| fInAnCIAlMAnAGEMEnT | pracTice managemenT The operating expense ratio is
calculated by dividing the operating expenses by total practice net collected revenue.
hourly wages and commissions, utilities, cosmeceutical inventory, office supplies, mailing, and shipping costs. The operating expense ratio is
calculated by dividing the operating expenses by total practice net collected revenue. Operating expenses used in this ratio exclude physician and non-physician provider compensation, bonuses, retirement contributions, depreciation, and automobile expense. The cost of goods sold is included in the operating expenses. The benchmark healthy range of the
of a profit and loss statement, but he/she should avoid being consumed with data analysis. When the financial numbers are
running in the appropriate ranges, then scrutiny is sometimes relaxed because of a false sense of security. When they begin to go outside of the desired ranges, some practices increase attention levels to thoroughly investigate what is causing the fluctuations. Sometimes this can be too late to make quick course corrections. The goal should be to create a habit of reviewing the data on a monthly basis, which will enable the practice to make small course corrections as needed.
Operating expense ratio The operating expense or overhead is the ongoing cost of running a business, or all of the money you spend to run your practice. fixed and variable expenses are the two main components of a practice’s total overhead expense. fixed costs are those that do not fluctuate with changes in productivity or sales volume, such as rent, insurance, society dues, journal subscriptions, equipment leases, payments on loans, management salaries, and advertising. Variable costs are those that respond directly and proportionately to changes in activity level or volume, such as surgical supplies,
operating expense ratio for the cosmetic medical practice in 2008 was 55% to 70%. The median was 66%, which is an increase of 3.8 percentage points. The median in 2007 was 62.2%, which was down from 62.8% in 2006.
Non-provider payroll ratio The non-provider payroll, or the support staff payroll, is traditionally the largest line item expense that a cosmetic medical practice has. This ratio is calculated by dividing the total non- provider gross payroll by the total net collected revenue. Payroll includes the gross wages, but does not include employee benefits or payroll taxes. The median non-provider payroll ratio
for 2008 was 15.6% with a healthy benchmark range of 12–18%. This was 1.3 percentage points higher than the 2007 median of 14.3%. The median for 2007 was slightly lower than 2006, which was 14.9%. There are a couple of ways to verify
whether your payroll ratio is right for your practice. The first is to calculate the number of fTE support staff per provider. fTE support staff includes all non-provider personnel working 2080 hours. The fTE number can be calculated by adding all support staff hours from your payroll summary report and dividing by 2080. In 2008, the fTE support staff ratio was 4.99 support staff to one provider. This is up from 2007, which was 4.46 and 2006, which
was 4.33. The second method of verifying
payroll expenses is to compare individual support staff positions with published data. The Health Care Group conducts an annual Staff Salary Survey (http://tinyurl. com/6xnwl8z), which provides nationwide salary statistics for 38 key office positions in the US. It is organised by position, years of service, and locale, and also provides data on benefits and turnover rates. While these data are not specific to
cosmetic medical practices, it is still useful to gauge the range of salaries when recruiting. It is also a valuable measurement tool to ensure that you are offering your current employees a competitive wage, and can be used to improve employee performance by holding them to a higher standard if you are currently paying them at the top of the range.
Rent expense ratio Whether you are paying a landlord or if you own the property and pay yourself, this ratio will at the least give you an idea of where you stand. You may not be in a position to negotiate your rent now, but when the time comes you will know that there is a benchmark available with regard to healthy ranges. The rent expense ratio is calculated by
dividing the total practice rent by the total practice net collected revenue. Rent expense does not include additional occupancy expenses such as utilities and maintenance. The 2008 median rent expense ratio for cosmetic medical practices was 5%. The rent expense ratio has increased slightly over the two previous years in which it was 4.7% in 2007 and 4.5% in 2006. If your net collected revenue is equal
to the mean of the database at $1 385 389, and your rent expense ratio is also at the mean value of 5%, then your yearly rent should be around $69 269 to be considered within the healthy range.
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