BUSINESS OF PRACTICE: MANAGING THE HEALTH OF YOUR PRACTICE AND PERSONNEL
Fig. 3. Sample practice budget.
(operating profit of $480,000), would be considered by many to be a superior practice to one with $1.5 MM of operating revenue and operating profit mar- gin of 20% (operating profit of $300,000). Of course, numerous other factors would come to bear. Value is very much in the eye of the beholder. Managers should know how to measure operating
profit, even if it is just an approximation. In small, closely held businesses, interpreting profit usually requires a robust understanding of the elements of the financial statements, especially those of the profit and loss statement. The nature of small- business financial report preparation obscures results. Examples are listed below:
● Small-business bookkeeping fulfills dual purpos- es: annual tax reporting and management interpretation/decision making. Most all prac- tices keep one set of books for both purposes.
● These two purposes conflict: taxpayers strive to defer tax payment to the extent possible through a variety of strategies that reduce taxable income. At the same time, practice owners wish to see profit trending at improved levels year over year and against industry benchmarks.
For advanced analysis of practice profit, engage experts for practice valuation services (also called
