Article Retreived from: Dental & Medical Financial Services Website Written By: Claire Date: February 10th, 2016
Essential for business growth
Key Performance Indicators (KPI’s) are important statistics that enable a business owner, at a glance, to assess the performance of their business. Here, Michael Lansdell, from Lansdell & Rose medical and dental specialist accountants provides the reasons why for any doctor or dentist aspiring to grow their business, regularly assessing the business KPI’s are a vital part of practice management.
The views expressed in this article are specifically those of Lansdell & Rose Accountants.
What’s all the fuss about KPI’s?
KPI’s can show trends month-on-month and year-on-year, highlighting the strengths and weaknesses of a business, as well as matching actual results with forecasts to ensure financial expectations are on target to being met.
KPI’s are also vital tools for everyday decision-making, plus longer term planning.
Understand your business goals first
KPI’s come in all shapes and sizes and each business is different when it comes to analysing their progress. Differing goals means what for one practice owner will be of high value, to another may be of less importance.
Determining your goals in advance is therefore helpful, if not in a formal business plan or financial forecast, at least have a rough idea of what you want your practice to achieve within a set timeframe, so that relevant KPI’s can be reported on.
Getting to the bottom of your data
Data is the key to being able to produce useful KPI’s. If the data isn’t accurate, or if it isn’t kept up to date, then the KPI’s will be of less worth.
Typically, business owners don’t have sufficient data to extract the information needed to produce a KPI report. This is due to poor systems that don’t have instant reporting, and where the recording of income and expenses is tedious, so the task gets put off to another day.
The other extreme is where practice owners have too much data available and calculate multiple KPI’s making it difficult to focus on the important few. Five to ten KPI’s should be sufficient to get a good picture of the practice performance
KPI’s for all business areas
KPI’s can be calculated for all areas of your business. There are excellent KPI’s to track the success of your sales and marketing process, tracing conversions between enquires and new patients, for example.
Similarly, there are KPI’s that focus on the effectiveness of your operational procedures and your team performance.
KPI’s to assess your financial position
For doctors and dentists these 7 simple KPI’s are a good start to getting a solid understanding of the practice’s financial position. Data can be obtained from a monthly Profit and Loss Account and Balance Sheet.
- Income – Year to Date (YTD) – Measures income from the start of the financial year to the date of the report, usually a month end.
- Income – year on year – Measures income from one month compared to the same month in the previous year, highlighting seasonal trends and showing year on year growth
- Income growth rate % – Measures the growth of income month-on-month, calculated as income in month / (divided by) income in previous month
- Income to Wages % – Calculated as wages / (divided by) income. This KPI shows the expense of running your team in return for their efforts in generating income.
- Gross Profit % (GP%)- Calculated as Gross Profit / (divided by) income, this KPI shows the % of income retained after paying costs that are directly related to generating that income.
- Net Profit % (NP%)- Calculated as Net Profit / (divided by) income, this KPI shows the % of income retained after paying all costs including wages, property expenses and all admin overheads.
- Liquidity ratio – Calculated as Assets / (divided by) Liabilities from the Balance Sheet and represents the ability of the business to pay off it’s Liabilities (credit, loans, suppliers) with it’s Assets (bank, cash and pending payments from patients)