The bottom line: business focus fundamentals – Part One

October 15, 2024 Lynden Mason and Teréze Taber

Operating a successful practice requires so much more than just clinical expertise. One of the biggest challenges for business owners is balancing time working on their business – not just in it.

 

Instead of feeling overwhelmed by the numerous hats you’re expected to wear as a business owner, let me introduce you to the business focus fundamentals, or BFFs (can you tell I have teenage daughters?). It’s not perhaps the most sophisticated abbreviation, but it’s a simple tool you can refer to daily by asking: am I spending enough time developing a healthy relationship with my BFFs and, therefore, my business?

 

I have spent 20 years owning and operating businesses in New Zealand, both as an optometrist and an entrepreneur. After growing a group of 10 optometry practices and selling to Luxottica in 2010, I then switched to another field. Initially, I opened one hairdressing salon and rebranded it Vivo. Over the next decade, I expanded Vivo into a nationwide group (I never picked up a pair of scissors or learned how to dye hair!). As time went on, I focused on certain principles and realised they could be relied upon in any business operation. However, they’re easily diluted by the numerous pressures that every business owner has on their time, finances and energy. Throw in a recession and a cost-of-living crisis and it’s fair to say things feel a little stressful right now. But if you focus on the BFFs, they are a proven, effective and simple maxim for keeping your clinic profitable, no matter the financial climate.  

 

The BFFs include vision and strategy, financial management recruitment, staff development and training, branding, marketing, client experience, inventory/supplier management and time management (to enable you to juggle all of these things!).

 

In the first of this series, Teréze and I will help you become comfortable with the BFFs. 

 

Financial statements and management 

 

This is the place to start; and it’s a biggie. A financially viable business model allows us to provide sustainable care for our clients, while personally being able to enjoy the success of our labour. However, it’s our experience that many business owners don’t have a good grip on their numbers.

 

Financial statements are normally provided by your accountant at the end of the financial year. You likely glance at the numbers swimming on the page, swear a little at the cost of IRD compliance and the tax bill you’ve incurred, then swirl your signature at the ‘sign here’ Post-it note. That’s a wrap for this year, let’s get back into the practice…

 

Not so fast! Financial statements are an absolute treasure trove of information. Because they’re done at the end of a financial period, by the time you receive them they’re technically out of date. But think of them this way: would you see a patient without taking a clinical history? Of course not – it’s the first thing you’d do. A clinical history allows you to understand so much about the client: what has happened; predisposing risk factors; challenges they may be facing; areas that need assistance and attention; and identifying trends. It also gives you an idea of the demands of the patient’s lifestyle and their hoped-for outcomes.

 

It’s a game-changer to adopt the same perspective with the numbers in your financial statement by recognising they reflect your business’ actions and behaviours. As well as offering signposts, financial statements offer areas we call levers or drivers. For example, a typical optometry practice’s fixed costs are high, with wages and overheads both sizable monthly outgoings. To meet these expenses, a critical area to focus on in the profit and loss statement is your cost of goods (COG) and gross profit margin (GPM). This margin is a vital lever. For an optometry practice, there’s minimal COG related to eye examinations, so the main COG relate to retail: frames, lenses and contact lenses. The GPM is what’s left once you’ve paid your suppliers for these items.

 

We encourage owners to review this area monthly, with laser focus. The two ways to influence this number is to either buy goods for less or sell goods for more. Ideally, both! This means constantly looking at your product mix, talking to your suppliers, looking at your pricing strategy and communicating sales focus areas to your team. What’s the bottom line for your COG margin? The lower the better, of course, but an ideal goal is 25–35%, which means a GPM of 65–75%.

 

For optometry practices, therefore, a very important formula to increase the overall profitability and value of your business, is to reduce COG to increase GPM. It might not be as simple as it sounds, but it’s a fundamental focus. A warning here: it may require some uncomfortable and challenging conversations and changing your established habits. 

 

This is the power and importance of financial statements – to see the signposts, help you to set about changing key drivers and pulling the available levers. Over the coming months, we’ll continue to unpack the BFFs that are going to work hard for you, just like good friends.

 

Lynden Mason is the co-founder and former co-owner of Vivo, a large Southern Hemisphere group of privately owned hair salons. An optometrist, he started his career by growing 10 optometry clinics across the North Island. Life and business partner Teréze Taber – a former television producer – is a passionate content writer and brand specialist. They are now focused on their private consultancy practice, Behind the Brand. Contact Lynden or Teréze on Lynden@behindthebrand.co.nz and tereze@behindthebrand.co.nz