Could you be responsible for the death of your Practice? Four key areas to watch!

What keeps Practice Owners and Managers up at night – 4 key areas to watch!

If you are too busy to read this, you are missing out on an opportunity to learn how to work more efficiently and effectively in a way that is both sustainable and profitable. This news alert is all about setting the right priorities, so that you have more free time to work on what you love to do every day.

You may be asking, what benefit does high performance practice governance training have for me or my Practice? Your practice is your biggest investment in life. However, your Practice may be the most neglected problem you have, perhaps due to ego, ignorance or apathy.  For some, the recent budget cuts and a jumpy workforce in a do-more-for-less world has led to a head-in-the-sand mentality. However, others have taken a more proactive and less defensive approach, where everything is in context and the Practice is well placed to counter any challenges. Which Practice do you want to be?

How do you run a successful Practice? For legal reasons delegating this to a practice manager is not enough. They did not teach you how to run a Practice in medical/dental or allied health school. Would you perform a procedure on a patient if you had not attended medical or an allied school to gain the experience, training and knowledge required?

The first step to running a strong and successful practice is to ask the right questions so you get the right answers. The right answer to a wrong question means you still have not solved the problem. You need to treat the problem and not the symptom to solve it, but this is difficult if you can not define the problem in the first place. It is important to know the right questions to ask. Using the oft-quoted saying of Donald Rumsfeld, in your position as a business Owner or Practice Manger, you are only positioned to do anything about the known knowns and known unknowns, but not the unknown unknowns.

Unknowns

For example, the Medicare Freeze is one of the known knowns, but did you know that on average GPs will lose up to $30,000 p.a. as a result of this policy? For further detail about the impact of the Freeze, see Seven fast facts about the indexation freeze and What keeps doctors and practice managers up at night. For many Practices, the Freeze has and will make a huge impact, but how much will it specifically affect your practice? What do you need to know to overcome it? Firstly, there are the simple three legged stool solutions:

  1. Increase prices, which means raising the quality perception and experience of your service or product as a valuable service when compared against your competitors;
  2. Cut costs, which means becoming more efficient without reducing quality; or
  3. Increase volume, which means get more patients into your waiting room.

The next key step is to understand the priority that each issue currently facing your practice deserves, and detailing practical solutions to these challenges.

The final step is to ensure that the appropriate systems are working, that all staff are aware of the changes and that any solutions are appropriately monitored and reviewed for performance.

To run a successful Practice, there are four key areas any Owner, CEO or Practice Manager must consider and monitor:

balancedscorecard

1.Financial – are you financially sustainable?

Financial literacy

Have you ever looked at benchmark results for the healthcare industry and wondered, how did they do that?

For example, how can practices achieve a net profit result of 30%?

Our most recent Good Bad Ugly National benchmark report highlighted that the top 25% of general medical Practices have the following performance indicators. How does your practice rate?

  1. Net profit % (BPS) – 30%. This pays for a family home, a holiday and/or a loved one’s education!
  2. Revenue per full time equivalent doctor – $380,000
  3. No shows  – nil per month
  4. Salaries as % revenue – 32%
  5. Productivity – all FTE – 4 patients per hour
  6. Average fee per patient – $90
  7. Percentage of bulkbilling – 34%
  8. Debtor days – 10
  9. Overhead per FTE – $140,000 p.a. in a high growth practice
  10. Optimum Leverage structure – 3 Owners to 9 non-Owner doctors in a single location

It is not uncommon to find that Practice Managers and/or their Owners are not financially literate. In some cases they do not even care. It is as though no news is good news, resulting in abdication of responsibility to their Accountant. Unfortunately, this is not good enough if you are concerned about your financial security. Often, such a situation is the first sign that a Practice may not be operating efficiently or effectively.

On a more serious note, many Practice Managers and even Owners are not aware that they can be personally liable and that it is illegal to operate a business that cannot meet its debts as and when they fall due. This is called insolvent trading. For example, by now each Practice should have assessed the serious impact of the Medicare Freeze on their bottom line. See: Seven fast facts about the indexation freeze.

For any Practice, the number one priority (like it or not!) is making a profit so that you can make sure that you can pay your bills on time. There is no point in providing high quality comprehensive care where the patient benefits but your Practice dies. In the end, the lack of a sustainable business model will not benefit patients as it will result in the death of the Practice.

Broken railway line

Do you have a problem? Thankfully, this is simple to work out. Ask yourself or your Practice Manager what your business model is. Ask them what your key performance indicators “KPI’s” are. Ask them what your profit margin is on your products and services, and if you are meeting them without compromising quality.

We routinely see that one of the most common problems that Practices have is that they do not have a simple way of understanding their financial statements, and how their necessary but complex legal and tax structures interrelate.

Your Accountants or Advisers need to assist in explaining how to interpret your numbers and what to do next. Many Practices are not financially literate, and therefore cannot operate efficiently even if they desired. Understanding your Practice financial statements and structure is a mandatory requirement for a Practice Owner or Practice Manager. It is hard to get the rest right without first learning the basics of your business. We have simplified this for our clients. See “free quarterly business coaching” below.

2. Customer – who really are your customers i.e. the people that pay you?

Who is your customer

Who are your customers? Most will say the patient. This is partly true. For a Practice, the truth is that the doctors/providers that provide a management fee to the Practice are the key customers. These Providers pay the bills of the Practice. Ask yourself, are they happy? What could you do as a Practice to ensure they are not a flight risk? Have you considered a lower fee for performance, such as a 5% discount to their service fee for all income billed greater than $300,000 p.a. Is this a possibility for your practice? Are there regular empty appointment slots, no shows or consulting rooms?

In addition to keeping Providers happy, many practices also want to attract more fee paying patients  in order to balance the books. Reducing bulk billing is a key strategy to combat the Medicare Freeze. There are many cost effective strategies that you can implement to increase your numbers. See https://www.medicalwebsitesolutions.com.au/how-could-you-increase-your-patient-numbers-by-12-to-36/.

It is important to target who your customers are and assess what they need and want. To find out the latest on what patients think, see the latest research on how patients choose a practice: http://thebusinessofhealthcare.com.au/2015/06/22/what-made-good-doctors-cry-and-how-to-find-a-good-gppractice/ :

For what Providers and your Staff want, clients can use our free templates to survey your practice staff, see https://www.healthandlife.com.au/what-we-do/services-peace-of-mind-solutions/quality-assurance-and-systems/cast-your-vote-practice-surveys/health-and-life-surveys/  .

3. Process – What systems exist that protect your reputation?

Policy_Manual

Often the cheapest way to increase profits is to improve systems. A big tip is to keep your practice manual up to date. Monitor what recurring problems that the staff report. Prioritise the significant ones and implement them now! Examples include on line appointments and automatic SMS patient follow ups from medical records. On the positive side, look at ways to increase patient awareness of your services like using waiting room TV services such as our alliance partners Tonic Health Media  see https://www.tonicmedianetwork.com.au/adnews-trust-in-healthcare/

4. Learning and Growth – How does your team learn from errors and opportunities?

I got it

Most importantly your people and positive engagement is critical to any positive outcome. Remaining open and transparent is the key. When we do not understand why we are or are not doing something, this can result in miscommunication, unnecessary fear and mistrust. When you are open and transparent, this empowers and inspires your staff to do the right thing the right way the first time around. The Practice culture should be to work better every day.

Where to from here?

Now for some of you, this exercise may seem like quite a complex and time consuming process. We have been successfully running trials with practices and the results have been remarkable for them. We have codified into a one page Balanced Scorecard report the common key areas that a practice must continuously monitor. Furthermore, we find that within 2 to 4 hours we can train your management team to execute this program.

Balanced Score card Zoom Example

Contact us for more information and a customisable template if you are a client of Health and Life. We have done all the heavy lifting for you. This should ensure it is a quick process to customise this template when you use our Governance and KPI Setting program. For our accounting clients only, we provide free quarterly business coaching with your management team to give feedback on how you are going and what you need to do next to grow your sustainable business.

In these sessions, we will reviewing each of the above KPIs and identify what high performing firms are doing to achieve great results. With each KPI, you will be given a step by step process to improve the profitability of your Practice.

We’ll also chat about the OUTLIERS – those firms that are at the upper end of the top group of the practices. We will give you insight on strategies that these firms implement to achieve exceptional results, including a net profit margin of up to 30%. Finally, we’ll discuss how to actually implement and monitor the changes, rather than simply talking about it.

Where to from here: – managing your practice just got easier!

  1. Obtain confidential second opinion immediately and at no obligation or cost.Advice and support

We say it is important to ask the right questions rather than getting the right answers. To help you understand your unknown unknowns contact us at 1800 077 222 or email at pa@healthandlife.com.au Health and Life – national Health Practice, Tax and Accounting Advisers since 1992. Alternatively visit our website at https://www.healthandlife.com.au.

We can review your strategy, financial statements and all your arrangements and provide written advice to you for your legal advisers to answer. We are registered tax agents and can do your annual tax and accounting work as well as provide sound advice. Please note we are not lawyers so you must seek independent legal advice on any of the above issues.

It is important to do this now, because it is more expensive to restructure or fix up your practice in the new financial year commencing 1st July see our Why Restructure now article or see https://www.healthandlife.com.au/why-restructure/. Please consult us or your legal or professional adviser before acting on any information.

  1. Join our discussion on Linked In

Join us on Linked In for real time updates see https://www.linkedin.com/groups?mostRecent=&gid=5135205&trk=my_groups-tile-flipgrp for further updates or keep watching this space.

Succession Planning – Will Practice Manager co-ownership save healthcare practices?!

Practice owners are increasingly interested in what we call succession planning paralysis. There are three important things to consider. What is succession planning, how do you find a purchaser and what is your Practice worth?

The perception that there is a continuing workforce challenge, increasing complexity, declining fee growth rates and profit margins has resulted in an impact on practice management and ownership succession. As a result, succession planning has moved from being a strategic concern, to a high “must do now” operational concern. Owners need to be open to receiving independent, objective advice to plan for the future and achieve their goals.

The number one concern for owners identified that there is a lack of interest in practice ownership see https://www.healthandlife.com.au/wp-content/uploads/2015/09/Only-One-in-Four-GPs-Own-a-Practice.pdf

This represents an opportunity for smart Practices. Alternative co-ownership models should be considered. How would this work? The title of Practice Manager and Ownership does not automatically guarantee success. Alignment, control and finance should be carefully considered. Do your potential non-clinical Owners have the right skill set and track record that would add value and continuity to the practice without conflict? Can current management be upskilled to deal with any deficit? Most importantly, non-clinical Ownership should not be used as an opportunity to get out of paying a regular wage to your Practice Manager, or getting out the paperwork!

Having a Practice succession plan, up-to-date succession agreements and set key performance indicators are key to being prepared. We have a Directors Pathway program for our clients to simplify this goal for you see https://www.healthandlife.com.au/what-we-do/services-peace-of-mind-solutions/practice-tips/directors-pathway-program/. The point is to do it properly. There are no short cuts. It is like getting married – divorce is very expensive so setting the right expectations upfront is critical.

What is succession planning?

successionPlanning

Succession is about moving a person or people out of the business over time in an orderly manner. A practice could have between one to 10 owners, all from different expectations and age groups. How long they remain Owners will be a function of their personal wealth, planning and internal succession plans. This raises strategic questions regarding when Owners will retire, and who will take on Owner status in the future.

The ultimate objective of owning a practice is to sell it when you are ready. Why? For Owners, this is their 9.5% employer super that they do not get during their life time of self employment. However, many challenges arise during this process, from fair profit sharing to control issues.

Finding a purchaser

Structured correctly, there are purchasers out there. The most obvious ones missed are the people who are currently in your practice. They are usually the long serving employees or providers. They already feel some sense of ownership and pride in the Practice. Just simply asking correctly and in a respectful manner is the easiest low hanging fruit opportunity.

finding a buyer

A common mistake is to assume they are not interested or that they do not have the financial resources. This is a myth. It is how you ask, and asking in a method that keeps the spouse, bank and their accountant happy that is critical. All offers need to make commercial sense, as well as appeal to the purchaser’s interests in owning and running a practice. People do not know what they do not know, so the role of the vendor is to educate the potential purchaser. Our clients, with our endorsement, can state that their practice is succession planning, tax, asset protection and commercial opportunity friendly. They offer pre-tax returns of up to 30% p.a., which is better than most investments. Importantly, it is an investment that you have a say in, unlike shares. This should be your 30 second elevator pitch. It demonstrates your understanding of how to own and run a practice and that you would like to share this opportunity with them because you respect them. Another important tip is not to offer an interest in your Practice to just anybody. Ensure they are like-minded before engaging advisers, as it can get expensive if you find out the person is the wrong fit in the first place. A final important aspect is not to be desperate to sell. This is a 3 to 5 year process in which timing is everything.

If you are not aware of the positive aspects of your Practice, then do not be surprised if you end up talking the value of your Practice down. In addition, if you keep talking about Practice Ownership being a dog of an idea, then you are essentially inviting them into joining the Titanic. Unfortunately, a lack of awareness of the advantages of Practice Ownership may be causing this unnecessary lack of ownership crisis. There is no shortage of providers wanting to work with Practices that have excellent business and clinical systems with a clear vision for the future for both their patients and staff. Furthermore, unless a provider is not happy with the Practice they are usually long term players. To help ensure your providers are happy it is important to have a clear and transparent reward and recognition program. This also includes mentoring them to ownership. It is a process, and not an event, that should be started now if you are planning to sell down or out in the next 5 years. Ideally, all of your key providers should be given an opportunity to own part of the family home and not just simply rent it for a percentage of their gross fee. This builds loyalty and commitment and eliminates an uncertain future.

What is my practice worth?

It is not unusual for a client to sell a 10% interest in a practice sale for, on average, between $250,000 to $300,000. This usually offers a pre-tax 30% return on investment. If not, there is no logical reason to keep investing in your Practice, particularly if you are planning to wind down or retire in the next 2 to 3 years.

A practice value will be higher if strong documentation can be demonstrated.  This is a must. See our article: Could you be responsible for the death of your Practice? Four key areas to watch!

Risk v reward - Nette crop the bottom part so only the picture

Selling a practice is like selling a house off the plan. The more documented it is, the higher it will be valued. You would not buy a home off the plan with no plan! So why should a reasonable person buy a practice in the same way? The perceived uncertainty is just too risky.

Your financial statements prepared by your accountant are a start, which will give potential Owners an idea of how well you have done in the past. However, in the end people are buying into your future (earnings) and not the past. A simple one page 3-5 year strategic plan with an annual plan and budgets to match (see 7 key steps https://www.healthandlife.com.au/what-we-do/services-peace-of-mind-solutions/practice-tips/directors-pathway-program/) helps to connect all the dots and build instant trust. It demonstrates strong oversight as well as competence, confidence and a clear direction for the future.

A lack of documentation and clear, strategic oversight is the number one reason Practices can struggle to find future Owners. It is not good enough to have the plan in your head as people cannot read your mind. Putting it in writing eliminates confusion and enhances communication, resulting in increased confidence in your legacy, rather than your liability.

Where to from here: Life just got a little easier!

  1. Obtain confidential second opinion immediately and at no obligation or cost.Advice and support

We say it is important to ask the right questions rather than getting the right answers. To help you understand the right questions to ask contact us at 1800 077 222 or email at pa@healthandlife.com.au Health and Life – National Health Practice, Tax and Accounting Advisers since 1992. Alternatively, visit our website at https://www.healthandlife.com.au.

We can review your strategy, financial statements and all your arrangements and provide written advice to you for your legal advisers to answer. We are registered tax agents and can do your annual tax and accounting work as well as provide sound advice. Please note we are not lawyers so you must seek independent legal advice on any of the above issues.

It is important to do this now, because it is more expensive to restructure or fix up your practice in the new financial year commencing 1st July see our Why Restructure now article or see https://www.healthandlife.com.au/why-restructure/. Please consult us or your legal or professional adviser before acting on any information.

  1. Join our discussion on Linked In

Join us on Linked In for real time updates see https://www.linkedin.com/groups?mostRecent=&gid=5135205&trk=my_groups-tile-flipgrp for further updates or keep watching this space.