When you work harder and harder each year, you’re going to be more profitable, right? Unfortunately, there are invisible cracks in your systems where money is slipping out. As a result, you’re running on a hamster wheel and getting more and more stressed without seeing any real profit increase. However, there’s profit hidden in your practice, and with our GAPs method, you’ll be able to capture it. This journey toward more profitability and less stress begins with awareness of your Financial Gaps.
This gap deals with your write-offs, including those from insurance participation, membership plans, and elective adjustments. These write-offs quietly erode the fruits of your effort, and if you’re not aware of them, it’s easy for profits to leak from your practice. Your first step must be to identify your write-off percentage, and then calculate your effort gap by subtracting your write-offs from your Gross Production. If you don’t like the number, start evaluating your participation agreements — if they don’t align with your profitability goals, it’s time to make some changes.
Many practices with strong Production numbers still find themselves drowning financially, and that’s because they’re losing money due to uncollected revenue. After subtracting your write-offs from your Gross Production, you’re left with your Net Production, and this is what you can collect on. Your goal should be to collect 100% of your Net Production, because even a few percentage points less can relate to losing tens of thousands of dollars. If you’re not at 100%, you can work on tightening up your financial systems to ensure that the work performed turns into cash in the bank!
Your Overhead is your business expenses, containing everything from payroll to Post-It notes, and it can be broken down into fixed and variable expenses. You can be creative with your budgeting to help close this gap, as many practices have done with smarter purchasing using solutions like our Smile Source Transform membership. It’s important to note that your Overhead is a percentage of your Collections. As a result, when you shrink your collections gap, your Overhead gap will follow!
Unfortunately, a lot of doctors don’t pay attention to their Cash Flow gap, and that’s because the P&L stops at Net Profit. As a result, you can look profitable on paper but not see that money in the bank. This gap contains expenses like taxes, draws and distributions, and loan payments, and you need to take all of that into account in order to see your True Profit. I recommend reviewing your Cash Flow statement and Balance sheet — that will give you an accurate picture.
Remember, your hidden profits aren’t found by working harder — they’re revealed by identifying where your money leaks from the practice and then implementing countermeasures to close those gaps. It’s like Kirk says: “The first step in any change process is to tell the truth,” so dig into your financial gaps, discover your numbers, and start creating incremental changes that compound into major successes.
To learn more about ACT and how we can help you build a Better Practice and a Better Life, reach out to Gina!
Tune in next time to learn how asking better questions will help you hire better people!