Profit Makers & Takers - Part 2

Profit provides six critical benefits.


1. It provides a return-on-investment for the owner’s capital investment in the practice and reward for the assumption of related financial risk.
2. It provides financial stability necessary to assure employment security for employees.
3. It provides investment capital to improve and expand services for the benefit of communities served.
4. It establishes practice value when the practice is sold.
5. It provides discretionary resources that can be used for philanthropic purposes.
6. Profit provides discretionary resources to influence issues of importance.


There are three wealth building financial rewards that should be on the mind of every practice owner. The first is personal wage compensation – reward for daily contribution of time and expertise to the practice. The second is profit – reward for the investment of capital in the practice and the assumption of risk. The third is asset appreciation (resulting from sustainable practice growth, profitability, and market demand) – reward for long term investment and effective management. Profitability is the underpinning for each of these rewards. Owners and managers should be concerned with all three.


Many practices (old and new) fail to optimize profitability for the simple reason that they fail to budget for profit. Too often practices begin with expense commitments (e.g. space, equipment, and staff) then hope referrals will materialize along with adequate cash flow to make ends meet.


A more disciplined business approach begins with the intent of securing a defined level of profitability and a conservative estimate of referral volume / cash flow, then assumes and structures expense obligations such that the intended profit can be reasonably achieved with prudent and attentive management - not dumb luck, heroic efforts, or lame excuses.


Profit is both a leading and a lagging phenomenon. It is leading in that one should begin with well defined profit intentions. It is lagging in that profit intentions can only be achieved after a chain reaction of planning, decisions, and operations have been effectively executed and managed.


Without profit commitments it is unlikely that optimal business decisions will be made or even considered.


There is very limited appreciation for the wide variation in profitability that exists in practices. Our performance benchmarking of hundreds of practices shows profitability ranging from -43% to +45%. This wide variation is a reflection of management’s intentions, commitments, decisions, and execution.


The bottom line quite literally is that practices across the country significantly under perform to the tune of billions of dollars annually – rewards and influence that is lost forever!


More next post...


All The Best!



Bob



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Performance Builders