As with any small business, it is important to keep track of whether your clinic is moving in the right direction. Ideally, the owner of a clinic should be able to estimate on a monthly business whether the clinic is making or losing money and, especially if it is losing money, how much. In this post, we suggest 8 steps to estimating monthly clinic profit and loss that will help you to monitor this important metric of long term sustainability of your business.
Many clinic business owners try to track their profitability by looking at their appointment dairy bookings and, if their are very few unfilled spots there, they conclude that things are moving in the right direction. However, this is just capturing a small part of the clinic’s operations and ignoring other sources of revenue (like product sales) as well as major expense categories such as staff wages.
Others rely on their book keepers to report at the end of each year and hope that they will be told that their business did well. However, 12 months can be a long time in business and, by the time they realize that something is going wrong, it may be too late.
Yet others keep an eye on the bank account and try to gauge their business’ progress by whether they can easily pay their wages and other bills.
The best approach, however, is to develop a methodology for estimating monthly clinic profit and loss. It does not have to be 100% accurate but as long as it captures the main sources of revenue and expenses, it will serve its purpose.
Essentially, this monthly p&l statement will serve as a monthly statement of operations for your business. It does not include a balance sheet, but it will still provide a useful guide to the financial performance of your business. It can also be a useful point of comparison with your business budget, if you have one (and you should).
Our suggested 8 steps to estimating monthly clinic profit and loss are set out below. Some of the required data points draw on the data collected in the daily data capture for the clinic, so our post on that subject should be read together with this one. This net profit (or statement of profit and loss) estimation should be done at monthly intervals. The exercise is carried out at the end of each month and seeks to approximate the monthly clinic profit and loss for the month just ended.
An important point to note is that the expenses below should all be calculated excluding sales taxes such as HST or GST.
- 1 Estimating Monthly Clinic Profit And Loss
- 1.1 Step 1: Calculate Monthly Consultation Billings
- 1.2 Step 2: Calculate Monthly Stock Billing Revenue
- 1.3 Step 3: Estimate Other Sources Of Revenue For The Month
- 1.4 Step 4: Estimate Monthly Administration Team Wages
- 1.5 Step 5: Estimate Monthly Therapist Team Wages
- 1.6 Step 6: Estimate Your Consulting Wage As The Owner
- 1.7 Step 7: Estimate Your Monthly Rental Expense
- 1.8 Step 8: Estimate Other Monthly Costs
- 2 Conclusion
Estimating Monthly Clinic Profit And Loss
Step 1: Calculate Monthly Consultation Billings
In the first step to calculating the monthly clinic profit and loss, you calculate the monthly billings based on the hours reported for each day by the therapists on your team. This is item 4 of the 6 Daily Data Points reported by your therapist team members. It is important to note that you should not be capturing the cash take at this point, as that does not reflect the actual consulting activity for the month.
If you run a practice management software system for your clinic, you should also be able to pull this number directly from that system.
Step 2: Calculate Monthly Stock Billing Revenue
In this step, you are calculating the monthly billings (not cash intake) from sales of stock in addition to hourly billings. This can be taken from the stock item sales reported by therapists as part of the daily data items. Alternatively, you can retrieve it from your practice management software system, if you are running one.
This number should then be calculated by your pricing margin for stock sales. For example, if you are pricing your stock items to achieve a 35% margin, the total reported sales of these items for the month should then be calculated by 35%. This reflects a “cost of goods sold” adjustment to arrive at the true contribution of these sales to the monthly clinic profit and loss. Without it, you would be overstating your financial results for the month.
Your accountant or book-keeper should be able to provide you with an average profit margin percentage used in your stock pricing. You can then apply this percentage to the estimated stock sales for each month to estimate the contribution to monthly net income from this source.
Step 3: Estimate Other Sources Of Revenue For The Month
In addition to revenue from sales of stock items, you should also estimate fee income from room, equipment or other rentals. This can be estimated from the number of days during the month on which the equipment was rented out. Multiplying this number by the daily rental charge should provide a good estimate of the contribution to your monthly clinic profit and loss from this source.
Step 4: Estimate Monthly Administration Team Wages
This component of your monthly clinic profit and loss can be calculated based on the hours worked figures reported by your administration team members. The total hours worked for the month by each team member is determined from the figures reported as part of the daily data points. It is then multiplied by the hourly wage applicable to the team member. This figure is then totalled across team member.
For maximum accuracy of your estimated monthly clinic profit and loss, you then need to multiply the resulting figure by a factor to include the employer portion of RRSP, CPP and EI payments. Your accountant or book keeper should be able to provide you with a factor to use for your estimate.
Step 5: Estimate Monthly Therapist Team Wages
This fifth component of your monthly clinic profit and loss is determined using the same approach as described above for your administrative team members. However, there may be differences with your administration team members with respect to the hourly wage figure as well as the employer portion of RRSP or health insurance costs. Again, your book keeper or account should be able to provide a % figure that you can apply to the total hourly wage to reflect the employer portion of these costs.
Step 6: Estimate Your Consulting Wage As The Owner
In this step, you estimate the cost of the therapy services you provide to your clinic. This would be done by totalling the hours of therapy work you contributed during the month and the amount you would have to pay if you hired an additional therapist to do this work instead.
Step 7: Estimate Your Monthly Rental Expense
This is the amount paid to your landlord as rental for the premises for your practice.
Step 8: Estimate Other Monthly Costs
These would include expenses such as bank fees, utility bills, internet access, insurance, stationary and advertising. In almost every case, these expenses are billed once monthly. The amount billed for the month just ended should be simple to retrieve and include in your monthly clinic profit and loss estimate.
Once the above components have been estimated, the monthly clinic p&l statement can be constructed easily in a spreadsheet. Once this has been done for the first month, the following months should only require updating the figures for the previous month. The entire exercise should require no more than an hour or two of work.
However, once you are able to track your monthly income and expenses in this way, you have a powerful tool for managing your business and making day to day decisions . Our next post will discuss how the components of your estimated monthly income statement can help you run your business and make important decisions to keep it growing sustainably.