Written By: Darren Donnelly, CO, MBA
The Top 4 Things You Can do to Feel Financially Secure
Financial Security is the peace of mind you feel when you aren’t worried about your income being enough to cover your expenses. It also means that you have enough money saved to cover emergencies and your future financial goals. Knowing how much money you need to feel financially secure in your business is not easy and it is not the same for everyone. The top four things you can do to increase your feeling of financial security are:
- Eliminate debt,
- Control your expenses,
- Increase your sales and assets,
- Have an exit plan
Financial security can come from having a significant amount of profit. Profit is defined as the surplus of money remaining once costs have been removed from total revenue. A simple way of saying that is that profit equals sales minus costs. Sales in O&P are realized as reimbursements from third party payers or direct payments from our patients. Costs are the cash and other resources we spend. Orthotics and Prosthetics is an example of what I like to call, “product-based health care.” There will always be high costs because we either buy finished products or purchase the parts to fabricate a tangible product to deliver to our patients.
Profit is a mathematical equation. This means we have the ability to alter the numbers to affect the outcome. To increase profit, we must either increase sales or decrease costs. It sounds really simple, and it can be, but you have to learn which side of the equation you can control.
Even though “sales” is just one side of the equation, there are several ways to change the number. To increase sales we could get more work by expanding our referral base, adding a new product line, or a number of other things that would increase sales volume. But when we increase our sales we are most likely also increasing our costs. To provide more products we have to buy more materials. The ratio of costs to sales probably stays the same. Increasing sales without increasing cost is really tricky. Also in product-based health care, just because you provided a device does not necessarily mean you will get paid for it. Your sales are only as good as your receivables. If there is anything to focus on when it comes to your sales, it is your receivables. Monitoring your aging accounts receivables and collecting your money will increase your profit and in turn your financial security.What About Focusing on Decreasing Costs?
The other side of the equation is a little more controllable. We can, in fact, decrease our costs without decreasing our sales. By implementing a few materials management strategies we can control our spending. To maximize your bottom line, the top four things you should focus on to reduce costs are:
1. Monitoring your purchasing habits
2. Establishing discounts with suppliers
3. Managing inbound shipping costs
4. Utilizing inventory
If you implement those items into your workflow(s), you will begin the process of managing your cost of materials. Material cost can add up to over 33% of your total office expenses. Payroll is another third and rent, utilities and everything else is the last third of your cost. It is very difficult to change your payroll expenses without effecting productivity. While renegotiating rent or utilities may be possible it is certainly harder than managing your cost of materials.
The areas in your organization with which you have the greatest ability to control your costs and profitability are materials management and collections. If you focus on those two areas, you will be closer to peace of mind and financial security.
Do you want a full, in-person session on materials management and decreasing costs? Join us for the Office Management track at OPIE Con to get that and so much more! Register now!
Darren has over 14 years of clinical experience. He is a certified orthotist and has a master’s degree in business administration.