There are four key functions that underpin any business: people, marketing, operations, and finance. We can think of these as the pillars that uphold you, with each playing a role in overall stability.
Depending on the size of your practice, you might be juggling these elements yourself, or you might have different teams or managers focused on specific areas. You may even outsource some elements; for instance, collaborating with an external agency on your marketing.
Whatever your setup, it’s key that these four functions are working together and working effectively. Rather like the running of a healthy body, neglecting just one of them can cause transference of stress that results in symptoms displaying elsewhere.
As an example, it’s becoming commonly accepted that growing practices need to invest 5% of the turnover they want to achieve in marketing. This means that if you’re aiming to be a £1million practice, you should be investing £50,000 in marketing now, in order to get there. If you don’t make this investment, you won’t be attracting those crucial new patients, which limits your growth. This in turn reduces your profit (creating a knock-on effect on your finances), which may ultimately cause you to rethink your wage bill and reduce your staff numbers (affecting operations and people). Here, we see that marketing – one of the key pillars – can’t and doesn’t exist in isolation.
It goes without saying that this is true for the other pillars too. In particular, one area that’s routinely underappreciated is the finance function.
While marketing has become an accepted investment, finance suffers from a legacy of being considered a ‘necessary evil’. Spending as little as possible on finance is a well-worn cost-cutting exercise, but in a very real sense, it doesn’t pay. You may save money by taking on bookkeeping yourself, or paying £500 a year for accountancy, but this will cause worrying symptoms in the long run – even if they’re not immediately visible.
Instead, finance should be given the consideration it deserves. This means paying for what you need, not what you can get away with. We have seen that an effective business invests 3-4% of its turnover in a robust finance function. This may be made up of a number of different parts. These will look slightly different for each business, but typically the investment will cover the following areas;
- Employees: in particular, a proportion of a business or practice manager’s salary. They’re the ones who’ll keep an eye on finances; paying suppliers, negotiating discounts, and reviewing spend against budget.
- Tracking good-quality data: having up-to-date figures at your fingertips is a must. You may have a bookkeeper to do this, your accountant may take care of it for you, or you may do it in-house (or even yourself). However you keep track of income and expenditure, there will be an associated cost. Even if you do this yourself, there’s still a cost in the form of time spent, which could have been deployed elsewhere in the business.
- Annual compliance: these are the important boxes to tick, such as preparation of your accounts and tax returns for filing with the relevant bodies each year.
- Management accounts: this is a general term for the collation, analysis and interpretation of that wonderfully accurate data your bookkeeping provides. It’s all very well to implement cloud-based bookkeeping to keep track of things (and we definitely recommend that you do), but you also need to dedicate time to looking at the data, drawing conclusions and taking action. If this isn’t an area you’re especially comfortable with, that’s fine – this is where getting an expert in (whether from Hive or elsewhere) is beneficial. They’ll be able to help you make sense of the data, which is vital for playing an active role and understanding your current business model, where you want to get to, and which levers you need to pull in order to get there.
- Sound tax advice: reviewing your business model and profitability is obviously key. However, making sure you retain as much of that profit is equally important. Getting expert advice in the complicated tax arena can easily save you tens of thousands of pounds each year; funds that you can choose to either spend or reinvest in your business. The important thing is that the money you’re entitled to remains in your pocket, not HMRC’s.
If you’re an associate, not a practice owner, this advice still applies. Fundamentally, if you’re a business with costs and tax bills, you should be investing in your finance function.
Underlying the more specific areas considered here, what we’re really talking about is a shift in mindset. This approach represents a change to viewing investment in the finance function as just that: an investment, not a cost. A good investment will yield returns, and although investing in marketing directly increases income and profits in a way that’s very appealing, investing in a good finance function will also improve your position – just in a less immediately obvious way.
At Hive, we can help you leverage maximum returns in your investment using our multidisciplinary approach. To find out more, get in touch with our team.