Shorr Solutions: The Podcast – Ep. 162 – Navigating Financial Health: Insights on Profit and Loss

00:30

Cristian Devoz

Well, hello everybody, and welcome back to another episode of Shorr Solutions: The Podcast. I’m your host, Cristian Devoz and I will be hosting this episode with our special guest, Jay Shorr our CEO and founder, and the choreographer of our team. So today’s topic is gonna be quite interesting.

It’s one of our favorites is all about the money, and we’re gonna be talking about P&Ls and how P&Ls are more than just numbers. They’re more than just a statement that you have to look at with your accountant or your bookkeeper every so often. It’s an actual read on your business health.

So that’s what we’re gonna be talking about today. But Jay, do you wanna say hello to our audience out there?

01:15

Jay A Shorr

All right. Well, thanks, Cristian. As always, it’s great to be back as a guest on my own podcast. It almost feels like one of the late night TV hosts that goes on vacation and they have guest hosts fill in instead.

But I love being a guest. So let’s get to it. Let’s talk about the money.

01:36

Cristian Devoz

So I guess the first thing, Jay, I would say that we can discuss is, you know, it is more than revenue and expenses, right? A P&L, a profit and loss statement.

As I said at the beginning, it tells you the financial health of your business. And it’s not just about looking at the bottom line. You really have to understand each of those line items, what they mean, what’s going into them, and being able to see, okay, what opportunities are here for me to reduce expenses, what opportunities are there for me to increase my revenue?

And what can I do to make my business run more efficiently so that my numbers can get to those thresholds where according to industry standards you should be?

And then of course there are outliers out there too, but we definitely want to be at least at where the industry standard wants you to be, which is 30 to 35% margin on your net profit.

That’s where we want many of our clients to be. If we can get higher than that and we do have a few outliers then that is wonderful. But if you’re below that number, you really have to take a look and see what the numbers are telling you. What’s the story behind those numbers?

So let’s talk a little bit about the importance of categories, Jay.

02:49

Jay A Shorr

Well, I like to look at it a little bit differently as well. Yes, you should always be looking a little bit in more detail when your numbers are lower, but I’ve always believed when your numbers are high as well, I should always pay strict attention because if they go an anomaly high, I wondered is it a false reading?

Did something not get paid that month, but got paid twice the following month, which inflated the numbers?

I like to go on rolling averages where, you know, we do analyze P&Ls on a monthly basis, and there are some we do on a quarterly basis. You’ll find the anomalies on the monthly roll because some things may have been paid twice in one month for the following month, or it didn’t get paid one month and it got paid twice the following month.

So the numbers are going to be skewed. But if you take a year to date average, no matter how many months it is, we create formulas when we analyze spreadsheets. So we see what parameter does it usually fall in.

But let’s talk about what that term chart of accounts really, really means.

Now, you know, Cristian mentioned about the importance of categories and what happens when too many expenses are lumped together.

Well, I’m a very detailed kind of a guy. So I want to know if you have medical supply. And you know, my former practice, I had dermatology, I had plastic surgery, we had cosmetic surgery, we had med spa, we had OR, and medical supply was just never good enough.

Was it medical supply medical? Was it medical supply cosmetic for the med spa side? Was it medical supply surgical?

So this way I was able to know how much profit each one of my product lines was making. Because if I take an overall profitability of the practice, that’s great to know.

But what if one department or one product line is severely bringing down a very profitable product line? How much more time and energy do I really want to invest in something that’s not making me money instead of putting my time, effort, money into something that really is?

So what do I do? We bifurcate that P&L into specific categories. And I just mentioned to you like medical supply. That’s a very easy one.

And if you want to get more granular, under medical supply cosmetic, the next subcategory could be neurotoxins, dermal fillers, you know, is it tips for lasers.

Now, I’m not going to mention any trade names in this podcast, all right, as a conflict of interest. We’re not going to mention the dermal fillers, we’re not going to mention the toxins. You all know what they are.

But it is very important to segregate like maintenance from rent and all those other things because when we analyze month to month and quarter to quarter, we want to see, as Cristian just mentioned, are you above, below, or at that industry standard?

Are you running what we call the parabolic effect? It goes up and down in a parabola. There is an easy medium somewhere, you know, when you take that parabola and that’s where you want to be.

You know, kind of like when you’re looking at a stock. What’s the midpoint? And where are we right now? Is there room—

06:22

Cristian Devoz

Right.

06:23

Jay A Shorr

—for growth in a specific product line? So you can get very granular when you’re taking your chart of accounts and you actually segregate and you have, you know, subcategories to kind of like in my Explorer, I can have a folder, then I can have a subcategory and a sub-subcategory.

06:42

Jay A Shorr

And then when you’re analyzing something, I want you to understand something. People tell me how much percent they did and stuff like that. And I want to know: can you take percent to the bank? Do you pay your staff in a percent or do you pay them in dollars? You may pay a percent of something to them, but you pay them in dollars.

Now, I like to know where is our growth in percentages? But don’t get mixed up with percentages when you have high percentages when it’s an increase from a low dollar. Because a dollar to two dollars is a hundred percent.

07:23

Cristian Devoz

There you go.

07:25

Jay A Shorr

$50,000, you need $100,000 to get to that same percent. So—

07:31

Cristian Devoz

Right.

07:31

Jay A Shorr

It’s you know kind of all relative. I like to see dollars. Dollars speaks to me, and that’s what I can put in the bank.

And revenue growth doesn’t mean profit, all right? Because there are two ways to make profit. A, increase profitable revenue, and secondly, reduce expenses.

Now, Cristian and I always have this running comment that when you reduce an expense by a dollar, you just made a dollar profit. All right. But when you bring in a dollar, Cristian mentioned earlier, try to get to a 35% margin, then only 35 cents of that dollar is profit. See the difference?

So when you’re percentages versus dollars, and you can increase your revenue if it’s not getting you profit, more profit, it just means you’re working harder, unless you raised your prices. You’re working harder to get more revenue growth, but you didn’t make any more money. Why would we do that?

Well, sometimes you have to do things not to make money in order to test the market and bring people in for other product lines of your practice. But if it’s not working that way and all you’re doing is increasing revenue by daily deals and, you know, those buy one BOGOs, get ones free. They don’t usually work.

They’ll get you a ton of patients, but they’re not loyal, faithful patients. So always wonder, revenue growth is great, but I want profitable revenue growth.

09:05

Cristian Devoz

Yeah, absolutely, Jay. And a lot of people really tend to focus on revenue. They wanna increase their revenue.

But just to give a very easy example of should I focus on putting all these extra effort investments and training my team and putting marketing dollars in to try and increase my revenue? Let’s say that you do all of that work.

And I’ll give you an example. You’re able to increase your revenue for 100K to 150. At a ten percent net profit, you’re only making about what, another five thousand dollars?

09:34

Jay A Shorr

Yeah.

09:35

Cristian Devoz

So all of that work for another five thousand dollars on net profit doesn’t make a lot of sense. However, if you’re able to reduce an expense by five thousand dollars or ten thousand dollars, you’re doing the same amount of work and you’re making that much more on your net profit.

So back to what Jay was saying. Always making sure that you’re streamlining and cutting down on expenses that are unnecessary is gonna help you get the biggest bang for your buck.

With that being said, revenue is also important, but making sure that your expenses don’t continually increase as your revenue increase because then all your work is going basically nowhere. So we’re gonna make sure that yeah.

10:11

Jay A Shorr

So, Cristian, let me interrupt you for a second because I don’t think that we’ll be out of these inflationary times by the time that this podcast actually runs.

And this is very apolitical because you know, Cristian is in Colombia. I’m here in the US, and we’re talking about inflation here, and we’ve talked about inflation for years and years and years and years. It never goes away. Sometimes it goes up and down.

How do you manage through these inflations when your costs of your expenses, you know, go up insurmountable higher than the cost that you can increase the price of your procedures and not chase your patients away? Because remember, they’re also feeling the crunch.

10:55

Cristian Devoz

Well, there are many things that you can do to try and minimize the hit on your practice. You just mentioned one of them, which is increasing your prices. But there is just so much you can increase without affecting obviously your patients’ pockets and then maybe reducing that volume because of that.

11:11

Jay A Shorr

Well but well—

11:12

Jay A Shorr

When let’s have a conversation. This is pretty interesting. I now—

11:15

Cristian Devoz

Yeah, it’s a it’s a good debate. I mean it’s yeah.

11:18

Jay A Shorr

Well, but aren’t your patients feeling the crunch now of this inflation? So they have less expendable income as well, right?

So now if you’re going to raise your prices for the lucky patients that you would have coming in, now they have less dollars to spend. You’re raising your prices. I’m not saying it’s wrong, but will you make more profit with lesser people but a higher margin per procedure than you would if you just kept on going?

It didn’t raise your prices. I’m afraid of chasing the patient away in these times right now.

11:53

Cristian Devoz

Right, exactly. That’s why I was saying you gotta be careful how much you increase if you’re gonna do increases. But then again, that’s where you really need to focus on cutting expenses. That’s what the big companies do during these times. They try to cut down expenses and then of course if you can increase your prices slightly to help you manage that, that’s another way you could handle that.

But Jay, what do you think? Are there any other things that they can do? ‘Cause those are the only two things that many people think about when, you know, maybe I need to reduce my, you know, my expenses, I need to increase my pricing, but what else can they do? What else is at their disposal?

12:23

Jay A Shorr

I always caution, you know, one of the first things people love to do is cut payroll. All right, because that’s a very heavy lay them off. And—

12:32

Cristian Devoz

Fire people, lay lay off. Mm-hmm. Yeah.

12:36

Jay A Shorr

We saw this during COVID. There were furloughs and layoffs. The difference was layoffs, you’re not coming back, right? Was a very—

12:43

Cristian Devoz

Right.

12:43

Jay A Shorr

High furloughs, you don’t have to bring them back, but usually the furlough term was a term that we’re gonna bring you back.

I like to bite the bullet, quite frankly. And as a business owner, I will personally take less profits in order to save my team. Because things do pick up. I’ve been through this many, many times.

And what won’t pick up is that loyal and faithful team that you let go. They didn’t quit. You let them go.

So when it comes time and things are better, guess what? Other practices may have also done the same thing because this happened during COVID. And those good people that you let go aren’t there anymore.

And we all know what a nightmare it is to get good people. I would weather through it, I would try and stage my procedures. You know, I don’t want to get off too far on the beaten track. This is another podcast we can have.

So let’s go back and let’s talk—

13:36

Cristian Devoz

Yes.

13:36

Jay A Shorr

About cash and accrual. When we analyze P&Ls, what’s the difference?

Understanding Seasonality in Your Practice

15:33
Cristian Devoz
Right, exactly. I mean, the next thing I really want to talk about, Jay, now that you’re mentioning the whole accrual, it makes me think of also understanding how your business functions throughout the year. Cause you know, one month of P&L doesn’t tell you the whole story of your business. And we wanna really look at seasonality. So when we look at our P&L we like to look at the previous year, two years ago, and what was January this year versus last year versus 2024.

We wanna look at February the same way. So we can look at seasonality. We can see okay, so there are specific months of the year where you have a lot of revenue versus other months where you have your slow seasons. And it can vary depending on your location. And an easy example for that is we have a client who is, you know, in Nantucket. And for what other practices in the in in other states in the US, what they might consider A slow season is what she considers a high season, because that’s where many people go on vacation, right? So many people get procedures while they’re there every business may have a difference in seasonality, but as long as you look at those numbers, understand what it is, and then prepare for those months, that can be a great way to also make decisions. Because at the end of the day, it’s not just looking at numbers or your budget, it’s like, okay, what am I gonna do as a result?

of this analysis. What changes do I need to make? Do I need to do more marketing now to prepare for that slow season? And do I need to look at okay, maybe I’m making too much revenue. I need to maybe get a device so that I can do a section 179, And and that way I can reduce my tax liability at the end of the year. So if you’re able to analyze your PNL month after month, look at seasonality, look at year over year You’re gonna be able to make important decisions for your business to ensure that you can, you know, make the most that you can.

17:26
Cristian Devoz
Now Jay, let me ask you. When it comes to making decisions, you were a business owner. So you have been in those in those shoes. in your experience, Jay, how often should you review it? You know, who needs to know these numbers? Should you let your practice administrator know? Should you let your practice manager know? should you include your accountant in those reviews? Should you include your you know, your bookkeeper? How should this be done?

17:52
Jay A Shorr
Okay, so it depends. How’s that sound? Every lawyer that I ever work with

17:56
Cristian Devoz
Ha ha ha.

17:57
Jay A Shorr
tells me the same question. It depends, you know.

18:00
Cristian Devoz
Right.

18:01
Jay A Shorr
But the bottom line to it really is it depends. are you a small practice? Are you a new practice? Are you a practice in trouble? All right, financially, a practice that is doing very, very well, may do it less often because there’s not that emergent need, although time is of the essence because what you do and what you analyze today is a result of what happened over the last month to last quarter. All right. And it’s going to be a true reflection of what can be, at least you can make some changes ahead of time if you find something that’s blaring out at you to prevent it from happening again the next month or quarter.

So the bottom line is I like to review PLs monthly. We have certain clients that are very large clients and we do their PLs monthly. And then other clients we have, we do them quarterly. Some we do them with the client. Some we do them with the client and their accountant. Their accountant prepares the P&L. We get it ahead of time.

We look at it, we do our emphasis and make our corrections and questions, send it back to the accountant, and the client get some answers on some of our questions that we’ve analyzed. And then we have a meeting, and the accountant and us and the client are there. And I have to tell you, I love the accountants, but not all of them will specialize in medical. So there is a learning curve, even for us, because we specialize in nothing but medical.

19:36
Jay A Shorr
All right. So we want it a certain way. And we’ll share that with the accountant until they get to know how we like certain things. And they count on us because of our experience. You know, we’re looking at certain percentages to revenue, and Christian does these marvelous things with Excel, how much each category, subcategory, chart of accounts is as a percentage to the total expenses. And What it is as an a ratio of expense to revenue. All right. And we do that for each category. It’s very, very important because we want to know. And you know, I’ll tell you the most common denominator that we find: missed categorized items. And when we ask the client, what is this? I get the same answer. I don’t know. I have to ask, they’ll tell you the name of A bookkeeper or a manager. And now let me answer the next part. Who should review it? First of all, definitely the practice owner or the med spa owner, if it’s a PA, NP, doctor, whatever. All right. but then the most important part is who do you want seeing what’s being analyzed? There’s a difference between a manager and an administrator. Some people use one as both.

But a manager just manages the internal processes. The administrator hand manages the manager and has decision-making powers, fiscal responsibility, negotiating capabilities. Yes, a manager can do that, but then if they do it, then they’re an administrator handling everything administration of the practice. Be careful who you allow in to see your books. And if you do allow them, I would share that there’s no editing capability.

It’s only view. In another episode that we have done, and we’ll probably do again, we talked about theft. We can uncover theft and deception very quickly. It’s a pattern.

I’m not saying you have thieves, but if you haven’t been stolen from, you haven’t been in practice long enough and I’ll leave it at that.

21:47
Cristian Devoz
That’s like one of my favorite phrases that you use, because so true. And we have had horror stories with some of our clients that, you know, in the past, before they, you know, started working with us, maybe they had hired certain people that then they didn’t know until we started looking at their PLs, we started asking questions. What is going on here?

22:08
Jay A Shorr
You know, I I’ll I’ll I’ll share

22:09
Cristian Devoz
they were Yeah.

22:10
Jay A Shorr
a a quick story. Many, many years ago, Mara

22:13
Cristian Devoz
Yeah.

22:14
Jay A Shorr
and I were on a site visit. And Mara and I picked up that the amount of thermage tips They had ordered, never reconciled to the revenue. Because if you have a lot of tips that you’ve previously purchased and they’re still in inventory and you’re not doing the procedures, then the tips should still be there. But when you’re constantly ordering the same product, but you’re not performing the procedures, something’s not right.

And Mara and I questioned the doctor, and he says, yeah, I I think the PA that I have here working part-time, he works somewhere else doing Thermage and he he probably took them. And I said, Well, what are you gonna do about it? He says, Well, nothing, because if I don’t have him, he’ll really take a lot of my business away. And there it is, he accepted the theft.

23:10
Cristian Devoz
Hm. and that’s worst case scenario, right? When people have to accept that situation without realizing that later down the line it’s not gonna be just a a thermatched tip. Can be a little more here and there.

23:21
Jay A Shorr
But how would it have been picked up if we didn’t show a bifurcated P&L, Medical Supply Cosmetic underscore Thermage. And without

23:33
Cristian Devoz
Right.

23:33
Jay A Shorr
doing that P&L. You would not pick that up.

23:36
Cristian Devoz
Exactly. And it’s the same, we have a client who, for example, we’re looking at his marketing and it was all bundled in marketing. So we asked him, How much are you putting on meta ads? How much are you putting on Google Ads? They didn’t know. We had to actually look at the numbers, have them bifurcated, and then we realize, okay, so now we can see how much you’re putting on ads. Let’s see what’s your return investment. Let’s talk about your leads. Are they converting? And then let’s see, you know, how much are you getting for all those marketing dollars you’re putting in? So

As we do these exercises, really there’s a lot of decision making that happens. Sometimes they realize that their marketing is not working. So they have to change it. Sometimes they realize that maybe their team is not converting enough. So now they have to train their team and we move into that direction. So let your P&L be literally like when you go to the doctor, they send you to do all your tests, your lab work, and based

24:29
Jay A Shorr
Your H and P.

24:30
Cristian Devoz
your H and P, right? So that’s how you know and you know what you need to work on. Do you need to eat less Carbs, do you need to, you know, exercise a little more? What are the decisions you’re gonna make based on those results? And it’s the same with the P&L and that’s how you should treat it.

24:46
Cristian Devoz
and you know what? That’s what we do for our clients, and we even have specific packages that we are offering to people that only want to have an analysis done. So maybe you’re not ready to commit to a whole year of consulting. That’s fine. We can come in, we can help you analyze your numbers. We can tell you, okay, this is your H&P this is what you need to do to improve your business. These are the decisions that we believe you need to make in order to get your numbers where they should be. So with that being said.

feel free to go to your to our website in the probably in the show notes you will see a link to our scheduling a consult page. Feel free to schedule a free console with us and we can discuss how we can help you as well to review your numbers and get you to that next level just like we do every single month with our clients. And with that, Jay, any final words of you know advice for our listeners?

25:37
Jay A Shorr
Yeah, P&Ls are not fun. You know who they’re fun to? People like Cristian

25:44
Cristian Devoz
Like

25:44
Jay A Shorr
and I. All right. I I I look at

25:44
Cristian Devoz
Like us, we love spreadsheets and we like numbers.

Final Advice for Reviewing Your P&L

25:49
Jay A Shorr
a P&L like an architect looks at a blueprint. All right. That’s how an anesthesiologist will look at an H&P and blood work. They go down, and what do you look for? High.

Every time I get my blood work, H. Well, what Christian does is he does his magic on the PLs and we look for the H. The H is like things that have comments on the side or they’re highlighted in yellow. All right. And then those are the questions that we ask the client. So it’s never too soon and it’s never too late to start analyzing your numbers. And sometimes your accountant.

May not always be the one because your accountant is there to categorize what you give them and what you tell them it is, and then do your taxes. They’re not auditing it. We are auditing it. I’m not asking you for every different receipt. I might, if you’re a client, because I want to see.

But I like to see that everything is what we used to call copacetic. All right. And with that, I

26:56
Cristian Devoz
There you go. Hey.

26:58
Jay A Shorr
I I I love to speak with anybody that’s looking for advice.

27:02
Cristian Devoz
thank you everyone for watching. We hope that you were able to get some good insights from this episode and we look forward to seeing you on the next one. And Jay, do you wanna do the closing?

27:12
Jay A Shorr
Good luck. God bless.