In A Perfect World Blog Series – Part Three
By Andrew Craigie,
Are you a physician ready to change the game in your medical practice?
Perhaps your perspective on money and its relationship to your practice has a greater influence on your success than you imagined. We would like to review with you timeless author Michael Gerber and the E-myth physicians perspective on money. A fresh perspective on money and medicine may suggest areas to examine that can open endless opportunities. Your perfect practice can exist, it’s simply time we look at things through a new lens.
Let’s remove the façade about medicine and money. The truth is, everyone in healthcare is concerned about money, its sufficiency, its impact on the practice of medicine, how it flows, and what it implies for the future of medicine. Now, clearly, we could explore this subject from a million different angles. Today let’s consider the medical practice and how critical it is for physicians and practice leaders to have a healthy perspective on money and medicine.
Think Like Owners
It’s common for leaders to be far too timid about the subject of money with their team. The truth is, without streams of income and a healthy operating margin, there would be no practice, “no margin, no mission”. Physicians and practice leaders need to get comfortable talking about the financial aspects of the medical practice with everyone on the team. Every person in the practice should understand where money comes from, where it goes and what they do in their work that influences inflows and outflows from the practice.
The most engaged team members “own” their work processes; learning to think about how what they do contributes to the profitability of the practice. Using Key Process Indicators (KPI’s) that influence profitability to measure performance is the most effective way to help your team become more mindful of how their work impacts the success of the practice.
Four Factors of Money
Gerber suggests four factors that govern the subject of money: Income, Profit, Flow, and Equity. It is important to maintain a healthy perspective on the relevance of each to the medical practice. Without a grasp of these four factors, there is risk of becoming detached and complacent. The best way to remedy this – every person on the team needs to learn to think like a business owner.
Have team members track their own KPI’s when possible and report how they are doing to the rest of the team. This may feel awkward at first, but nothing influences ownership more than being responsible to the rest of the “owners” when it is your turn to share your progress.
Income is the money the business produces when someone in the practice performs a service. Any time an employee in the practice performs a revenue generating service there is the potential to generate income. When the physician/owner performs a service, they are performing the role of an employee of the practice. The physician is doing a job in the practice. As the ultimate practice owner, they should think about how they can duplicate themselves and grow the income of the practice, so the success of the business becomes less dependent on their personal effort. The best way to accomplish this is for the physician owner to surround themselves with capable people and employ reliable standards and processes in the practice.
Determine how to give every member of the team the opportunity to practice at the top of their licensure, eliminate unnecessary and wasteful work, consider adding members to the team who expand the capabilities of the practice, and leverage new technologies to work better, smarter, and faster.
Profit is what is left over after the practice has performed a service in the most effective and efficient way possible. If a practice is producing a profit that is great, but it doesn’t necessarily imply the practice optimized their profit. What every business owner should consider is if they the work they are doing is contributing to the profitability of the practice. Is the work consistent with the purpose of the practice? If not, determine if there is a strategic reason to do this work or put a stop to it.
There are four ways to understand the value of profit to medical practice…
- Profit is Investment Capital that feeds & supports growth.
- Profit is Bonus Capital that rewards people for exceptional work.
- Profit is Operating Capital that shores up money shortfalls.
- Profit is Return-on-Investment Capital that rewards the owner for taking risks.
Flow is an indicator of what money does in the medical practice. Flow measures the here and now, it answers the question of how money is moving through the practice, where is it coming from, where it is going. While an income statement is a look back at what the practice has done, flow is a measure of how much money the practice has, how much it expects to have and how it will be used.
The income statement tells the owner how much money is being spent and where. Flow provides the same information but, most importantly, it tells the owner when the practice is spending and receiving money. “Flow is an Income Statement moving through time.”
Managing flow takes effort but doing this properly provides the owner with tremendous insight, clarity, and power to effectively plan and manage the business. Managing flow helps the owner consider how to increase the velocity of inflows and scrutinize outflows to be more effective, more efficient, or to eliminate unnecessary outflows altogether by stopping what you are doing that produces no value.
Equity is the financial value placed on your business by a prospective buyer. Gerber says, “to increase your practice’s value, you have to build it right. You have to build a practice that works. A practice that can become a true business is a business that can become a true enterprise. A practice/business/enterprise that can produce Income, Profit, Flow and Equity better than any other practice/business/enterprise can. To accomplish that, your practice must be designed so that it can do what it does systematically, predictably, every single time.” If you don’t accomplish this, you don’t have a business to sell…you just have a job.
To build equity in your business, go to work on your business building a profitable and highly reliable system of practicing medicine. Build this business as a” totally integrated turnkey system that delivers exactly what you promised every single time.” Make it so unique and different that it stands out as a hallmark above others.
- Be honest with yourself about whether you’re filling the employee shoes or owner shoes.
- As your practice’s key employee, determine the most effective way to do the job you’re doing, and then document that job.
- Once you’ve documented the job, create a strategy for replacing yourself with someone else (another physician, or even better, another clinical professional performing at the top of their licensure that can do the same work to your exact standards.
- Use your new employees to manage the newly delegated system. Improve the system by quantifying its effectiveness over time.
- Repeat this process throughout your practice wherever you are acting as employee rather than owner. Leave behind dedicated people using your effective systems.
- Learn to distinguish between ownership work and employee-ship work every step of the way.
- We would like to introduce you to a team that can help you succeed in business and life, iPX Physicians https://www.linkedin.com/company/ipx-physicians/ . iPX is bringing a fresh perspective to the physician office, harnessing advancements in technology and innovative practice design so our physician partners can work on their business and experience the joy of practicing medicine again.