcare and telehealth services that do not require a physical visit to the practice. Online payments software also facilitates ‘real time’ payments, thus reducing the time between appointments and patients making payments. Chasing unpaid invoices is a time-consuming and resource-heavy task that should be avoided.
Furthermore, such software will allow you to accurately track the status of all invoices and payments and monitor your debtors balance - the amount of outstanding payments still due. Without accurate income tracking and monitoring, it is possible that your business will not be seeing the revenue it should due to missed payments.
'Payables' refers to what is owed for unpaid expenses from within the practice, such as employee salaries, building rent, and bills. This differs from 'expenses', which represent all bills actually paid, which is also referred to as ‘cash out of the door’. If your expenses outweigh your income, your healthcare practice is not in a sustainable financial position, so accurately tracking and calculating expenses is a necessity.
Tracking your expenses can also provide valuable insights into the operation of your healthcare practice. For example, knowing how much you are paying for a service compared to how much you use it in the day-to-day can help you determine the value of that service from a financial standpoint. Do you currently pay for a software or service that you do not use enough to justify the cost?
Similarly, knowing the details of your employee payroll will also give you insights that you can use to decide when to make new staff hires or reductions.
Revenue represents what you have charged all your patients.
Profit is revenue minus all the expenses paid. The larger the balance and the more it grows month-on-month, the stronger the financial health and performance of your practice.
Total revenue may be one of the most important indicators of the financial health of your private healthcare business. Setting revenue goals is a key step in writing a business plan, and monitoring revenue will reveal how well your business is performing and growing.
If you are not seeing improvement in revenue each quarter, then it is time to re-evaluate your business operations and perhaps rewrite your business plan to better support growth.
We have already explained what revenue, expenses, payables and receivables are for your healthcare practice. Monitoring when payments are due and when payments will be received is important not only to ensure suppliers and bills are paid on time, but also to further increase your profits by ensuring a healthy bank account balance from which you can start earning some interest.
The key to effectively managing your cash flow is to reduce the payment cycle time. Every time a customer payment is processed, your available cash will increase. Every time you pay out an expense, available cash will decrease.
Managing the payment lag time will help to ensure that payments are received promptly and thus increase your available cash throughout the month. There are a few simple ways to do this and perhaps the most effective is to implement an online payments software.
An online payments software will enable you to send patient invoices and request payments at the time of booking, rather than after the appointment. Not only will this greatly reduce lag time, but also help reduce the chance of no-shows (DNAs) in the practice as patients are more likely to attend an appointment they have already paid for.
So how do you get hold of this data from your practice and accounts?
If you currently use an outsourced payments provider, it might be more difficult to collate all your data. A practice management software with integrated payments and accounting services will enable you to house all your financial records, process payments, and conduct analytics from one place.
Integrating with payments providers through your practice management software, instead of using them separately, means that the software is directly connected to your practice data. Thus, all invoices, payments, and outstanding debts are automatically in sync and connected, providing an in-depth overview of your practice’s finances and making it easier to track financials and monitor progress.
Using a payments software will also ensure you meet any HMRC requirements for the various taxes your practice may be liable to pay.
A sophisticated payments software also enables you to run various analytics reports that can pull data to calculate your payables, receivables, expenses, and revenue. More advanced software will also allow you to see financial reports on a more granular level, such as income per service or location. With these statistics, you will have more advanced insights into the financial performance of your business, such as calculating the profitability of specific treatment methods.
With these tools at hand, tracking key financial data will be much easier. From there, you have everything you need to start building a financially stable and efficient private healthcare business.
Check out the Semble blog for more tips on building a data-driven healthcare practice!