Expense containment (diet) and accounting controls (exercise) ultimately makes the difference between success and failure for nearly all medical practices, regardless of how much is billed or collected.
Unfortunately, the nearly continuous stream of mandated changes in healthcare management is proving detrimental to the financial health of many practices. However, most operational and financial fundamentals still apply, and much of what is old is new again.
1st Chicago Accounting and Business Advisors, with its significant practice in service to doctors, dentists, chiropractors and healthcare entities working daily in the healthcare field, acknowledges medicine is undergoing some of the most dramatic changes in decades. To that end, the firm is driven to keep abreast of tax law and code changes that affect healthcare practices. In doing so, it is able to assist its clients in navigating these changes by anticipating their impacts. Two hallmarks of the firm are innovative tax planning strategies and exceptional financial advice.
1st Chicago Accounting is led by its president, Brad Filmanowicz, CPA, MBA, a tax accountant and business advisor for the past 15 years. Mr. Filmanowicz has earned the role of a trusted business advisor able to design and implement budget strategies that encompass performance measurement, cash flow, retirement planning, estate planning and more.
The entrepreneurial side of healthcare
Mr. Filmanowicz refers often to the guideposts in the best-selling book “Good to Great” by James C. Collins. In it, the author reminds managers that, while nearly all businesses may be unique and complex organizations, there are underlying similarities and basics that, when identified and managed, can make each hum.
“Because each business has its own formula”, says Filmanowicz, “the owner or senior manager’s work must include defining it, then embracing, tracking and managing it.”
He cites a recent example where 1st Chicago Accounting was asked at nearly the last moment to engage in managing an $8 million oncology practice. In an all too common scenario, the physician owners wanted to focus on being doctors and left the business side of the practice to others. Although the practice had a management team in place, little to no oversight or business involvement was provided by the practice owners. Having run for several years without a financial plan or guidance, it finally arrived at a predictable point of severe financial trouble.
A practice teetering on the brink of bankruptcy
1st Chicago Accounting was engaged mid-year to replace the CFO. It quickly realized the financial situation was much worse than portrayed. In fact, the practice was teetering on the brink of bankruptcy and its largest vendor, a drug company, had already stopped shipments. Additionally, there was no cash for office rent and its line of credit was maxed out. It was also estimated the payroll was nearly $30,000 per month too high. Worse yet, the owners had personally subsidized losses for years and their personal funds were depleted.
Describing the assignment, Mr. Filmanowicz says, “The first month priority was a deep dive into the numbers. Initially, 1st Chicago Accounting created a top level budget to get costs in line and set a breakeven strategy. Second, the firm took a close look at drug costs plus reimbursements and related procedures. The firm developed a profitable drug and procedure mix – this practice’s ‘Good to Great’ formula requires drug purchases to be 23.5% of its production – so an Excel model was developed to track prior week profitability and forecast the immediate future week profit and the expected collection of fees. Third, the firm negotiated with several vendors and the landlord to buy time to build working capital. 1st Chicago Accounting also negotiated a five year note to repay a vendor who had threatened a $1.3 million lawsuit. This last step alone avoided bankruptcy and the closing of the practice.”
These combined actions stopped the hemorrhaging of cash and halted the losses. By the third month, the practice recorded only a small loss and it became profitable in the fourth and fifth months under the financial management of Mr. Filmanowicz and his team. This high impact accomplishment took only a short time span and was only two-thirds of the cost of the former CFO. The practice is now looking forward to a very profitably 2016 – properly budgeted and managed.
Putting the “Good to Great” equation into practice
Another dramatic example of 1st Chicago Accounting helping a medical practice find the right business formula occurred when the firm assumed the role of the accounting department and controller for a $3 million physician’s firm. As Mr. Filmanowicz explained, “Again, the first step was to dig into the financial data and analyze it. Next, we developed a budget from scratch that compared the company’s actual financial results to the budget and the prior year on a weekly basis.”
This procedure allowed 1st Chicago Accounting to identify problems and trends almost immediately. It quickly became apparent that, while the practice was containing costs, it was not achieving its revenue budget. 1st Chicago Accounting focused its analysis on the revenue target and identified the “Good to Great” equation for the practice. This practice generally recommends a patient treatment plan of 28 visits, however, the accounting firm’s analysis revealed only 13 visits on the average. A simple procedural initiative to follow-up and reschedule cancelations resulted in a 1,000% increase in net income in one year. The practice soared from $140k in net income to $1.4 million in net income in just twelve months.
Mr. Filmanowicz’s summary guidance is, that while it can be overwhelming to begin budgeting and tracking, it is important to stick to two key points: start small and keep it simple. A small and very basic budget can be expanded later as financial sophistication evolves. Keep it simple by only tracking three or four key indicators. Again, this can be expanded later. Better yet, employ a professional financial manager to handle the set-up of the business model and to monitor it. This allows practice owners and managers to run with hard numbers instead of guesswork.
And finally, “Having an outsourced controller or CFO is a great way to get the high end financial tools for your practice at a fraction of the cost and the best way to go from ‘Good to Great’ ”, he says.
Contact: Brad Filmanowicz, CPA, MBA
564 W. Randolph Street
Chicago, IL 60661
3333 Warrenville Road
Naperville, IL 60532
Orland Park Office
17646 Crestview Court
Orland Park, IL 60467