With the ka-thunk of the clock, another day ends. For normal people,
that is. But as business owners we are usually looking at several more hours of
work after even the most dedicated employee shuffles home to a comfy couch and
warm bed.
We all know running a business, any business, is neither as glamorous
nor as easy as anyone thinks. As O&P professionals, we are trained and
certified as practitioners, assistants, fitters and technicians. Taking
measurements, performing
CAD scans, discussing options and expectations with clients,
and even documentation is the easy part of the job.
Running a business is work. Learning to run one is work too. Weekend
education and seminars are mandatory and usually offer snippets of insight, but
they never address the nitty-gritty. They never seem to answer the questions we
have absolutely no other resource for and we will never in a million years be
caught dead asking.
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So what are those questions? Although hard to fully address here,
let’s look at a few basics. What are financial statements? How do I
control my purchasing and inventory? How do I make a profit?
Business 101
Financial statements give a snapshot of the health of your business.
Generally thought to be the purview of larger companies, small businesses are
required to keep financial statements. Requirements vary by state and
accrediting organization, but at the very least a business should have:
- Income or profit and loss statement
- Balance sheet
- Cash flow statement
- Inventory statement
Most accounting software programs generate these types of reports, but
are they really necessary? Absolutely. No matter what your business size, you
will need regular financial statements. Banks, landlords, Medicare and
Medicaid, state and federal agencies, issuers of surety bonds, insurance and
other credit grantors will ask for some combination of financial information.
Let’s review the working definitions for each.
- Business net income is the difference between the total revenue and
the total expense reporting for a specific time period such as this month, last
quarter, or last year. - A balance sheet is an itemized statement that lists the total assets
and liabilities of a business portraying its net worth at a given moment of
time; a snapshot. - The cash flow statement measures the flow of money in and out of a
business. - An inventory statement is just that — a statement detailing
product on the shelves, in the drawers or under the cabinets.
But in reality, inventory is so much more.
Inventory is money. Inventory will drive a business’ budgeted
purchases over a given period of time. It will also represent an estimate of
future purchases and in this way ultimately drive a business’s cash flow.
Inventory statements are especially important when applying for inventory loans
and lines of credit. But here comes the “more” part: Purchasing costs
you money and if done improperly, can cost more than it needs to.
Better inventory control
Here are a few tips to better inventory control.
- Plan ahead. Review your sales for the last 6 months or the last
year. Order a basic inventory to meet 80% of those needs. - Combine orders. Purchasing once a week instead of daily could
potentially save hundreds of dollars in shipping fees and taxes. - Never ship overnight. Or at least only in emergencies or when the
client insists. Develop a rush order policy for your business by defining an
emergency. Outline the circumstances when you will order immediately or drop
ship the item directly to the client. - Don’t buy just because there is a sale.
- Don’t buy just because it is new.
Fill the cookie jar
Plain and simple, although you love what you do, you’re in business
to make a profit.
But many people confuse profit with income. As a result, they can’t
understand why all of their income isn’t getting them ahead; why they
can’t pay the bills; why the bank won’t extend their line of credit.
First we need to understand that, profit equals income minus expenses, with an
emphasis on the “minus.”
In most textbooks, profits and profitability are explained and defined
by price to earning ratios, complex formulas and incomprehensible terms. In the
real world, profits are what is left in the cookie jar after all the people and
bills are paid. A dynamic economy always affects a business, and right now our
economy is attacking bank accounts, whittling away profit by increasing
manufacturing expenses, expanding business requirements and decreasing demand.
Cutting costs typically requires reductions in spending, but there are other
ways to manage costs and maximize profit.
- Charge what your services are worth. Discounts aren’t always
the best option. Keep in mind that, with the “80% of something is better
than nothing” approach, your expenses are still at 100%. - Think twice. Spend once.
- Re-negotiate your supplier agreements. Many vendors offer discounts
and extended payment periods. - Re-evaluate your contracts.
- Manage your cash. Spend five minutes daily reviewing your accounts.
If you are a business owner — even if you have support staff that handles
the books — it makes sense to keep track of your business’ health.
Managing your cash provides insight into your business, allowing you to catch
minor issues before they become catastrophes.
We have all heard the old adage, “Work on your business not in your
business.” The disciplines of orthotics and prosthetics offer unique
opportunities to do both. More than 95% of O&P businesses are small or
family owned, epitomizing the entrepreneurial spirit. When working in your
profession, always keep in mind: you should never be too busy to work on your
business.
— Rhonda F. Turner PhD, JD, (BOCPO, CFm)
For more information:
These concepts are further detailed in the new book Boutique
MBA: Boutique Business Basics. Rhonda F. Turner is the author of the
Boutique MBA Series including Boutique Business Basics, Marketing Workbook
and Documentation Basics. She is also founder of American
Association of Breast Care Professionals and president of Prosthetic Solutions:
Isabos of Houston.
