With interest rate rises eating into profits, Paul McKinley provides practical tips on how you can provide your practice with a financial buffer.
Everyday Australians continue to grapple with the almost endless barrage of interest rate rises that started in 2022 and continue to flow into 2023 as our central bank tries to battle surging inflation.
Track and categorise your expenses – all good accounting software will allow you to do this
Small to medium enterprises – and even big business – are also feeling the bite, causing economic experts to speculate that Australia may be headed towards a recession by the end of the year.
So, what can we do to maximise the financial performance (read “bottom line profitability, and cash flow”) of our practice to help “ride out the storm”, if the seas do indeed get a little choppy?
Before making any changes, you first need to understand the factors that should be taken into consideration.
Increased labour costs: With increased cost of living, employees may demand higher salaries to keep pace, resulting in increased labour costs.
Higher costs for goods and services: The rising cost of living also leads to increased prices for goods and services that businesses rely on, such as inventory, utilities, and transportation.
Decreased consumer purchasing power: When the cost of living rises, consumers will likely have less disposable income, which can result in decreased demand for your goods and services, directly impacting your business revenue.
Inflation: Defined as a general rise in prices and fall in the purchasing power of money, inflation can increase the cost of doing business, so businesses may need to raise prices to maintain their margins.
Increased interest rates: Rising interest rates can increase the cost of borrowing for businesses, making it more expensive to finance growth and expansion. This is certainly an area where a specialist finance broker, such as Optometry Finance Australia, can help find you the best rate, and product, for your practice.
So, given all this, what can you do?
As discussed in previous articles, regularly reviewing your profit and loss statement helps identify where you might reduce your cash outflows.
You should review your budget annually, with actual spending reviewed monthly against budget to monitor excessive spending (or under-budgeting). Adjust your budget regularly if you need to.
Track and categorise your expenses – all good accounting software will allow you to do this and it helps give you a clear understanding of where your money is going. It can be helpful to set up alerts, to let you know of unusual or unexpected expenses, or when you are approaching your budget.
This is one area where it may help to engage a financial advisor or accountant to help you establish a budget, monitor spending, and manage your cash flow.
Once you are monitoring your spending, regularly identify, and eliminate unnecessary expenses. For example, you may be able to reduce energy consumption, find cheaper suppliers, and streamline processes.
To reduce your energy consumption, consider simple steps, such as turning off lights and equipment when not in use and implementing energy-efficient solutions. Don’t forget to switch off appliances at the plug, too.
Negotiate with your suppliers. They’re feeling the pinch as well and may be willing to discuss better terms, rather than risk losing you as as customer.
Can you implement remote work? You may be able to save on overheads such as utilities, office supplies, and consumables if employees can work from home or remotely. This has the added benefit of facilitating desk-sharing, which could ultimately reduce the size of the commercial space you need.
Review your non-essential expenses. In times of stress, travel and entertainment may be the first items you can cut.
Finally, consider outsourcing. Sourcing non-core functions from third-party providers may reduce costs, improve efficiency, and free up resources to focus on your core practice activities.
One of the best ways to increase your turnover is to focus on customer acquisition and retention. The key here is exceptional customer service and loyalty programs.
Do you know what your existing customers think of you? Consider a database survey to find out where your practice is doing well, and in what areas it can improve.
Reach new customers and increase your brand awareness by exploring digital marketing offerings and strategies.
Also consider what sales, promotions, or competitions you could implement to incentivise customers to make purchases, and to drive traffic to your practice.
It’s critical to regularly reassess and adjust your customer acquisition and retention strategies to ensure continued growth and success. A combination of these measures can help drive revenue growth and ensure long-term success for your practice.
Improve Practice Efficiency
Utilise technology and office automation to increase productivity and reduce waste. Consider undertaking a thorough analysis of your business processes, looking for areas to improve, standardise, and streamline operations.
An important part of this is considering where technology and automation can increase efficiency – this might include software tools, cloud computing, and robotics.
Invest in training your team members to help them work more efficiently and effectively. This has the added effect of building loyalty as team members see they’re valued.
Learn how to effectively delegate tasks and responsibilities to team members – and encourage their input into decisions impacting the growth of your practice. This empowers them and helps them feel valued.
Remember, increasing efficiency is an ongoing process, and it’s important to stay adaptable and flexible to new technologies and processes as they emerge.
Price increases can be tricky as you don’t want to erode (or lose) your patient database. But if managed diplomatically, they can have a profound impact on your bottom line.
The first step is to plan your approach and determine your desired outcome. Consider factors such as market conditions, customer relationships, and your bargaining position.
Make sure you communicate any price increases with your patient database. Give clear and concise reasons for the increase, backed up with relevant data and market analysis – such as rising costs of inventory, or increased expenses. And remind them of your point of difference when compared to your competitors. It’s important to be proactive in managing patient expectations and addressing any concerns they have in a professional and empathetic manner.
Consider whether there are additional services or benefits you can offer to mitigate the price increase, which in turn will justify the higher prices. Be flexible and be prepared to negotiate and compromise with payment terms, volume discounts, or bundled packages (if suitable).
Don’t forget to follow-up with your customers to make sure they’re happy with the outcome.
For a while now, we’ve been seeing industry disruption with some of the bigger players offering allied health products. More recently, large retail pharmacy chains have begun offering optometry services. So, can you expand your product or service offerings to reduce reliance on any one area?
If diversification is of interest, market research is critical in identifying new opportunities that align with your current business goals and strengths. Any new product or service development should complement your existing offerings or target new customer segments.
It may be that you can expand your reach and capabilities by exploring partnerships with – or even acquisitions of – complementary businesses, or by expanding into new geographic markets, to reach new customers and increase revenue.
We do recommend seeking the advice of an external consultant when considering diversification, as it does come with its share of risks and challenges. Due diligence is the key here.
Time To Take Action
Businesses can address the impact of rising costs of living with a combination of controlling expenses, increasing efficiency, and seeking new revenue sources.
It’s important to regularly monitor and adjust pricing strategies to ensure competitiveness and profitability.
And, of course, it is important to stay ahead of the competition by investing in innovation and identifying new opportunities.
The important thing is to do something. Take action!
Paul McKinley is the Managing Director and resident Chartered Accountant of Optometry Finance Australia, an independent finance broker that works with optometrists Australia-wide.
With over 30 years relevant commercial experience in the finance, automotive and accounting industries, Mr McKinley specializes in commercial funding with a strong focus on personalised client service and retention.