Every practice (that stays in business longer than one year) performs a basic financial analysis on how well they are performing. Using a tool like a practice management dashboard, the process itself is easy to set up, and just like using spreadsheets in Excel, you can quickly see monthly trends, yearly trends, and percentage change.
Reviewing a financial trend analysis helps to uncover what makes the business grow, shrink, or remain stable. In other words, a financial trend shows you what happened to the revenues and earnings, but you need to ask and identify why that happened. Possible reasons for the slowing of growth could vary significantly. These multiple reasons is why the data creates the basis for the question “what happened” so that doctors and managers can review “why is the data doing this” and “what do I do now.
To begin answering the data-related question of what happened, practices can perform a simple financial trend analysis in 3 simple steps:
Step one: Look at how well you’re growing year to date. A monthly trend analysis looks at how a business performs from one month to the next. If the business is growing one month to the next, the assumption is that the business has a positive trend. See how well an aesthetic practice is performing so far in 2019.
Step two: Analyze “year-over-year” trends. A year-over-year trend compares a business’s performance over similar time periods. In other words, instead of comparing how well February performed compared to January, you would compare February of this year against February of last year.
Year-over-year trends show trends and fluctuations for other reasons such as spring break, school vacation, holidays, etc and seeing the same trends in multiple years helps you identify (and prepare).
With the revenue plotted out in multiple years like in the graph above, a couple of things become much clearer.
- This practice’s revenue has become much less volatile in recent years, with peaks and valleys being far less dramatic
- February sales take an expected dip, but last year was not affected (we should find out why)
- While this year’s revenue started out lower in Q1, Q2’s numbers are healthier, and we should expect this trend to continue
Step three: Percentage change. When you graph out the percent growth, you should see if there is a definite trend in the growth of the business.
Looking at the graph above, it’s clear that last year’s numbers were stronger than 2019 in January, February, and March. Not until April did this practice increase year over year revenue. If we take an average of 3 months in each quarter, we find that in this practice saw a loss of -9.2% when comparing Q1 2019 to 2018, and an increase of 6.1%. Therefore, this practice is actually not growing, but shrinking an average of -1.5% year over year.
Just because a business is trending strongly in one direction is not an indication that it will continue to trend in that way. You perform financial trend analysis to uncover what is making the business grow, shrink, or remain stable. In other words, a financial trend shows you what happened to the revenues and earnings, but you need to ask and identify why that happened.