Learning Your Financial Reports Magic Numbers

March 29, 2016
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There are “magic numbers” for every business, no matter what industry they’re in. For veterinary clinics, finding the right magic numbers is critical because they help to quickly diagnose the clinic’s overall business health. Owners that know their performance can easily identify opportunities to improve on, and celebrate where they’re finding the most success.

The three most common financial reports that show these used by veterinary practice owners and managers that show the ‘magic numbers’ are the profit and loss statement, balance sheet, and cash flow statement. Your profit and loss statement shows you how your business is performing overall during a given period of time. Your balance sheet shows you a snapshot of the overall value of the business at that moment. Finally, your cash flow statement displays your changes in assets and liability values over a period of time.

magic numberWhile these three statements can provide a practice owner with an idea of the success of their overall business, information from these statements can be confusing and difficult to understand without time and training. The Cash Conversion Cycle is a magic number that simply shows the number of days between investing and returning cash, so if your goal is to quickly know the working value of your business, the Cash Conversion Cycle [CCC] is an easy way to do so. It provides a snapshot of how quickly the business is converting capital investments back into cash by monitoring:

  • Inventory Management Quality
  • Accounts Receivable Levels
  • Accounts Payable Impact
  • Cost of Goods Spending
In March 2016, The Alliance for Practice Advancement [APA] began studying this concept and discussing real world methods to improve their individual practice’s CCC. If you believe understanding concepts like the CCC would be useful to you in your own practice, consider joining the APA.