Conducting a Financial Analysis of Your Audiology Practice

A well thought out business plan contains information that is the basis for assessing the financial status of any audiology practice. A business plan includes a detailed description of all aspects of the practice, including financial goals. Written business plans are an important tool for new and established practices and should be developed and revised on an ongoing basis.

A business plan includes a pro forma income statement that projects the future performance of a practice.A pro forma income statement, sometimes called a profit and loss (P and L) statement, projects how well a practice will operate by estimating how much money a practice will make and spend over a period of time. The basic calculation for a pro forma income statement is expected earnings/revenue (i.e., expected expenses = profit or loss).

In preparing a pro forma income statement, it is very important to account for all revenue and expenses that are anticipated for your practice. Revenue may include fees for services, devices, accessories, and supplies. The list of expenses is much more extensive, and includes

• salaries and benefits,
• advertising,
• overhead (utilities, maintenance, rent, etc.),
• equipment and calibration,
• dues and subscriptions,
• costs of goods sold (hearing aids and supplies).

The comparison of a pro forma income statement with an historical income statement provides important information on how a practice is tracking toward its financial goals. First, compare the overall performance (bottom line) on the pro forma income statement with the historical income statement and notes any variations. To investigate the source of variations, compare anticipated revenue with actual revenue and anticipated expenses with actual expenses to isolate areas for improvement. If practice profitability is not consistent with anticipated profits, the owner can seek to improve overall profitability by increasing revenue and/or decreasing expenses.