When I began my private practice, it was not difficult to keep track of the financial picture. Tracking numbers was kind of a game. The business had one checking account. We either had enough money in it or it didn’t. Whatever was left over was used for the bills at home. Simple . . . except of course, when there was not enough money. Then the juggling began.
As my practice got larger, other methods for keeping track of things became important. No longer did my wife balance the checkbook and pay the work and home bills. I had an office manager who did the work deposits, wrote the checks, and used Quickbooks to keep track of finances. This change required that we determine what was important to keep track of. We needed numerical feedback to track how we were doing and determine if corrections were needed.
Over time I settled into a rhythm around the daily, weekly, monthly, and annual things I kept track of. At first I wasn’t sure which numbers would be the most helpful. I probably tracked too many things. Eventually I settled on the few listed below. And interestingly, over time I began to notice regular patterns in the numbers, how they flowed through a monthly and annual cycle. I began to hear the language of the numbers telling me when things were good and when something was off-kilter.
What I track
The following set of numbers told me what I need to know. I tracked these regularly:
- Daily: I would log into our bank’s online checking and savings accounts. This told me how the cash flow was going.
- Weekly: Friday morning I look at the checking account to see the latest Blue Cross Blue Shield (BCBS) insurance deposit. Why? They are our largest payer. And all the other payers seemed to follow a similar pattern. If a BCBS deposit was a big one, then we were going to have a good week on income.
- Monthly: I update a spreadsheet to track monthly totals for each office and overall totals on a set of variables. I track the monthly number of intakes, sessions, and income. From these I calculate a statistic called “$/Session”, i.e. “monthly income” divided by “number of sessions.” This statistic fluctuates a lot from month to month. It is most useful when looking at a full year’s worth of data. It is a measure of the average amount of money collected for each session.
- Annually: I look at the corporate tax return, profit and loss statement, and balance sheet. I compare these to the previous year. Then I input these annual numbers into spreadsheets to look at the larger trends that might go unnoticed in month-to-month summaries. Lovely graphs can also help in seeing more subtle things.
Regularly tracking these numbers gave me a pretty good handle on what was happening at any given moment. And in my case, we had three office locations, which gave me the opportunity to make comparisons between the offices on various numbers. This too aided in what I could learn from the numbers.
For example, if our intakes were down, I knew that one of two things was going on.
- Either our existing staffs’ schedules were so full as to not be able to get new clients in or
- We were not doing enough marketing to generate those needed intakes.
If the former, we needed to hire a therapist to ease the load. If it was the marketing, we needed to redouble our efforts.
In our profession, intakes are the first marker of what the future will look like. The number of sessions and income should follow along in an orderly way. If that is not the case, then perhaps we are not doing something correctly. For example, maybe we are falling behind on our collections, either from insurance companies or from our clients. We can find out by checking our accounts receivable report, sometimes called aged balances, which shows, in thirty-day increments, the money that is billed but not yet collected.
In some cases we do not know at first what is causing the issues, but noticing that a pattern is off gets our attention and then we can begin to dig out the meaning.
Other tracking tools
When something in the numbers did not quite follow the patterns as expected, then my Director of Administrative Services and I would start to hypothesize about possible explanations. We might dig into reports generated by our practice management software or in Quickbooks, where all the financial numbers would ultimately end up.
It was this blending of the regular monitoring of the numbers and then the ability to drill down into those numbers that showed us how to diagnose many issues. The reports would eventually confirm or challenge our hypotheses. Having both monitoring and drill-down capabilities became the foundation of how we managed the finances for our larger organization.