No matter your level of financial background, you usually set a budget for the month, quarter, or year and try to stick to it. However, what happens when there is a natural disaster or pandemic that requires you to close your practice for long periods of time? The actual expenses and profit you make most likely vary drastically from what you expected.
That's why we think that running variance reports every month for the rest of 2020 will help optometrists understand their finances to build their profits back up. We'll go through how to run these reports and where exactly you can implement change based on them in today's blog.
Can This Financial Report Help You Stay on Track?
Creating the Report
You'll make a list of all your expenses (usually from a profit & loss statement) and revenue sources first. You can view an example of a variance report that Review of Optometric Business helpfully created here. In one column, list what you budgeted for the expenses and what you predicted for the revenue at the beginning of the year. Then, you can put in your actual numbers for January-July of 2020 to see where you are.
If you didn't create a budget at the beginning of the year, you can make one now for the second half of the year, it's never too late to start. Check previous Profit & Loss statements, industry benchmarks, and trends you've noticed in order to forecast most accurately.
The best way to analyze the differences is to make a graph where the X axis is time in months and the Y axis is the dollar amount. Then, you can chart lines for total budgeted expenses, total actual expenses, total predicted revenue, and total actual revenue. If there is a large gap or variance where the actual expenses are higher than budgeted, check to see if the actual revenue makes up for it. Especially when times are tough, this might not be the case and the actual revenue might be lower than predicted. However, it's always better to know exactly where you might be missing out on revenue. Then, take a closer look at the months were you have unfavorable variance (gaps) to see which expenses rose high or which revenue streams suffered.
Now that you've got a good sense of your variance from your predictions, it's time to make necessary changes. It's possible that some variance is easily explained by the fact that you tried a new marketing campaign, hired an associate OD or staff member, or made a long-term investment in medical equipment or new software. Even if these were in your initial plans for the year, they might take more than 6 months to show a return on investment. If you aren't sure why you're experiencing variance, we recommend consulting industry benchmarks and even conducting an audit. The Review of Optometric Business website takes a deeper dive into the different questions to ask yourself and ways to take action in this article.
It's always important to measure your benchmarks for financial success. Here's an ebook that makes it easy.