As the head of an OD practice, even when things are humming along, it can be scary to think of all the things that could go wrong in your business. These can include a wide range of possible risks, including:
- Patient care issues, such as maintaining a consistently high quality of care
- Personnel challenges, including staffing shortages
- Ability to handle complex regulatory changes
- Operational challenges, such as business continuity and information security
- Financial vulnerabilities, including cash flow shortages and cost control issues
Just thinking of all the potential hazards can be enough to give one nightmares! However, rather than sticking your head in the sand and hoping things will go smoothly, you can be proactive and take prudent steps to manage your biggest risks. In this article, I’ll introduce an approach to manage your practice’s financial risks, which can also be applied to other types of risks you face.
What Is Financial Risk Management And Why Is It Important?
Financial Risk Management is a disciplined approach to identify and assess negative events that could threaten one’s business operations, and then minimize the likelihood and impact of those threats. According to statistics from the Small Business Administration, many small businesses don’t survive their first few years [see SBA Office of Advocacy report at https://www.sba.gov/sites/default/files/Business-Survival.pdf]. Therefore, investing time in Financial Risk Management can help you beat the odds of financial failure.
How Should I Start? Identify Potential Risks
First, start by identifying potential financial risks (i.e., threats) to your practice. You’ll want to take a thorough look at the exposures to your practice. This will include not only risks related to your Revenues but also risks related to controlling Expenses, managing your cash flows and operational issues that impact your finances, such as the secure backup and storage of your accounting information. In this early step of the process, write down potential risks regardless of whether or not you feel they currently are being managed sufficiently. In other words, start with a broad look of what financial threats could inherently occur in your OD practice; the list can later be narrowed down later, but for now, you want to avoid missing anything important.
Where Should I Focus? Assess the Likelihood and Impact
Once you’ve identified a holistic list of potential risks that could impact your OD practice, assess each risk in terms of its likelihood to happen as well as the level of impact it would have. This process will help you prioritize potential risks that have the most negative impact if they were to occur. These are the ones you want to focus on at this time.
What Actions Should I Take? Implement a Plan
Implementing a plan of action to address your highest risks is the most critical part of the process. For example, let’s say you’ve identified Profitability as a key risk – that is, the risk that your profit margins are too low to sustain your practice. You’ll want to brainstorm on what types of steps can be taken to manage this risk. If you employ a bookkeeper or accountant, get their input as well.
Illustrative Example: Action Plan to Address Profitability Risk:
Spend dedicated time each month with the accountant to review financial statements and Key Performance Indicators.
Review of pricing strategy for opportunities to increase optical sales amounts
End of second quarter
Test new marketing strategies to increase sales volumes
Detailed review of discretionary expenses for potential ways to cut costs*
End of this month
* To help in this regard, see my article, 7 Expenses Where You Can Impact Your Bottom Line
What Happens Next? Monitoring Progress
Financial Risk Management is an ongoing process, not a one-time event. Be sure to monitor how well your action plan is working to address your risks and adjust as needed. Also remember that your key risks may change over time, based on both external and internal factors.
An Ounce of Prevention is Worth a Pound of Cure
You may feel like there’s not enough time to do the above approach, given all of your other priorities. However, it’s better to be proactive now and take control of your destiny; the hardest part is just getting started! If the above tasks still seem daunting to you and your staff, consider hiring an outside consultant to lead you through this process. A seasoned professional will be knowledgeable about the wide range of risks that practices like yours face and can help customize a risk management plan that works for your specific business.
If you have questions and/or would like to understand more about Managing Your Financial Risks, please reach out to me, I’ll be happy to talk with you. Orin Schepps, Founder and CEO @consultanceaccounting http://www.consultancellc.com