Despite a reputation for being some of the best paid professions in Australia, there is no guarantee that medical and dental practices will make money. In fact, one survey showed that 20% of medical practices make losses.1 Having worked with many medical and dental practices, both general and specialist, here are 10 ways we think practice owners can improve their profitability.

Practice

  1. Do you have to do it?

    Leverage is the name of the game. The effective use of nurses and administration staff is a key area where practices should look to improve their profitability. This is also an area where there is a great deal of difference between practices. For general medical practices, we think clients should aim for one administrative staff (other than the practice manager) per 2 GPs and 1 nurse between 4 to 5 GPs.2 On average, non-GP staff cost is 23% of gross patients, but the top 20% manage to operate on just under 15%. For dental practices, the average is 30% (this includes dental assistants and hygienists) but some manage under 20%!

  2. Are they coming back?

    One of the biggest challenges for the doctors and dentists we work with is getting patients to come back. Many practices have invested time and money in setting up systems to remind patients to come back for a check-up. For us accountants, there’s Big Brother (the tax office) with a stick that “reminds” everyone when it’s tax season. Getting high reappointment rate at your practice, however, requires a lot more work than an automated reminder. The benefits are significant though. Analysis of dental practices show the biggest difference between practices that make $500k in patient fees and those than make $1m is reappointments for regular check-ups. And we all know it is a lot more expensive to get a new patient to pay you a visit than an existing one.

    The key to getting patients to come back is to have you, the practitioner, explain to your patient why it’s important to come back for a check-up. I know, I know, the pressure to move onto the next appointment can sometimes be immense. But hear me out. Your patients are there because they trust you with what they value the most, their own bodies. So you are by far the best placed person to explain to them the importance of regular check-ups. Only when you take the time to explain, will they perceive enough value in the regular check-up to warrant them to come back. So by all means investing in automated reminders, but also take time to explain to your patients the benefits of regular check-ups (e.g. overall health benefits, avoiding emergency appointments, early detection of issues, I’m sure you know them way better than I do).

  3. Would you like fries with that?

    This iconic phrase of McDonald’s has now become synonymous with up-selling. Whilst many of us may be reluctant, being able to up-sell is an essential skill for any business owner. There are many businesses that depend on the up-sell to make a buck. You know the ones I’m talking about: a free book that leads to an offer about another (a cheap book). You are then offered a (slightly more expensive) course, which leads to a seminar which up-sells to a $20k “mastermind” workshop.

    Applying a similar strategy for our dentist friends, you could offer say, a free tooth clean in your marketing. Remember the most expensive sale is the first sale. It is worth investing some time to get them in the door. Once they are in, you know what to do: depending on what they need, subtly offer them whitening, filling, cosmetics, crown etc. Work your way up the value chain for your practice. And don’t forget the previous point, make sure they come back and measure your reappointment rate.

  4. Beware of benchmarking!

    This might rile some of my fellow accountants up a little. If your accountant is worth their salt they would have sent you some industry benchmarks for your practice. And we are all for benchmarking (call us if you’d like to benchmark your practice against your peers). It is an easy way to access where you are compared to your peers. The idea is that you can get the most bang for buck for your efforts in the areas with large dollar impact and where you are most behind.

    Be warned, there is a trap with benchmarking: you need someone experienced with the numbers to figure out what the numbers are saying that you should do.

    Back to medical practices. To give an example, according to a recent survey, the industry average of gross patient fees for a GP is approximately $400k. The top 20% generated over $590k per annum. The same survey says 60% of those fees are bulk-billed. But the top 20% bulk bill 91% of the fees. On the surface, increasing bulk-billing percentage might seem like a valid strategy. However, there’s actually no definitive link between bulking billing and the profitability of the practice. As the saying goes, Sales is Vanity, Profit is Sanity and Cash is Reality. If it doesn’t turn into profit and cash in your pocket, all you are doing is stressing yourself out with increased activity. Don’t get me wrong, I’m not saying increasing your bulk-billing percentage is never a good idea. This will depend on a number of factors, not least the demographics of surrounding suburbs. What I’m saying is that it is worth bearing in mind that often practices that only or mostly bulk bill will have lower profit margins than private practices. As a result, there’s often a lot more pressure put on the doctors of bulk billing practices to have shorter appointments, something not necessarily the best for patient care. But it may be necessary for practice survival.

    A better metric to measure, in our opinion, is how well the consulting rooms are utilised. One study found the average consulting room usage is 49.3%. This means half the time the practice is open, nothing’s happening in those rooms! The best practices manage 75.1% on average.

    Beware of benchmarks and make sure your accountant understands the drivers of profitability in your practice.

Financials

  1. Focus on the North Star Metric

    If you’ve ever been to a business awards night, you’ll hear stories of astronomical growth and heroic tales of overcoming obstacles to conquer the world. If you ever read the financial press, you’ll read about the insane profits the big banks make. Amidst the glamour, glitz, shock and awe, rarely will you hear the rational (accountant) voice that everyone’s forgetting what matters the most – return on investment. It is not cheap to start and run a practice (something our dentist friends understand the most I suspect). How do you know if you’ve made enough money to compensate the time and effort as well as the risks you’ve taken? Our answer, measure, measure and always measure your return on investment. More specifically, measure Return on Capital Employed which is the most important measure of financial performance for any business. Not just for the business, the same principle applies to every marketing campaign and buying new practice equipment.

  2. How much does the alternative cost me?

    Running a business is about making decisions, big and small, day in and day out. One of the questions asked when making decisions is: how much is it going to cost me? What is often not asked, though, is: what does the alternative cost? It is worth comparing the costs and benefits of alternatives.

    For example, some practitioners prefer to hire casual staff rather than permanent staff. It is rare though, for the practitioner to how work out the costs of benefits of employing casual versus permanent staff. The comparison it not straight-forward. A permanent staff member is entitled to leave (annual, personal and long service) whilst a casual staff isn’t. But a casual staff member gets an uplift in pay (typically 25% under most of the relevant awards) to compensate for this. Whilst this depends on the practice and the roles filled by those staff, it is often the case that the practice may save money by replacing casual staff by permanent staff. This might come as a surprise to some and it is worth thinking about how you’ve structured staffing.

  3. I didn’t make any money so why do I need to pay tax? Watch the cash.

    When we present financial statements to clients, it is not unusual to see clients say that whilst they understand they’ve made a profit, it doesn’t feel like it and no one wants to pay tax when they don’t have the cash.

    Cash flow management is often an overlooked area in business. For our practice clients, we see this issue most often with our orthodontist clients, although it is an area that needs monitoring by all. DentiCare is great in getting patients over the line to getting treatment, but spreading receipt for patient fees over two to three years will put strain on your cash flow. It is therefore important to befriend your bank manager and your accountant (yes accountants need friends too) to:

    1. Monitor and forecast when you might need help with cash flow
    2. Warn your bank manager so they are not taken by surprise.

    Early detection and warning is crucial. After all, there is only one reason why businesses go broke – running out of cash.

Strategy

  1. Don’t forget your most valuable asset

    Being some of the best paid professions in Australia, the vast majority of medical/dental practices are profitable.You’re no doubt inundated with requests to invest your hard-earned money in all sorts of investments: bonds, TDs, shares, property, precious metals, Bitcoins etc. etc.

    You may or may not have thought about what your most valuable asset (other than your home) – your practice, is worth. Especially given the recent trend in consolidators buying practices, this is becoming something at the forefront of more practitioners’ mind.

    Practice valuation is not a simple exercise but it doesn’t have to cost an arm and a leg either. If you want to know how much your practice is worth, download our business valuation guide or come and talk to us. If you aren’t happy with the current value of your practice, a good place to start is to re-read this piece and start implementing some changes. By all means come and talk to us if you want help.

  2. Get advice

    Doctors and dentists are some of the busiest people. Pressure of back-to-back appointments often makes it difficult for you to take time out to seek advice from other professionals who can help you. In order to grow your wealth, getting the structuring of investments right can protect your assets as well as potentially saving you hundreds of thousands in tax. Working on your business is just as important as working in your business. So when your professional advisors want to meet for a meeting, say yes! A good professional will be accommodating of your schedule.

    Read the story of how we’ve helped an orthodontist throughout his entrepreneurial journey.

  3. What is your end game? Visions of the not-too-distant future.

    What does your life look like in 5, 10 or 20 years’ time? Where will you live? What will you do? What does family life look like? What does your social life look like? What will give your life meaning?

    “Begin with the end in mind”, says Stephen Covey in his brilliant book, ‘Seven habits of highly effective people‘. When you are in the midst of things, it’s easy to miss the forest for the trees. Be sure to take some time out to plan what your future will look like. You’ll find this will inform what you should be doing now and what changes you might want to make to get there.

MGI South Queensland have helped many medical and dental practices increase their profitability and manage their businesses more efficiently. If you would like to talk to one of our senior accounting team in Brisbane or on the Gold Coast about how we can help grow your medical or dental practice profitability, give us a call on 07 3002 4800 today or fill in your details below and one of the team will be in touch.

Footnotes:
1. As compared to if that practitioner was in a job rather than owning a business.
2. All full time equivalents.

Learn the secrets of entrepreneurs who have made a fortune building and selling businesses!

People don’t build and sell multi-million dollar businesses by accident! Just like you wouldn’t build a house without a plan, you can’t build a high value business on the fly or simply by chasing sale after sale.

Watch this webinar to learn how to exponentially build the value of your business and ensure that you reap your dream financial reward when you decide to call it a day.

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Business fraud statistics show that while 90% of Australian businesses were targeted by cyber fraud in 2017, as many as 72% of SMEs do not believe cyber fraud is a considerable risk to their business (MGI Fraud Review 2017). This is an alarming statistic which highlights how underprepared Australian small and medium businesses are to deal with a business fraud attack.

So why is there such a disparity?

Perhaps smaller businesses believe that they will fly under the radar of fraudsters who will be drawn to larger, more lucrative organisations.

But that’s not actually the case. Reserve Bank’s Cyber Security Chief Andrew Pade has said that fraudsters are now turning their attention to ‘easier prey’ at the smaller end of town.

Cyber fraud is of course not the only form of business fraud that you need to be on the lookout for. Illegal phoenixing of companies causes millions of dollars damage to the economy and small businesses who fall prey to operators attempting to avoid tax obligations.

Fraud currently costs Australian businesses hundreds of thousands of dollars each year, and this is just the instances that have been accounted for.

Fraud can occur in any organisation, no matter what size, industry or sector.

So what is your best form of protection against becoming one of the business fraud statistics?

We recommend every business undertakes a few vital steps:

1) Stay abreast of actual business fraud cases

The best way to know where the threat lies is to learn from other organisation’s misfortunes. Did you know that 36% of frauds in Australia last year were carried out by an organisation’s own management? Clearly having strong internal controls is critical in your bid to reduce the risk of undetected fraud occurring in your business.

MGI produces an annual fraud report which highlights recent cases of business fraud.

2) Audit your fraud risk and implement strategies to reduce the chance of undetected fraud

The good news is that there are a number of strategies to reduce the risk of fraud occurring and going undetected in your business. Some strategies include having the proper internal controls in place, ensuring segregation of duties and spot checks and strengthening IT security.

MGI’s  annual fraud report provides a number of recommended actions to prevent fraud from occurring in your workplace.

3) Have a disaster recovery plan

Particularly when it comes to cyber security you need to have a back-up plan to minimise the impact if you do end up the victim of a business fraud attack.

Some of Australia’s largest organisations are now facing fraud attacks as frequently as every four seconds (Sydney Morning Herald). While the threat to SMEs is not at this level, the threat is still very real.

MGI South Queensland’s audit and assurance team works with clients to help them stay abreast of current fraud threats and implement controls and safeguards to reduce the risk and impact of fraud. Avoid becoming one of the business fraud statistics and contact us now on 07 3002 4800 to start protecting your business today.

Poor performing products or services can be a serious detriment to your business, diverting valuable resources and finances from more successful ventures and pulling down the overall profitability of your entire business. So knowing when to pull the plug on a poor performing product or service is important.

Some signs which may indicate that a product is a dog and should be considered for divesting include:

Our recent article Product lines…how much profit is enough? provides more guidance of how to assess whether a product is a dog, cash cow, star or wild cat.

Once you have identified a product as a dog it’s time to take action…but what exactly does that look like? Here are three common strategies for divesting a product.

Option one: could you harvest your product?

If you have a product that has lower profitability and slowly declining market share, but is still generating a positive cash flow it could be appealing to look at harvesting the product rather than eliminating it completely. Harvesting involves gradually phasing out a product by taking action to reduce production costs or increase the unit price without increasing costs. The benefit of this strategy is that you get to enjoy the profits from the product line for longer but you are starting to divert resources and attention to more profitable business opportunities. Once the product you are harvesting starts to generate negative cash flows, you need to divest it completely.

Option two: can you simplify a product line?

Sometimes product lines become less profitable because they are too complicated. For example, a company may have a number of product variations which require limited production runs, additional inventory and a larger marketing budget. To combat this it may be possible to simplify the product line by reducing the number of variations with a view to “standardising” the product and thus reducing associated production costs. The challenge however is maintaining your market share with reduced product options.

Option three: total line divestment

If there isn’t an opportunity to harvest or simplify your product lines you have one further option left – total line divestment. This means completing getting rid of a product that is not performing well. This can have a large knock on affect for a business as it may result in staff changes, negative sales growth and the perception of failure. However at the end of the day it’s a hard decision that may need to be made to protect other more successful product lines in your business.

Total line divestment can also mean selling the part of your business that manufactures that particular product. If you are in a high growth market or if you have a profitable product, but that no longer aligns with your company vision or is facing future technical disruption/elimination, this may be an option to consider.

Knowing which divestment strategy is right for your business is dependent on having a sound understanding of the financial performance of your product portfolio and the market attractiveness. If you are not confident about this, the starting point is to undertake a detailed product portfolio analysis with an experienced accountant/business consultant.

Many business owners think you need to increase sales to make more money. But often this is the more difficult path. A minimal increase to your profit margin can have a much more profound effect. Watch our video How to improve your business profitability to explore why this is the case and what you should consider in improving the profitability of your business.

There are two types of accounting methods accrual and cash accounting. Which type your company uses can have a major impact on the total revenue and expenses that appear in your financial reports. So what are the benefits and drawbacks of cash vs accrual accounting?

Typically cash-basis accounting is used by smaller businesses who prioritise simplicity. Using cash-basis accounting a company records expenses and income as the cash is actually paid out and received.

There are some advantages to using cash-basis accounting such as:

The major disadvantage is that it doesn’t capture money owned to you or that you owe to others so it can be difficult to get an accurate picture of how the business is performing financially. Take a business we met recently which delivered training funded by various different governments and received lump payments on a few occasions a year. Using cash-basis accounting it was extremely difficult to track the health of their business because they either had ample cash or had been incurring expenses but were yet to receive payment.

Accrual accounting, whilst a little more complicated, is much better suited to businesses larger than microbusinesses or businesses who don’t get paid straight away.

Using accrual accounting you record expenses and sales when they take place as opposed to when cash is paid or received. For example using Accrual accounting our training business would apportion lump payments throughout the year depending on when the actual training was carried out. Now income and expenses are matched and the business has a true picture of their financial position.

A word of warning though, if you are using accrual accounting you need to keep an eye on your cash flow because any issues won’t necessarily appear in your financial statements.

How to introduce accrual accounting?

If you are already using an accountant or bookkeeper you simply need to ask them to start providing you with accrual accounting financial statements. Contact the team at MGI to make this happen.

One of the most common questions we get asked is “Am I making enough money” or to put it another way “How much profit should I be making”. This video shares a simple but powerful process to assess the financial performance of your business.

So what is the financial performance of your business? Financial performance is a general measure of a company’s financial health over a period of time and can be used as a benchmark to compare your firm with other similar firms in your industry as well as to compare different industries.  Three different financial reports are used to measure your financial performance and these include the balance sheet, the profit and loss statement and the cashflow statement.

Balance Sheet

I liken the balance sheet to a photograph – it’s a snapshot of your business and  typically measures your firm’s assets and liabilities and how well these are being managed.

Profit and Loss Statement

The profit and loss statement is more like a video as it tells a story over a longer period of time, typically one financial year.  It provides a summary of operations and measures sales against expenses with net income being the net result.

Cash Flow Statement

The cash flow statement is a combination of both the profit and loss statement and the balance sheet and provides the source and uses of cash flow from operations, investing and financing.

Measuring the right financial metrics is essential for your business because they can provide important insights into how well your business is doing in comparison to other business as well as allow you to make informed decisions to maximise your growth into the future. If you want to keep your business on track, you simply cannot ignore the process of developing financial metrics for monitoring your progress.

A Virtual CFO can help you assess the financial metrics that will be most important for you business. MGI’s CFO Advisory team are here to offer support to help grow your business’ profitability.

From 22 February 2018, all businesses bound by the Privacy Act 1988 (Cth) will be subject to new mandatory data breach assessment and notification obligations.

In summary, the scheme will require those businesses to:

What is a “data breach”?

It is important to be aware that data breach is not limited to malicious acts of hacking or ransomware – recent examples in Australia have included an inadvertent loss of medical records and a third party provider accidentally publishing client records to a public section of a business’s website. In fact, a data breach is any unauthorised access to or disclosure of personal information, or any loss of personal information.

Under the new scheme, an ‘eligible data breach’ will arise if the data breach is likely to result in serious harm to any of the individuals to whom the personal information relates.

How can your business prepare?

As a first step, it is important to understand and document how personal information is collected, used, disclosed, accessed and stored within your business. This critical step will help you to identify when a data breach has occurred, and assess your exposure to risk.

The next step is to develop a data breach incident response plan. A data breach incident response plan will address how your business will respond to a data breach and identify the internal team who will be responsible for assessing a breach. The plan will cover how a data breach must be reported internally, assessed and (if necessary) notified.

Having a data breach incident response plan ensures your business is prepared to comply with the scheme if a data breach occurs, and your staff know what to do if they suspect or become aware of a data breach or other cyber security incident. Now is also the time to review your business’ insurance cover and consider if cyber insurance might be an appropriate risk mitigation strategy.

Navigating the minefield that is the new Mandatory Data Breach Notification Scheme can seem daunting. But understanding what constitutes a breach, how to make an assessment of serious harm, what the exemptions from notification are, and notably, the potential consequences of failing to notify, will be crucial come February.

To find out more, visit www.oaic.gov.au

ASIC is in the midst of a concerted campaign targeting private companies that have outgrown the reporting exemptions. So what exactly are the ASIC reporting requirements for private companies?

ASIC requires companies to prepare and lodge a financial report and a directors’ report each financial year, and have the accounts audited unless the company is exempt. Most small companies are exempt from the compliance requirements as are small foreign owned companies in certain circumstances.

Utilising data from the Australian Taxation Office (ATO), ASIC is contacting companies that have moved beyond or not complied with the exemption and are now in breach of their reporting requirements.

If your company has never had to lodge financial reports with ASIC in the past, it’s very easy to breach the rules without realising it. The ASIC reporting requirements for private companies are hard and fast and they are not overly sympathetic to “oops” as a reason for a breach.

What is a small company?

Small companies are exempt if they satisfy at least two of the following:

No longer a small company?  Then you are classified as a large company and are required to lodge audited financial statements.

Will the auditor want to audit the previous year’s figures when you were still a small company? Yes.

This exemption is for companies not controlled by a foreign entity or disclosing entities.

Failure to lodge annual accounts with ASIC may result in penalties and potentially the company being deregistered.

The rules for foreign controlled companies

Small companies controlled by a foreign company may also be exempt in some circumstances.

For small companies that are not part of a large consolidated group, the directors must resolve to rely on relief provided by ASIC and lodge this resolution (form 384). Timing is everything to be eligible for this exemption. If the right form is not lodged between the period starting 3 months prior to the start of the financial year where relief is first applied and ending 4 months after the end of the relevant financial year, the exemption is unlikely to apply.

ASIC warns that, “in most cases, relief is not granted for financial reports that were due in the past”.

Foreign companies that fail to lodge the appropriate financials and are not exempt may be deregistered.

Again, if you have a requirement to lodge financial statements with ASIC, they must be audited.

MGI South Queensland’s specialist audit and assurance services are able to assist any business requiring audited financial statements and would be happy to provide you with more details regarding the ASIC reporting requirements for private companies.  If you are uncertain about the requirements for your company, please contact MGI and we’ll work with you to ensure your company is compliant.

It’s often overlooked by business owners but government small business grants can be a great opportunity for Qld businesses to increase cash flow and gain much-needed support to grow.

The local, state and federal governments are currently offering various programs of financial assistance and grants to support small and medium businesses to continually improve and pursue growth.

If you have plans to invest in the development of your business this year it is definitely worth looking at what government grants are available and whether you are eligible.

Government Small Business Grants Currently Available

1) Entrepreneurs’ Program (Australian Businesses)

Co-funded grants of up to $20K

This is the Australian Government’s flagship initiative for business competitiveness and productivity. The program ensures businesses get the advice and support needed to improve their competitiveness, productivity and to seek growth opportunities. Support includes advice and co-funded grants to accelerate commercialisation, take advantage of growth opportunities and help you access the latest technology, research and innovations. MGI is working with a number of clients who have used this grant to fund our business advisory and growth services.

To be eligible you must turnover between $1.5 – $100 million (between $750,000 and $100 million for remote and northern Australian businesses) and operate in one or more growth sectors:

In addition your business must meet one of the following:

Learn more about the Entrepreneurs’ Programme grant.

2) Advance Queensland Accelerate Small Business Grants Program (Queensland businesses)

Matched funding of up to $10K

This is one of the government business grants for business owners that can demonstrate high growth and employment aspirations to engage a strategic adviser to work closely with them in their business. To be eligible you need to be a Queensland business that has been trading for 3 years, have a minimum turnover of $500,000, have a maximum headcount of 20 employees and be experiencing growth with a clearly defined growth opportunity. Learn more about the Advance Queensland Business Grants Program.

3) Advance Queensland Business Development Fund

Funding between $125K and $2.5M

The government offers co-investment for Queensland businesses undertaking groundbreaking research, ideas, products or services to help make their ideas a reality. Find out more.

4) City of Gold Coast Programs (Gold Coast businesses)

Growth Accelerator Program 

This program is specifically targeted at high growth businesses and will assist in identifying the critical steps needed to achieve the next growth phase – rapidly and sustainably. It equips businesses with an understanding of how to build a thriving business that is not reliant on one person and identify and overcome potential barriers for growth. MGI South Queensland has delivered this program for the last three years. Learn more.

Lead for Business Growth

This session provides business owners with the leadership tools and knowledge to successfully lead their business towards continued growth. Learn more.

Market Identification Master Class

This master class will take you through a technical process to test and qualify your key target markets and the best channels to reach them. Learn more.

Emerging Exporters Program

This program helps local businesses to develop their export supply capabilities with the aim of developing export markets globally. Learn more.

Securing Council Supply Contracts

The City, as the second largest local government in Australia, undertakes substantial procurement. This session will provide you with information and updates on how to take advantage of local procurement opportunities. Learn more.

5) Brisbane City Council Grants (Brisbane organisations and NFPs)

The Brisbane City Council provides funding for not-for-profit community groups and creative industry initiatives. See an overview of what local government grants are available here.

MGI South Queensland have tax advisors and business consultants in Brisbane and on the Gold Coast who can help you navigate the various grants, determine which might be right for you to apply and assist you in the process.

MGI South Queensland can assist Brisbane and Gold Coast small businesses with tax advice as well as identifying and applying for appropriate government grants.

If you are a small business interested in applying for government small business grants and would like to know more about what programme’s MGI South Qld’s clients have been successful with contact us today.

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