Charting your practice health: Putting an income statement to work

A little extra paperwork can go a long way in giving an accurate picture of your practice's financial health.

By Katherine Vogt, AMNews staff. Nov. 27, 2006.

When one of his two partners left the group, Gene Murff, MD, an ob-gyn in Waco, Texas, knew it would impact practice finances. But Dr. Murff and his remaining partner weren't sure how much of an impact to expect.

Fortunately, they had a way to find out. They use an income statement to monitor revenue and expenses for their practice and use industry statistics to compare it with similar practices.

"With his leaving it was important to keep an eye on our expenses to make sure they were consistent with what the earnings of two physicians would produce, so it was very helpful," said Dr. Murff.

Many physicians are discovering just how useful income statements can be. By spelling out revenue and expenses, the statements can be used to detect patterns and reveal how practice finances are changing. And whether these accounting tools are prepared with professional help or within the practice, they can be customized to ensure that physicians get exactly the measurements they need.

With the help of his practice adviser, Dr. Murff has been using income statements for about 10 years. They have helped him with such things as staying competitive with staff salaries to revealing that the practice was spending too much on a type of injection given to pregnant women.

He believes the effort has paid off in spades. "The cost in doing this comes back in dividends in what you learn and savings that you develop."

Income statements -- one of three major financial statements commonly used by accountants -- come in all shapes and sizes. Generally they include two major categories: revenue and expenses, which are then broken down into smaller categories and used to calculate profitability.