When it comes to financial forecasting, sadly none of us have a crystal ball. As a practice owner, there will always be variables that are out of your control, but which will impact on your business nonetheless. These include things like staff changes, your own personal circumstances altering and, of course, ups and downs in the wider economy.
Despite this it is possible – and indeed advisable – to do a financial forecast, to increase your profits, minimise losses and ensure that you are making the right decisions. Yes, there may be an element of ‘guesswork’ but by structuring it on actual data, you will go a long way towards preparing for most eventualities.
First, take a long, hard look at the facts and figures. Your formal financial statements are obviously the best starting point and you may need to include management information, too, which although accurate will not have been analysed by an accountant. Your objective is to gain a thorough knowledge about the financial life of your business and its peaks and troughs over a set period of time.
Most people find a one-year rolling forecast, which means constant assessment at appropriate intervals (usually every three months), is practical. Quarterly reviews will give you the opportunity to compare your forecast against management figures and make adjustments accordingly. This strategy will help you to understand if your business is on target so you can make the right decisions at the right times. For example, if your profits dip during the summer, try to turn a negative into a positive. This could take the form of using your marketing budget to offer patients a financial incentive for referrals at this time, to drive new business and buck the trend.
To get the most out of your financial forecast, use it to accompany other elements of business planning, such as a Profit & Loss projection and SWOT analysis. A SWOT analysis requires you to look at your practice in terms of its Strengths and Weaknesses, while considering the Opportunities and Threats that could also affect its success. Each category can be subdivided into finance, operations, marketing and sales, team and strategy for a thorough investigation into the elements that work well in your practice and those that do not. Writing things down will force you to think hard about where you are and where you want to be. Examples of strengths are a good supplier and strong team, while weaknesses may include outdated equipment or a poor enquiry-to-business conversion rate. Opportunities could be a new associate who can bring a specialist treatment to your portfolio; a threat would be a new practice opening nearby.
To do a financial forecast you will need figures to your last year end, plus management figures to the end of the current financial year, or to date. There are tools available online to make the process straightforward. Specialist dental and medical accountants have a number of user-friendly templates to get you started, which include a Profit & Loss Forecast Template, a Financial Forecasting Template and a SWOT Analysis Template.
In this climate – and with Brexit looming – nothing is certain, but you can still plan ahead to give yourself the best chance of success in 2019 and beyond. A financial forecast will give you an insight into your business and help to prepare you for what might be to come. With a combination of analysis, educated guesswork and hard work you will grow your business and secure your future.
Author: Michael Lansdell