Is your P&L serving you or are you serving your P&L?
Is your P&L serving you or are you serving your P&L?
A profit and loss account is a powerful but deceptive thing

A profit and loss (P&L) account is a powerful but deceptive thing. If you run a business it can serve as a misleading health check, with insidious effects. You need your P&L, obviously, but take care to keep it in its place, otherwise your practice will be moving in the wrong direction when it appears that the opposite is happening.

That is to say that if you don’t truly understand your P&L, you’re mainly interested in ways to make it look better. The obvious way to do this as a principal is to work more clinical hours. This will have a pleasing effect on the bottom line — you’ll see the revenue lift immediately — and it’s comfortable to do. You know your work, even if it’s a slog.

The reason the bottom line will begin to look so good, though, is because you’re not getting paid. That’s why it improves the profitability of your business, on paper at least, fully encouraged by your accountant who may be oblivious to a world outside the P&L. This is, therefore, an addictive activity that appeals to your ego, and so you warm to it. You enhance your clinical skills with more training, build a formidable reputation as a clinician par excellence, and each month when you check the P&L it’s backslaps all round.

So you keep making sure that you meet all the new patients, and success continues to ensue. But this model will break, as it does almost universally, when your revenue nears £1m. A little clarification here, if you’re confused because we’ve talked about hitting the £1m sweet spot a lot.

While you build a business that’s based on a sole trader model you never get the super profit. It’s a place where you can earn a good crust, but you can only do so much. You can break that glass ceiling only by transcending the entire model: you only become scalable when you leverage the capabilities of you and your team. The £1m sweet spot is simultaneously the entry-level to this launchpad, therefore, and the plateau at the end of the sole trader road.

Your P&L doesn’t measure the culture of your organisation, its brand position or your capacity for leadership either. Without these, your business can’t be scalable either, and so if you want to lift off everything has to change. This is not news, of course — Michael Gerber wrote about working on your business not in it 20 years ago — but the dangers remain clear and present in all personal service industries.

I’m afraid there are also booby traps in a “paint it by numbers” approach to scalability. We did a diagnostic day for a gentleman who agreed to spend one day a week less in surgery and bumped into him six months later. So how was business? Nothing had changed, he said. What had he done with the day? Nothing.

Conversely, I had a client who hired a coach after being attracted by the promise of more profit. He achieved it but had to work an extra day of the week. It wasn’t scalable or sophisticated. Some people just need to pay someone else to feel like they are being held accountable I suppose.

There are ingredients (like working on your business rather than in it) that definitely help, but the way you apply them has to make sense to you. You might want to hire a lieutenant (business manager) and a sales manager (treatment coordinator). But primarily you need something to hook it all on, a vision and a purpose. This isn’t a checklist. If you put the icing in first to the cake mixture, it won’t turn out to be a tasty a cake. Equally, if you’re always baking, you can’t run a bakery.

Ross Martin
By Ross Martin Management Consultant
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