Jay Holmes: Welcome to the Medical Management Podcast. A podcast focused on helping you level up your practice. Through interviews with some of the most successful leaders in the industry, we help uncover resources, tools, and ideas to help you level up your practice. Thanks for tuning in and we hope you enjoy today's program.
Jesse Arnoldson: Hello and welcome to the Medical Management Podcast. I'm your host, Jesse Arnoldson, and I'm joined today by my co-host, Jay Holmes. We're fortunate enough here at MedMan to have somebody like Jay, that helps us understand the ins and outs of our financials, but most importantly, how to effectively use these same financials to make better decisions, set our strategies up for success and just run our practices in a better way. Jay, welcome back to the show!
Jay Holmes: Jesse, thanks, man. Good to be here.
Jesse Arnoldson: I'm excited because we've had several conversations on our podcast about month-end, setting budgets, different aspects of the financial process. But I want to talk a little bit about what it means to take all of this across the finish line. What's the end game of doing all this work of month-end, budgeting, bookkeeping, chart of accounts, all that kind of stuff? What do we do with our financials once they're in the right place?
Jay Holmes: Well, isn't it just so that you can have some reports that you print off and put in a binder that you can point?
Jesse Arnoldson: I like to look smart.
Jay Holmes: Yeah, right!
Jesse Arnoldson: Is there... you know.
Jay Holmes: That's where they are, up on that shelf.
Jesse Arnoldson: Exactly.
Jay Holmes: That's a really good question. And you know, I'll throw out this blanket statement. This is, to me, the most important thing, it's really about creating insight. And there are different tools that get us to different places that kind of expand our insight into different things. So let's kind of talk through that a little bit.
Jesse Arnoldson: Ok.
Jay Holmes: We've got a budget forecast that we use as a tool to really it's the sandbox for assumptions, building our assumptions. And let me just take a step back because I don't think I was clear enough in the first explanation. It's insight on how our operational decisions impact our financial outcomes. Ok? That's what our financials should do for us. They're a reflection of just that. We are making operational decisions day in and day out. We need to better understand how those operational decisions impact our financials. You would be foolish to think that as a business, you're in business to make money, period. If you don't make as much money as your expenses, you go out of business so you could feel good, have all these warm and fuzzies inside that we do it because we are patient care and we do it because we have a community and all this stuff. And while that is true, if revenue doesn't cover expenses, you cannot do anything. So that is certainly either tied with or secondary to running a successful business.
Jesse Arnoldson: Who said it, Jay, I can't remember who said it, but if there is no margin, there's no mission. I feel like it was a really famous none, but I could be way off. But.
Jay Holmes: I couldn't, I don't, I don't know if top my head, but I've certainly heard that many times.
Jesse Arnoldson: No margins, no mission.
Jay Holmes: But it's true. And so, so we just have to remind ourselves that oftentimes, though, you know, you can lead with the mission and that funds the margin, but you can't get lost in that. And for those organizations that do that well, they're very clear on how things, how their organization works, how their operational decisions ultimately impact the finances. And so the budget and the forecast, going back to this, is that this is the sandbox in which you can test out your assumptions. And this is basically thinking, what if this happens? How will expenses interact with that? If we grow this way or we move into this building, or if we have a decrease, if a provider goes out for six months, how are all those things going to impact our overall business? And that's what a budget and forecast is doing. It's allowing ourselves to think ahead to say if this were to happen, what would be the impact of that? And then what we do is we tie in our monthly financials as another tool for insight that gives us a historical view of what has happened, which should help inform us of what should happen, right? But what we do is we tie that what should happen in with our budget and our forecast. So we've done some thinking of what should happen, then we have our monthly financials that then help us say, was that assumption right or wrong? Right? So we thought if A plus B happened, it's going to equal C. But what if A and B happened, but it equal D? It's a moment of reflection. We have to go back then to our budget and forecast, and update the way we think that now we can change what our perspective is on the business and how it interacts with different things because we have a real-life experiment going on. And so again, then all we're doing here is just better insight. We need to know how the organization interacts with all the millions of things, all the millions of variables out there. Ok? And then there's special projects, and these are just different, big, different kind of financial type stuff. Special projects is just more focused, and an accounting system, accounting system shouldn't have all the details, in my opinion, right? Because it costs a lot of money to provide so much detail. And so you have to have this, you have to walk this fine line of having enough detail to get you what you want most of the time and then having other pathways through kind of special projects, deeper dives into things that you want to have more insight, but are just too costly to actually put in an accounting system. And so you might have, you might run a different spreadsheet or a different project on provider capacity. We know the clinic is going to grow, what really is our provider capacity on a month-to-month basis? That's something that you might not find in your accounting system, but it's something you want to know. Another example is what's the difference between three different vendors for, you know, I want to save some money, and let's vet out three different vendors. Well, you might not have all the detail, line by line, item by item in your accounting system, but you certainly could do that on a special project in a, you know, a spreadsheet or something like that. And so really, what we're looking at here is we want insight. We want to learn better how our operational decisions interact with our financial outcomes. And that's, that's the basis of it.
Jesse Arnoldson: I think about it a lot, like when, for example, Athena comes and tells you that as you use their system, it's going to learn and adapt. And as more people use it, it's just going to grow and grow in knowledge. And I look at our monthly process where we make sure everything goes, where it's supposed to go, we compare it up against the budget, all those assumptions that we made last month for the year and then we learned and it's just this cycle and it's a process to help, it's not us learning more about our financials, it's our financials are helping us learn more about our business. That is just a conduit for us to have a better finger on the pulse. At least that's, that's how I see it.
Jay Holmes: Hundred percent. You got it.
Jesse Arnoldson: Yeah. What happens when you don't have this in place? There are so many practices where we show up and, you know, to do an assessment, it's September, they're like, yeah, we haven't really closed out February yet. And can you maybe talk to us about what typically causes a process like that to break down? Why people get away from that really good monthly habit of closing financials, having everything organized, and learning from it?
Jay Holmes: Yeah, absolutely. The accounting generally, throw the asterisks on there is, you know, it runs in defined lanes ninety-five percent of the time, OK? And so really, what the biggest cause is that we don't have the proper systems in place to allow for the automation of the accounting and financial process. And what happens is is that the system's in lack of controls and so things are done differently every other week. You know, the deposit happens maybe every couple of days to every two to three weeks. And sometimes this person does it, sometimes that person does it. And sometimes we pay by credit card, but sometimes we pay by check and sometimes we pay by PayPal, sometimes we do all these different things that make it really, really difficult to automate the record-keeping, automate the accounting. And so really, the goal is to create a system because again, accounting happens ninety-five percent in the same lanes, right? It's predictable. It's that five percent that ultimately you need to be able to create the, how I kind of think about is that you need to learn how to go on autopilot ninety-five percent of the time, but then you need to learn the signs, the red flags that warn you to slow down. So it's like you can flip your brain off for a little bit, go on autopilot 95 percent of time, but then you need to, you need to have the warning signs to click your brain back on, slow down and think five percent of the time. You need be able to do that in this defined process to find systems that you have. In that way, you're going to get a lot of stuff done without much energy, but then you're going to not mess up when you need to actually take a step back and say, huh, why is rent twice as much last month and nothing this month? Right? Those are opportunities for you to slow down and have more of an analytical mindset. Have more of it. Does it make? Is there common sense behind this, right? And so that's what we need. We need both of those and we and we do that through systems. And so we have these defined processes that say, for this activity you're moving fast and then you're going to go to the month-end close, you're going to have specific exercises that you're going to go through. Then you get the pull your brain out of more into the forest view than the tree view. And it's going to give you that opportunity to slow down, right? So you're going to go through a lot of transactions or a lot of few things more of like a yellow light mode. And then sometimes in that yellow light mode, it's going to turn to a red light and you're like, I need to stop, I need to figure this out, right? But the majority of times it's green light mode and you're just moving through it. And so that's certainly one aspect of where the biggest aspect of where really this situation happens, where you don't get financials and they're not that accurate. Another one is really making operational changes that stress the finance team or whoever's doing the finances, right? Oftentimes, we think in, hey, this is a really great idea, we should start tracking all these different things without realizing what's the true cost of adding all that extra reporting and the burden it creates. So sometimes it's not that the accounting team, the finance team, the accounting person, the administrator, whoever is doing that stuff, isn't working hard, sometimes we overwork them, and we don't consider the true impact. So I see that as, you know, just well, I have to get all this other stuff done, I have to track all these other things, all these other metrics, and so the heart of what needs to be tracked, accounting, gets pushed off because we make decisions without really understanding the true administrative burden on it. So, you know, that points to just there's always a cost-benefit analysis here. You just, you know, you do as much as possible in your accounting system to get the insight you need, but you don't want to overburden the system because it's redundant. It's unnecessary, right? Perfect example is an EMR versus your accounting system. Your accounting system should be such that your providers can be broken out in revenue if that serves your comp model. But there's no sense in duplicating your provider revenue in your accounting system if you don't use that for anything.
Jesse Arnoldson: Right.
Jay Holmes: Right? And you're going to arbitrarily split up expenses between people based on some number, but ultimately, if that doesn't lead to you utilizing, you know, in some way, you have all that data in the EMR, click a report, run it. You don't need both, right? So those types of thoughts that you can certainly streamline things.
Jesse Arnoldson: Right.
Jay Holmes: And make it easier for you to be successful by taking the waste out. And the waste is really is that extra effort actually creating value, creating the insights you need? And does it have to be in your accounting system or do you already have it somewhere else? Those are the kind of the questions that they ask kind of going through there, but it all comes down to overburdening the accounting system. You need systems and then you have to make it so it can run smoothly, which usually means don't overburden it.
Jesse Arnoldson: That makes total sense. What happens when it does break down? We just talked about what could cause it to break down what happens if we get too far down the line? And you know, it's September and we haven't closed book since February?
Jay Holmes: Then what we do is we start managing by a bank account, right? We start making decisions based on is there money in the bank account? Which is, you know, it's kind of like a pilot flying by, you know, looking down at the ground every 15 seconds and hoping that there's not a mountain in front of them because they can't see that and hoping that their gas is going to, you know, they're going to have enough fuel to make it. And so it's a scary, scary place. And it's what happens a lot of the times. But what it creates is a really inefficient and ineffective way to manage because you are not building true connections between what you're doing and the impact financially. The frequence, it's too infrequent. And there's not enough detail because it's either the bank accounts going up or it's going down, and that's your only gauge of how well you're flying and that's a scary place to be.
Jesse Arnoldson: Yeah, I think one of the primary roles of a practice administrator is to tee up for the physician owners, tee decisions up really well for them. And I don't understand how you do that if you're not using financials to help do that. If you're months behind and you're recommending that they do, X, Y, and Z, bring on a new provider, hire new staff, bulk up their inventory, look at another location. Any of these things and your financials aren't where they need to be. I have failed in my role as an administrator and teeing up a really well-informed decision to make by the physician owners so that I struggle with that. Being on the other side, Jay, thinking about it from the physician owner stance, what should be expected? Like, what would you be asking for if you were a physician owner of your practice administrator when it comes to financials?
Jay Holmes: This is an interesting question because obviously my mind has been in finances for quite some time. I'll go from the flip side of what I see, what I try to do to present financials to, in my career with business owners, physicians, providers. It's really, you want to tell a story, and so I would expect as a provider owner to get a story again, get the correlations between what we all are doing as far as operational, right, like this is going to be good, get a little change of direction here. But ultimately, what I would want to know is what happened? Why did it happen? Why was there a change in what we thought was going to happen? What are we going to do about it? And that's the feedback loop that I want over and over and over. And then next month, I want to know for what we thought we were going to do to fix or change and influence the prior month's change, were we successful or not? And what did we learn and what are we going to shift? And that's what I want over and over and over again.
Jesse Arnoldson: I love that. Any tips for a practice administrator that's, I guess, looking at their financials and feeling overwhelmed? Maybe, maybe it's by their own doing, maybe they just came into a mess, but it's a tall order and pretty overwhelming. What, what kind of advice would you give them?
Jay Holmes: I think the budgeting process is a wonderful place to start because it forces you to think about all the aspects, financial and operational of the clinic, the practice. It makes you, it's like if you're going to go in and follow a recipe to cook something, that's one thing, right? But to then say, hey, here's some ingredients and you've got to think through how you're going to put this together to taste something good, it's almost it's a different way of going about thinking about finances that forces your brain to actually critically think, and it forces your thought process to connect dots that you would otherwise not right? So we have providers seeing patients and they need staff, right? And if there's different volumes and they're staffing changes that connect with the overall space issues which connect with IT, with, connect so many different things. So it really pushes you in a place that expands, you're holding multiple things in your head at the same time. So that really sets the stage and it allows you to go double click and say, well, wait a minute, what is in that account? What is going on here? And it forces you to ask why, right? So that's the first place to start. Is this budgeting, put together a budget! I don't care if you start in July, I don't care if you start in October, put together a budget so that you can then begin to understand how these pieces all fit together. You get to then start asking, well, hey, you know why? Why are we paying this cleaning company eighteen hundred bucks a month? You know, the last practice I was that paid twelve hundred bucks a month for what I think better service. Well, that's who we've always used, and they always just increase our rate five percent, well, perfect, right? Like here's an opportunity for you to, to make a positive difference financially right away. Don't, you know, go through that. That's really where I would say that's the first thing, because what you have to do is you have to understand, you have to know what's going on, the, you know, the providers are going to point to you to say, hey, you're in charge here, right? You're making the decisions. And so the financials are a reflection of your operational decisions. So you need to know that inside and out, the budget is the place to do that initially, OK? Then we also have to go into it, just kind of bigger tips of how to deal with how to interact with the physician partners is that you have to emphasize the growth mindset. Predicting financials is not one of looking for perfection because there is no way that you can predict what's going to happen six months from now. It's pretty hard to predict what's going to happen in a month, month and a half, two months, but then you're going to try to predict what's going to happen six months, 12 months ahead of time. The goal isn't perfection. The goal is to better understand how the operations impacts the finances, period. And so if we can emphasize this journey is about a growth mindset, the journey is about learning and fine tuning those assumptions over time, then that's going to really change the expectations, right? And if anyone in 2019 could have predicted what we would have been in 2020, they would have had a lot of money right now, they wouldn't be working, they wouldn't be doing anything. But no one did, right? Because we can't. And the important thing and that's why this growth mindset is so important. The important thing here is that if we say if we've developed the muscle that correlates operations to finances, if we develop that, right, the reflection process, the understanding, if we develop and build that muscle, then it doesn't matter our circumstances, we're always going to be able to get insight on how our business is operating in the current environment. That's the important thing. It isn't the goal to get perfect at predicting in today's environment. The goal is to get better at predicting in any environment. And so to allow ourselves for that, we're OK to fail, we're OK to make wrong assumptions because we have to update them, and we know that those assumptions are going to break down in the future. So we just continually to move that that is really important to set those expectations up front, OK? Another thing is to bring them out of the weeds, bring your physician partners out of the weeds. Your role as an administrator is to shine light on areas of the business that are going to impact the business the most. In the accounting world we have a term called material. Is that material or immaterial? Right? Does it actually matter? There's some great accountants out there that spend a lot of time trying to find three cents, their bank reconciliation's off three cents. They spend a lot of time looking for it. The grand scheme of things is three cents going to make a material impact on the inside of your organization? No way. Not at all, right? So you have to, this kind of relates this to what we're talking about now, is that there are going to be variances in what your budget is versus your actual, OK? If you have budget of office supplies and you're off four hundred bucks for the month, but you've got collections of 300.000-400.000, it's not material you might have budgeted for only a thousand. So it looks like it's a 50 percent bump in what you expected. But five hundred bucks is not going to change your trajectory of your organization, right? So it's your job to review that. It's your job to facilitate the discussions where it matters most, so in the time and space that you have with the providers that are part of this, the finance, the governing board, whatever, you have to do your best to facilitate the conversation towards the things that matter most in your opinion, OK? And then help them understand how things work together. If we do that, this is what we think is going to happen. Ok. This is what happened in the past, this is what we've done, this what we've learned. You've got to keep the focus. You've got to have to bring them, and it's not deceitful in any way. This isn't, we're hiding something. If it's an issue, you talk about it. If it's a big one, right? But don't let people talk about why whatever, yeah, everyone's been there, where there's this tangent for 20 minutes talking about something that doesn't matter.
Jesse Arnoldson: Doesn't matter.
Jay Holmes: Well, yeah, we bought some more paper clips like, let's get over it, you know? It's like we had to buy some more paper and it costed an extra hundred fifty bucks this month or we ordered a bunch of toner and it's like, well, you know, and we get down to those rebels. Don't, don't allow it, OK? And then lastly, just be consistent with your presentation, be consistent with everything you do, because oftentimes it's a lot more important to be consistent than it is to be 100 percent accurate on where things go and how things look, because consistency allows you to see discrepancy. Consistency allows you to see trends and so stick with what you got. Sure, you can revamp it and do it. But but be consistent for a while. Be consistent for 12 months or 18 months or 24 months. That consistency is going to make it a lot easier for you to gain insight.
Jesse Arnoldson: That makes sense. Jay, thank you for all of your insight and just advice. Hopefully, those that are listening can feel a little bit more confident in their approach with their financials, they can understand their role better, they can understand what they're supposed to do with them a whole lot more. So thank you for, for all of that. And thank you to all of our listeners. We appreciate you tuning in each and every week as we explore all the different areas of practice, management and leadership. Tune in next week for another informative episode. We'll see you all soon.
Jay Holmes: Thanks for tuning in to the Medical Management podcast. We hope you enjoyed today's featured guest. For the show notes, transcripts, resources, and everything else Medman does to help you level up, be sure to visit us at MedMan.com.
In previous episodes, we have talked about month-ends, budgets, and more, but we haven’t tackled the big topic they all have in common: Financials.
On this occasion, Jay is here to spill the beans about financials and why having these reports is important. Having insights is incredibly important to see how operational decisions are affecting financial outcomes. There are a lot of things that we can streamline and not overburden the system. Financials are, in the end, a reflection of the operational decisions taken.
Join Jay, while he gives us a detailed breakdown of the financial aspect in the management department!
Financial reports create insights to help you get better.
Remember: “No margins, no mission”.
Budgeting and Forecasting help foresee possible financial outcomes to our actions.
Have spreadsheets to do these forecasts, and update them when needed.
Having accounting systems in place will simplify your work.
Budgets make you think about the operational and financial processes of the company.