Invaluable Financial Analysis in Your Optometric Practice
Bryan Hoban, PECAA’s Member Business Manager, explains the importance of financial analysis in your optometric practice. This article is part of PECAA’s sponsored editorial series, appearing in the September, 2014 issue of Optometric Management magazine.
Your practice’s financial data tells you where you’ve been, where you are and where you’re headed. How do revenues for this month compare to the same month last year and several years prior? How have the numbers changed over the past few months? What is the impact of the changes you’ve made? Where are the areas for improvement?
Turning financial data into information you can use requires financial analysis. To help offer its members the analysis they need to succeed, the Professional Eye Care Associates of America (PECAA) offers the Member Business Analysis (MBA) Program. Bryan Hoban, Member Business Manager at PECAA, directs the program, in which financial professionals meet doctors in their practices, analyze key financial data and formulate action plans and recommendations for the practice’s success.
“We start with a practice’s balance sheet and income statement, looking at the working capital, accounts receivable, sales production numbers and other key data to create a trend analysis of how the practice has been changing in recent months and years,” Mr. Hoban explains. “We also show how the numbers stack up against industry benchmarks. The benchmarks might tell us, for example, that the practice does comparatively well in terms of patient volume and retention, but it isn’t maximizing its optical sales for those patients as well as other practices. Or we might identify ways to help a practice maximize its revenues from managed care organizations.”
The MBA analysis also may point out potential investment opportunities in the practice or outline strategies that the doctor can put in place to position the practice to make investments in the future. With a set of goals in mind, the team helps doctors use financial data to track their progress. “Doctors usually have the most room to improve on the retail side of the practice. It should be upwards of about 60% of the practice’s revenues, but we often find that it doesn’t receive the attention needed from practice owners,” says Mr. Hoban. “Based on our analysis, we can often recommend specific merchandising strategies in the optical area or identify vendor partners that will increase sales and improve inventory performance.”
In fact, according to Mr. Hoban, the way a practice manages vendor relationships can have a major impact on profits. He and his colleagues often recommend that practices consolidate those relationships in order to spend less time maintaining them and to take advantage of volume pricing.
“We want our members to work with vendors who have an interest in the offices’ long-term success, not just in selling to them,” Mr. Hoban says. “Good reps should know your best-selling frames and provide great customer service. There are many vendors, so if a practice isn’t getting good service, the relationship should be re-evaluated.” Although financial analysis can be complex, Mr. Hoban says that the key is in looking beyond the numbers to understand the reasons why they change. “As we look at changes in a practice’s financials statements over a period of months or years, we have to identify the reasons behind the changes,” he says. “Those answers tell us why certain numbers look good and others might not, which in turn helps us suggest ways the practice can position itself for the future. In the end, we’re handing the doctor a very clear and practical plan of action with well-defined steps to boost the financial health of their practice.”