How much do you want to earn in 2023? Bethany talks about how to use your financial statement to make sure you get there.

December 21,2022

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Dr. Bethany Fishbein: You’ve got this net number, when you mentally subtract out all the other things that are going to come out of that, you end up with cashflow kind of what’s going to be left for you and you get to decide, okay, is that enough?

Hi, this is Bethany Fishbein, CEO of The Power Practice and Host of the Power Hour Optometry Podcast. We’re in end of your planning mode, two weeks ago we talked about The Vision Traction Organiser, which is an amazing tool to just help get your mindset right for achieving what you want to achieve in the upcoming year and beyond. And today, I wanted to talk about how to use your financial tracking, to set specific goals for budget for the amount of money you want to make, and make sure throughout the year that you’re on track with those numbers. So no guest today. It’s all me and we are talking money. 

So the first thing is, all of this assumes that you have a way to track your income and expenses each month. You have to have this I’m still blown away by the number of business owners practice owners I meet who are not tracking these numbers or are tracking them very sporadically or after the fact or have access to them have somebody tracking it for them and are never looking. So I just want to make a case as to why you need to be getting these numbers and looking at these numbers each month. And the reason is because really these numbers more than any other numbers more than bank balance more than paychecks. This is what lets you know how you’re doing. And if you’re waiting on an accountant to deliver your monthly numbers, months after the fact, by the time you get the numbers if they’re not what you want them to be. It’s way late to course correct. 

So I’ve spoken with doctors who get their numbers once a year from their accountant in April. And these are numbers that go back to the previous year starting in January. If the following April 16 months later, you get numbers you don’t like you’ve lost out on a tonne of time to do something about it. So all of this assumes that you’re you’re looking at your numbers monthly which really, you absolutely should be. So in the next couple of weeks, you should have access to your financial statement, your profit and loss for the year of 2022. Maybe you have it right now through November and if you want to start with that and just extrapolate that last month, you can do that. If you want to wait a week or two, get your December numbers and now you’ve got numbers for the full year. And this is the opportunity to really look and see how you did I’ve said a share before so many offices are focused on that top line number, the amount of money collected. And that’s a good number. It’s a fun one to talk about, oh we have a million dollar practice we have a $3 million practice, but the number that counts is the number that’s all the way down at the bottom, which is the net which is how much money you made. Because there’s that quintessential question I think that my mentor Gary Gerber used to ask “Would you rather have a million dollar practice netting 100,000 and we seen those or would you rather have a $500,000 practice netting 200,000? ” And most people would choose the higher net ever longtime client I’ll know who he is when he hears this but he always says the gross is for vanity net is for sanity. And I think about that as I talk about this because it’s the number on the bottom that matters yet it’s the one on top that everyone focuses on. 

End of the year when you get your statement is a chance to look and say, Okay, how much money did I make? how profitable was this practice? Did the business do what you wanted to wanted it to do if you set goals for the beginning of the year? Did you meet those calls? Did you exceed them? Did you fall short? Why or why not? And you get to reflect on the year that just passed. And then you plan for what you are expecting to happen and what you want to happen in the year ahead. What do we want 2023 to look like? So instead of looking backwards at the end of the year, oh I didn’t make as much as I wish that I had made. You’re looking before the year even starts and making some very educated projections to say here’s where I think I’m going to be. Here’s where I want to be. This is okay, this is not okay. And if it’s not okay, here’s what I can do to change it. Before I even open my door for business on the first day of the year. And so when you have this goal set proactively, then, as each week each month gets passes and gets calculated in you get to see if you’re on track or not. So it’s a chance to be proactive for the upcoming year. What are your goals not only for profitability, but really what do you want to get out of your business for the year? 

When we talk about budgeting, you hear the terms top down forecasting bottom up forecasting and my way of going through this actually incorporates both. So let me share with you how I think this through and hopefully this can help in some of your practices. So we’re gonna start at the top the top number being collections, some call it row, some call it income, some call it collections, whatever, your accountant, your bookkeeper is calling it it’s the one that reflects how much money comes into the practice from your patients from insurance companies. And from anything else that’s coming into the practice rebates if you categorise those separately, stuff like that. So it’s how much are we going to collect? And you’ve got your number now for 2022. So you use that to think about how much do I want this number to be for 2023 and a lot of people pick up percent. I want it to be 10% Higher 10% growth. That’s good, right? But there’s got to be some thought that goes behind that number. Where is it coming from? So if you have an office that’s fairly new, maybe it’s your schedule is 70 or 75% full and you think, yeah, I could see 10% More patients. I’m going to increase 10%. Okay, that’s reasonable. If your office is already at capacity, you can’t just assume that you’re going to see 10% more patients. If you set a growth goal for 10% and I’m picking 10. It can mean 20 can be 50 it can be zero, but if you set a growth goal and you don’t have room to add any more patients, then what are you going to do to achieve that level of growth? Are you going to adjust your schedule to be more efficient to allow you to see more patients? Are you going to bring in an associate? Are you going to do none of those things and increase your fees? Or work to increase your revenue per exam by 10%? So you can see the same number of people and collect 10% More money are you adding in a brand new service that’s going to be a source of revenue that you’ve never had before? And as you start to think about those things, these ultimately can become goals that you’re going to have for your office that you’re going to share with staff down the line. Because for your team, it’s hard to get them excited. About large financial goals. If you ever practice and you’re bringing in $200,000 a month and you want to increase that 20% You know to tell an employee who’s making $20 an hour. Our goal this month is to bring in $240,000 doesn’t always translate. If you’re sharing numbers, you’re doing open book management, they understand the expenses you can get away with that and it can be really healthy, but in a lot of offices where you’re not doing that. They can’t get behind a big financial goal because it doesn’t really have much meaning to them. It’s also hard for them to get behind the goal of percentages. We want to increase by 12%. And if we increase by 12% you get, percentages are really abstract, especially the way money comes into our practices. It’s not like we’re collecting everything that we need to collect on day one.

There are a lot of cases where we see a patient insurance has to get billed stuff has to get done. contacts have to be ordered. We’re collecting money, sometimes days, weeks or even months after the fact and that money that we’re collecting after the fact comes in sometimes in big clumps. So it’s not like you’re getting an even amount each day. It’s you know, you’re here, you’re here and all of a sudden you get a large VSP check and there’s more money coming in. So it’s hard for them to get behind something that feels abstract. But if your goal is to increase the number of patients you see by 10% and you know that you saw 350 patients per month last year, so now we want to do 385 That’s a number that they can count. Okay, today we did 31 Okay, now tomorrow we did 20 More, we’re at 51 and you’re just tracking it throughout the month. So how you’re gonna get to these numbers is important to have a plan for so that you’ve got a metric to share with your team. So that they can know and you can know are they achieving the goal or not. Doing something like that is called a Lead Measure. 

Lead Measures are differentiated from lag measures. Lag measures are things that you look at after the fact to see how you did. So the example that always makes the most sense to me, of course, is with weight loss. A lag measure is the actual weight loss. At the end of the week you step on the scale, you look down you see, did you lose pounds or not? By the time you’re getting that measurement, all the action that could have affected that measurement has already been taken. It’s already done. My husband said yesterday though the horse has left the barn. So by the time you have that it’s a measurement, but it doesn’t change behaviour. So in a lot of weight loss programmes, what they have you looking at is our lead measures, the things that if you do these things, you will get the lag measure, you’ll get the weight loss that you want. If you’re reducing the number of calories you’re eating, if you’re increasing the amount of exercise you’re doing if you’re increasing the amount of water you’re drinking, so goals, especially for your team are really effective when they are lead measures. Because you know, that if they achieve the goal of increasing the number of patients or if they achieve the goal of increasing capture rate or increasing the number of IPLs or myopia treatment patients in a given month, it’s a pretty good chance that then the lag measure the increased revenue coming into the practice is going to be there. 

So still on the top line, we’re thinking about what we want to collect and not only what we want to collect, but assuming what we want to collect is more than we collected last year. What is the plan to get there? What are the lead measures that you’re going to need to work on and track to make sure that you’re going to have the outcome at the end of the month, and then at the end of the year that you want. Once you have your top line number, you can use that to create a budget or a plan for what your expenses are going to be throughout the year. So this is top down. We’ve got our top line number. And now you’re just going to work your way down categories in the P&L. So the biggest category people tend to have is cost of goods, one of the biggest categories and if last year the year before the year before that you’ve spent 25% of your income on cost of goods, unless you’re changing something. It’s probably a decent assumption that you can hit that number again, you got to be careful, especially this year, all the companies have raised their cost of product you’ve got to be keeping on top of adjusting your pricing to match. But as long as you’re doing that and you haven’t made it many major changes. If you collect more money, still probably about the same percentage of that more money is going to go to cost of goods. If your cost of goods seems out of whack for some reason. Maybe you have a frame buyer who’s been buying unsupervised and it’s been going a little bit crazy. Maybe you’re changing to a different vendor distributor, lens lab, whatever and you have a plan to reduce that number. Then we enter that into the plan. 

So we know we’re going to collect and now we know what we’re going to spend on the materials that we’re essentially reselling to patients. And you keep going right through the categories, your occupancy costs. Maybe you had a rent increase, maybe you didn’t, maybe, whatever those are, though, that should be fairly predictable, based on the years that have passed. So you know what that’s going to be, unless maybe you’re planning changes in the practice. Maybe you just move to a new location, more square footage, higher rent expense, it’s going to cost more to be there this year. So you think about each one what you’re putting in your marketing or advertising. Are you going to continue at status quo or thinking about your top line? Are you counting on a big influx of new patients? Are you counting on patients coming in to support a particular specialty or area of the practice? Do we need to put more money into the budget to spend on additional marketing to get all those new patients that you’re planning on? And if that’s the case, you look at what you spent last year and you think about, well, maybe I want to increase my Google Ads budget whatever it is to spend more this year, your equipment, are you planning new equipment, are you planning to pay for something out right, versus financing it? Technology, are you switching to the new EHR using a new programme that’s going to have a monthly fee. Even your general expenses which covers a whole lot. It’s important to just account for things costing more in 2023 than they did in 2022 than they did in 2021. Everything from your office supplies your copy paper the plates and cups for your break room, meals for staff lunches, any travel costs that are done through the business. Are there plans to do something bigger Is this the year you’re taking your whole staff to Vision Expo West or to a major conference? Any professional services are your existing accountants lawyers planning to charge higher fees? Are you listening to this podcast thinking, You know next year I really shouldn’t be adding a bookkeeper or should be adding a consultant? Are there new charges that you haven’t had before? 

And so in all of these categories, you’re just making your best thought through projection on what the expense is going to be using last year’s number as a guide and the big category that I haven’t talked about yet is staffing. Most practices are in a situation where they’re paying staff more sometimes considerably more than they were a year ago or two years ago. And it’s important to think about upcoming changes that you’re expecting and staff, again to go along with that top line number. So let’s say it’s in the plan to hire an associate. When you’re looking at the collections, you think wow, that associate is going to let us increase our patient volume by 40%. We’re booked out 12 weeks. So as soon as we open that schedule, I think we’re going to just increase 40% right away. rate that goes in the top line. The salary for that associate goes in the expenses because you can’t account for the benefit without accounting for the cost. So you worked your way down. And now you’ve got what you collected. You subtract out what your cost of goods is going to be subtract out your staffing expenses, your occupancy expenses, your marketing expenses, all the expenses come out and you’re left with a number at the bottom, which in most accounting systems is called your net. So predict your income you predict your expenses and you see what’s left. And that’s kind of how top down forecasting works. When I said I usually do both, the next step that I recommend is you look at that number of what’s left. And you have to decide, are you happy with that number? And maybe as the owner, you’ve got some salary in the business so you’re getting your salary and that was counted as an expense and now it’s your salary plus this number. Is that enough? Maybe you’re just taking distributions and so this number is what your distributions are going to come out of. Either way, the thing to remember though, is that whatever that number is, you don’t get to keep all of it. Because out of that number, you’re gonna have to pay taxes, self-employment taxes on the profitability of your business if you’re an LLC. If you have any debt in the business, if you’re still paying off your loan from starting the practice or buying the practice or if you’ve financed equipment that has monthly payments over the last couple of years, those payments come out of that number. So you’ve got this net number. When you mentally subtract out all the other things that are going to come out of that you end up with cash flow kind of what’s going to be left for you. And you get to decide, okay, is that enough? Is that what I want? And if it is, then you get to be done with this part anyway, you get to say, Okay, I did this I making $250,000 I’m happy with that. You know, I’m good to go with this. Or you look and you say well, I do all this and it comes out to 110,000 and I’m that’s not enough I’m not okay with that. Or 250,000 And I’m not okay with that. I want it to be more. 

And so now we go bottom up, where you say okay, this is at 200,000 I want it to be at 300,000. So, if I want that to be 300,000 Where can I either increase the income? How do I change that plan, or decrease expenses so that ultimately, you’re gonna get the number that you want on that bottom line. So top down, you don’t love the number at the end. Then we’re gonna go bottom up to figure out how we can get this to a number that you can love. So once you have that, this is really your financial plan for the year. You can use it as a plan, a guideline, a budget to make sure each month as each unit of time goes by, that you’re going to meet the goal that you set particularly the goal for the bottom line number because like we said before, that’s the one that counts. So to do that, the simplest way to do it is, you take these charts, spreadsheets, whatever you have it on, and this is a yearly projection. And so just to make it really simple, you can take that as a monthly projection and divide the yearly numbers by 12. And it won’t exactly work out that way. But it gives you an idea of where you should be after month one where you should be after month two where you should be after quarter one to know are we getting there? Are we getting even better than there are we not getting there? And here we need to change something. So if you’ve taken your desired yearly income, now you can divide that into monthly income for your own purposes, for staff purposes. You can even divide that even further. You say we’re looking for easy math $240,000 in monthly income, or 120,000 monthly income, whatever size of your practice is. And we’re going to be open 20 days this month. So you take the number you divide by 20 and that’s what you need to be making each day to know that you’re on track to hit your numbers. Again, the income varies. So you know insurance check day, you might have a great day. And then you might have another day where you don’t make as much but after each subsequent day you know what 120 to 220 plus 320. So that number is and so you can track where you are compared to where you should be on the income side. If you have people who are responsible for spending money in your office most commonly it’s the Optical staff or sometimes it’s a Manager Administrator who’s doing staff scheduling an ordering of supplies. You can use this number to give those people a budget for the things that they have choice in the matter of how much to spend. A lens budget is a little bit tough, because you need to order lenses for your patients who order glasses. So it’s hard to set a budget and say okay, you’re already at your budget and they’re like, oh, it’s the 24th of the month and what about the patients who still need to order glasses. So some of this stuff you can’t control? But the things that you can control are things like frame inventory. If that buyer knows that they have a $6,000 monthly inventory number, then they’re tracking as they meet with reps as they call in orders if they’re doing any individual frame orders, how are those expenses adding up? And you’re reviewing that with them at the end of the month? So that they can see their performance against their monthly budget? Because another thing that I see is that sometimes people will get to the point where they go through this exercise. They set up their monthly budget numbers. They’re happy with it, and then they never look at it again. So it’s kind of like the mission statement that sits in the drawer. This doesn’t have a tonne of value unless you use it. So at the end of January, you say “hey, frame buyer, your monthly budget was $7,000. You spent $11,000 on frames. What happened?” And they say “Oh, my gosh, I totally had to because December was so busy. We had no inventory, the boards were empty, blah, blah, blah” . Okay. Just keep in mind that for you for the practice to meet its goals, we need this number to average 7000 a month. So now that we’re fully stocked let’s get that under control for February. If they spend 11,000 in January and 3000 in February, they’re right back on track the 7000 is that monthly number. Same thing for staffing. If your scheduler knows their budget in terms of how many staff hours they can schedule. This is where we look at that to watch for things like over time. How does this vary in the beginning of the year when staff members have lots of PTO and sick time available compared to the end of the year? Are there any areas where we can cut costs in there by adjusting a part-time or schedule by really analyzing doing need to replace the staff member who just left and as the month ends and you compare? It lets you look to see where you are where you’re ahead where you’re behind, and it allows you to course correct in the moment before months and months and months go by of income or spending behaviors that are not going to allow you to reach your end of month goal. 

That’s how it’s done. So if you have any questions, if you’re looking for more information on how to do this, if you’re looking for guidance for somebody to help you figure out how to do this in your own practice, please reach out to us through our website powerpractice.com  or you can connect with me on LinkedIn or via email drfishbein@powerpractice.com . I’m wishing everybody a happy, healthy, and profitable 2023. Thank you for listening!

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Dr. Bethany Fishbein: You’ve got this net number, when you mentally subtract out all the other things that are going to come out of that, you end up with cashflow kind of what’s going to be left for you and you get to decide, okay, is that enough?

Hi, this is Bethany Fishbein, CEO of The Power Practice and Host of the Power Hour Optometry Podcast. We’re in end of your planning mode, two weeks ago we talked about The Vision Traction Organiser, which is an amazing tool to just help get your mindset right for achieving what you want to achieve in the upcoming year and beyond. And today, I wanted to talk about how to use your financial tracking, to set specific goals for budget for the amount of money you want to make, and make sure throughout the year that you’re on track with those numbers. So no guest today. It’s all me and we are talking money. 

So the first thing is, all of this assumes that you have a way to track your income and expenses each month. You have to have this I’m still blown away by the number of business owners practice owners I meet who are not tracking these numbers or are tracking them very sporadically or after the fact or have access to them have somebody tracking it for them and are never looking. So I just want to make a case as to why you need to be getting these numbers and looking at these numbers each month. And the reason is because really these numbers more than any other numbers more than bank balance more than paychecks. This is what lets you know how you’re doing. And if you’re waiting on an accountant to deliver your monthly numbers, months after the fact, by the time you get the numbers if they’re not what you want them to be. It’s way late to course correct. 

So I’ve spoken with doctors who get their numbers once a year from their accountant in April. And these are numbers that go back to the previous year starting in January. If the following April 16 months later, you get numbers you don’t like you’ve lost out on a tonne of time to do something about it. So all of this assumes that you’re you’re looking at your numbers monthly which really, you absolutely should be. So in the next couple of weeks, you should have access to your financial statement, your profit and loss for the year of 2022. Maybe you have it right now through November and if you want to start with that and just extrapolate that last month, you can do that. If you want to wait a week or two, get your December numbers and now you’ve got numbers for the full year. And this is the opportunity to really look and see how you did I’ve said a share before so many offices are focused on that top line number, the amount of money collected. And that’s a good number. It’s a fun one to talk about, oh we have a million dollar practice we have a $3 million practice, but the number that counts is the number that’s all the way down at the bottom, which is the net which is how much money you made. Because there’s that quintessential question I think that my mentor Gary Gerber used to ask “Would you rather have a million dollar practice netting 100,000 and we seen those or would you rather have a $500,000 practice netting 200,000? ” And most people would choose the higher net ever longtime client I’ll know who he is when he hears this but he always says the gross is for vanity net is for sanity. And I think about that as I talk about this because it’s the number on the bottom that matters yet it’s the one on top that everyone focuses on. 

End of the year when you get your statement is a chance to look and say, Okay, how much money did I make? how profitable was this practice? Did the business do what you wanted to wanted it to do if you set goals for the beginning of the year? Did you meet those calls? Did you exceed them? Did you fall short? Why or why not? And you get to reflect on the year that just passed. And then you plan for what you are expecting to happen and what you want to happen in the year ahead. What do we want 2023 to look like? So instead of looking backwards at the end of the year, oh I didn’t make as much as I wish that I had made. You’re looking before the year even starts and making some very educated projections to say here’s where I think I’m going to be. Here’s where I want to be. This is okay, this is not okay. And if it’s not okay, here’s what I can do to change it. Before I even open my door for business on the first day of the year. And so when you have this goal set proactively, then, as each week each month gets passes and gets calculated in you get to see if you’re on track or not. So it’s a chance to be proactive for the upcoming year. What are your goals not only for profitability, but really what do you want to get out of your business for the year? 

When we talk about budgeting, you hear the terms top down forecasting bottom up forecasting and my way of going through this actually incorporates both. So let me share with you how I think this through and hopefully this can help in some of your practices. So we’re gonna start at the top the top number being collections, some call it row, some call it income, some call it collections, whatever, your accountant, your bookkeeper is calling it it’s the one that reflects how much money comes into the practice from your patients from insurance companies. And from anything else that’s coming into the practice rebates if you categorise those separately, stuff like that. So it’s how much are we going to collect? And you’ve got your number now for 2022. So you use that to think about how much do I want this number to be for 2023 and a lot of people pick up percent. I want it to be 10% Higher 10% growth. That’s good, right? But there’s got to be some thought that goes behind that number. Where is it coming from? So if you have an office that’s fairly new, maybe it’s your schedule is 70 or 75% full and you think, yeah, I could see 10% More patients. I’m going to increase 10%. Okay, that’s reasonable. If your office is already at capacity, you can’t just assume that you’re going to see 10% more patients. If you set a growth goal for 10% and I’m picking 10. It can mean 20 can be 50 it can be zero, but if you set a growth goal and you don’t have room to add any more patients, then what are you going to do to achieve that level of growth? Are you going to adjust your schedule to be more efficient to allow you to see more patients? Are you going to bring in an associate? Are you going to do none of those things and increase your fees? Or work to increase your revenue per exam by 10%? So you can see the same number of people and collect 10% More money are you adding in a brand new service that’s going to be a source of revenue that you’ve never had before? And as you start to think about those things, these ultimately can become goals that you’re going to have for your office that you’re going to share with staff down the line. Because for your team, it’s hard to get them excited. About large financial goals. If you ever practice and you’re bringing in $200,000 a month and you want to increase that 20% You know to tell an employee who’s making $20 an hour. Our goal this month is to bring in $240,000 doesn’t always translate. If you’re sharing numbers, you’re doing open book management, they understand the expenses you can get away with that and it can be really healthy, but in a lot of offices where you’re not doing that. They can’t get behind a big financial goal because it doesn’t really have much meaning to them. It’s also hard for them to get behind the goal of percentages. We want to increase by 12%. And if we increase by 12% you get, percentages are really abstract, especially the way money comes into our practices. It’s not like we’re collecting everything that we need to collect on day one.

There are a lot of cases where we see a patient insurance has to get billed stuff has to get done. contacts have to be ordered. We’re collecting money, sometimes days, weeks or even months after the fact and that money that we’re collecting after the fact comes in sometimes in big clumps. So it’s not like you’re getting an even amount each day. It’s you know, you’re here, you’re here and all of a sudden you get a large VSP check and there’s more money coming in. So it’s hard for them to get behind something that feels abstract. But if your goal is to increase the number of patients you see by 10% and you know that you saw 350 patients per month last year, so now we want to do 385 That’s a number that they can count. Okay, today we did 31 Okay, now tomorrow we did 20 More, we’re at 51 and you’re just tracking it throughout the month. So how you’re gonna get to these numbers is important to have a plan for so that you’ve got a metric to share with your team. So that they can know and you can know are they achieving the goal or not. Doing something like that is called a Lead Measure. 

Lead Measures are differentiated from lag measures. Lag measures are things that you look at after the fact to see how you did. So the example that always makes the most sense to me, of course, is with weight loss. A lag measure is the actual weight loss. At the end of the week you step on the scale, you look down you see, did you lose pounds or not? By the time you’re getting that measurement, all the action that could have affected that measurement has already been taken. It’s already done. My husband said yesterday though the horse has left the barn. So by the time you have that it’s a measurement, but it doesn’t change behaviour. So in a lot of weight loss programmes, what they have you looking at is our lead measures, the things that if you do these things, you will get the lag measure, you’ll get the weight loss that you want. If you’re reducing the number of calories you’re eating, if you’re increasing the amount of exercise you’re doing if you’re increasing the amount of water you’re drinking, so goals, especially for your team are really effective when they are lead measures. Because you know, that if they achieve the goal of increasing the number of patients or if they achieve the goal of increasing capture rate or increasing the number of IPLs or myopia treatment patients in a given month, it’s a pretty good chance that then the lag measure the increased revenue coming into the practice is going to be there. 

So still on the top line, we’re thinking about what we want to collect and not only what we want to collect, but assuming what we want to collect is more than we collected last year. What is the plan to get there? What are the lead measures that you’re going to need to work on and track to make sure that you’re going to have the outcome at the end of the month, and then at the end of the year that you want. Once you have your top line number, you can use that to create a budget or a plan for what your expenses are going to be throughout the year. So this is top down. We’ve got our top line number. And now you’re just going to work your way down categories in the P&L. So the biggest category people tend to have is cost of goods, one of the biggest categories and if last year the year before the year before that you’ve spent 25% of your income on cost of goods, unless you’re changing something. It’s probably a decent assumption that you can hit that number again, you got to be careful, especially this year, all the companies have raised their cost of product you’ve got to be keeping on top of adjusting your pricing to match. But as long as you’re doing that and you haven’t made it many major changes. If you collect more money, still probably about the same percentage of that more money is going to go to cost of goods. If your cost of goods seems out of whack for some reason. Maybe you have a frame buyer who’s been buying unsupervised and it’s been going a little bit crazy. Maybe you’re changing to a different vendor distributor, lens lab, whatever and you have a plan to reduce that number. Then we enter that into the plan. 

So we know we’re going to collect and now we know what we’re going to spend on the materials that we’re essentially reselling to patients. And you keep going right through the categories, your occupancy costs. Maybe you had a rent increase, maybe you didn’t, maybe, whatever those are, though, that should be fairly predictable, based on the years that have passed. So you know what that’s going to be, unless maybe you’re planning changes in the practice. Maybe you just move to a new location, more square footage, higher rent expense, it’s going to cost more to be there this year. So you think about each one what you’re putting in your marketing or advertising. Are you going to continue at status quo or thinking about your top line? Are you counting on a big influx of new patients? Are you counting on patients coming in to support a particular specialty or area of the practice? Do we need to put more money into the budget to spend on additional marketing to get all those new patients that you’re planning on? And if that’s the case, you look at what you spent last year and you think about, well, maybe I want to increase my Google Ads budget whatever it is to spend more this year, your equipment, are you planning new equipment, are you planning to pay for something out right, versus financing it? Technology, are you switching to the new EHR using a new programme that’s going to have a monthly fee. Even your general expenses which covers a whole lot. It’s important to just account for things costing more in 2023 than they did in 2022 than they did in 2021. Everything from your office supplies your copy paper the plates and cups for your break room, meals for staff lunches, any travel costs that are done through the business. Are there plans to do something bigger Is this the year you’re taking your whole staff to Vision Expo West or to a major conference? Any professional services are your existing accountants lawyers planning to charge higher fees? Are you listening to this podcast thinking, You know next year I really shouldn’t be adding a bookkeeper or should be adding a consultant? Are there new charges that you haven’t had before? 

And so in all of these categories, you’re just making your best thought through projection on what the expense is going to be using last year’s number as a guide and the big category that I haven’t talked about yet is staffing. Most practices are in a situation where they’re paying staff more sometimes considerably more than they were a year ago or two years ago. And it’s important to think about upcoming changes that you’re expecting and staff, again to go along with that top line number. So let’s say it’s in the plan to hire an associate. When you’re looking at the collections, you think wow, that associate is going to let us increase our patient volume by 40%. We’re booked out 12 weeks. So as soon as we open that schedule, I think we’re going to just increase 40% right away. rate that goes in the top line. The salary for that associate goes in the expenses because you can’t account for the benefit without accounting for the cost. So you worked your way down. And now you’ve got what you collected. You subtract out what your cost of goods is going to be subtract out your staffing expenses, your occupancy expenses, your marketing expenses, all the expenses come out and you’re left with a number at the bottom, which in most accounting systems is called your net. So predict your income you predict your expenses and you see what’s left. And that’s kind of how top down forecasting works. When I said I usually do both, the next step that I recommend is you look at that number of what’s left. And you have to decide, are you happy with that number? And maybe as the owner, you’ve got some salary in the business so you’re getting your salary and that was counted as an expense and now it’s your salary plus this number. Is that enough? Maybe you’re just taking distributions and so this number is what your distributions are going to come out of. Either way, the thing to remember though, is that whatever that number is, you don’t get to keep all of it. Because out of that number, you’re gonna have to pay taxes, self-employment taxes on the profitability of your business if you’re an LLC. If you have any debt in the business, if you’re still paying off your loan from starting the practice or buying the practice or if you’ve financed equipment that has monthly payments over the last couple of years, those payments come out of that number. So you’ve got this net number. When you mentally subtract out all the other things that are going to come out of that you end up with cash flow kind of what’s going to be left for you. And you get to decide, okay, is that enough? Is that what I want? And if it is, then you get to be done with this part anyway, you get to say, Okay, I did this I making $250,000 I’m happy with that. You know, I’m good to go with this. Or you look and you say well, I do all this and it comes out to 110,000 and I’m that’s not enough I’m not okay with that. Or 250,000 And I’m not okay with that. I want it to be more. 

And so now we go bottom up, where you say okay, this is at 200,000 I want it to be at 300,000. So, if I want that to be 300,000 Where can I either increase the income? How do I change that plan, or decrease expenses so that ultimately, you’re gonna get the number that you want on that bottom line. So top down, you don’t love the number at the end. Then we’re gonna go bottom up to figure out how we can get this to a number that you can love. So once you have that, this is really your financial plan for the year. You can use it as a plan, a guideline, a budget to make sure each month as each unit of time goes by, that you’re going to meet the goal that you set particularly the goal for the bottom line number because like we said before, that’s the one that counts. So to do that, the simplest way to do it is, you take these charts, spreadsheets, whatever you have it on, and this is a yearly projection. And so just to make it really simple, you can take that as a monthly projection and divide the yearly numbers by 12. And it won’t exactly work out that way. But it gives you an idea of where you should be after month one where you should be after month two where you should be after quarter one to know are we getting there? Are we getting even better than there are we not getting there? And here we need to change something. So if you’ve taken your desired yearly income, now you can divide that into monthly income for your own purposes, for staff purposes. You can even divide that even further. You say we’re looking for easy math $240,000 in monthly income, or 120,000 monthly income, whatever size of your practice is. And we’re going to be open 20 days this month. So you take the number you divide by 20 and that’s what you need to be making each day to know that you’re on track to hit your numbers. Again, the income varies. So you know insurance check day, you might have a great day. And then you might have another day where you don’t make as much but after each subsequent day you know what 120 to 220 plus 320. So that number is and so you can track where you are compared to where you should be on the income side. If you have people who are responsible for spending money in your office most commonly it’s the Optical staff or sometimes it’s a Manager Administrator who’s doing staff scheduling an ordering of supplies. You can use this number to give those people a budget for the things that they have choice in the matter of how much to spend. A lens budget is a little bit tough, because you need to order lenses for your patients who order glasses. So it’s hard to set a budget and say okay, you’re already at your budget and they’re like, oh, it’s the 24th of the month and what about the patients who still need to order glasses. So some of this stuff you can’t control? But the things that you can control are things like frame inventory. If that buyer knows that they have a $6,000 monthly inventory number, then they’re tracking as they meet with reps as they call in orders if they’re doing any individual frame orders, how are those expenses adding up? And you’re reviewing that with them at the end of the month? So that they can see their performance against their monthly budget? Because another thing that I see is that sometimes people will get to the point where they go through this exercise. They set up their monthly budget numbers. They’re happy with it, and then they never look at it again. So it’s kind of like the mission statement that sits in the drawer. This doesn’t have a tonne of value unless you use it. So at the end of January, you say “hey, frame buyer, your monthly budget was $7,000. You spent $11,000 on frames. What happened?” And they say “Oh, my gosh, I totally had to because December was so busy. We had no inventory, the boards were empty, blah, blah, blah” . Okay. Just keep in mind that for you for the practice to meet its goals, we need this number to average 7000 a month. So now that we’re fully stocked let’s get that under control for February. If they spend 11,000 in January and 3000 in February, they’re right back on track the 7000 is that monthly number. Same thing for staffing. If your scheduler knows their budget in terms of how many staff hours they can schedule. This is where we look at that to watch for things like over time. How does this vary in the beginning of the year when staff members have lots of PTO and sick time available compared to the end of the year? Are there any areas where we can cut costs in there by adjusting a part-time or schedule by really analyzing doing need to replace the staff member who just left and as the month ends and you compare? It lets you look to see where you are where you’re ahead where you’re behind, and it allows you to course correct in the moment before months and months and months go by of income or spending behaviors that are not going to allow you to reach your end of month goal. 

That’s how it’s done. So if you have any questions, if you’re looking for more information on how to do this, if you’re looking for guidance for somebody to help you figure out how to do this in your own practice, please reach out to us through our website powerpractice.com  or you can connect with me on LinkedIn or via email drfishbein@powerpractice.com . I’m wishing everybody a happy, healthy, and profitable 2023. Thank you for listening!