Guest guest Posted March 22, 2011 Report Share Posted March 22, 2011 Does anyone have info on figuring direct cost of sales for a service business such as physical therapy? Thanks D. Cothern Quote Link to comment Share on other sites More sharing options...
Guest guest Posted March 22, 2011 Report Share Posted March 22, 2011 Hi, -- Yes. Not knowing the nature of your business, I'd suggest that your facility's finance people may have a policy on what they calculate as " direct cost " . Or, if you're a private practice, I assume that you have an attorney, an accountant, and a PT practice consultant. They should each be able to develop this for your practice. The total costs of your business are made up of: Direct costs -- the cost of actitivies actually attributable to producing the service, and Indirect costs -- the cost of organizational activities not directly attributable to producing the service. In general, the direct cost of producing your PT services consists of 1) Facilty cost: the PT building (rent, lease, or depreciation), the utilities, and perhaps housekeeping. 2) The cost of the PT equipment spread over its productive lifetime, 3) The cost of any supplies consumed in providing the PT treatments, and 4) The wage associated cost of the PTs, PTAs, and any PT techs, including the taxes attributable to their wages. The key is that these are all the costs which are directly traceable to performing a PT treatment. INdirect costs, while valuable and still very necessary, may include marketing, receptionists and clerical staff, billing staff, legal, accounting, and consulting services, printing costs, postage, staff development, travel, organizational taxes, owner's compensation (unless part of it is directly attributable to performing treatments). If one is REALLY looking for detailed cost analysis and allocation, there is something called a DuPont Analysis which might be done for you by an accountant or MBA, but that is better applied to manufacturing processes. Japanese management principles would suggest that it's preferable to minimize direct cost, then maximize volume. Hope this is of value to you! Dr. Dick Hillyer, PT,DPT,MBA,MSM _____ From: PTManager [mailto:PTManager ] On Behalf Of pristinehealth Sent: Tuesday, March 22, 2011 10:47 AM To: PTManager Subject: Direct cost of sales Does anyone have info on figuring direct cost of sales for a service business such as physical therapy? Thanks D. Cothern Quote Link to comment Share on other sites More sharing options...
Guest guest Posted March 23, 2011 Report Share Posted March 23, 2011 Dick makes excellent points that work well and are used in many industries. Specifically for Private Practice PT I've taken a Management Accounting approach and split costs into three key areas: Labor, Variable and Fixed. As a service business labor is our largest expense and I believe it requires careful analysis and to be split out by job type. Labor costs including all wages (split by job category PT, PTA, Aide/Tech, Office, Owner), taxes, key benefits of health + insurance, retirement plan contributions, shared services (if part of a group), outside billing services (if used since otherwise you would need more office staff) & any per diem labor. Variable costs are those things that tend to vary with volume or are relatively easy to change including advertising, marketing, promotion, con-ed, travel, postage, laundry, consulting, clinical supplies & office supplies. Fixed expenses are those costs that tend to remain relatively stable with volume or are longer term commitments difficult to change based on short term variations in volume or are essential to your business. These costs include professional services, bank charges, dues, subscriptions, licenses, permits, equipment rental, small equipment purchases, business & professional liability insurance, workers compensation insurance, facility expenses (janitorial, rent & utilities), repairs, maintenance and telephone/communication. During the PT Benchmark studies over the last 9 years, in my teaching and consulting work I've found this type of approach really helps an owner/manager get a solid handle on the financial aspects of a practice. In this day and age of declining and more difficult payment, every PT needs to be aware of the cost of providing care and its relationship to productivity. While measuring it in terms of visits, I find looking at it in terms of income and expense per hour to be the more valuable measure. For further information follow this link: http://www.hcsconsulting.com/benchmark11.html Contact me with any questions. Chuck R. Felder, PT, SCS, MBA HCS Consulting, Inc. 2275 S Main St, Ste 102 (New address effective 1/3/2011) Corona, CA 92882 Mobile: (Pacific Time Zone) Personal Fax: Office: EM: CFelder@... <http://www.HCSconsulting.com> www.HCSconsulting.com This message is personal & confidential. From: PTManager [mailto:PTManager ] On Behalf Of Dick Hillyer Sent: Tuesday, March 22, 2011 4:08 PM To: PTManager Subject: RE: Direct cost of sales Hi, -- Yes. Not knowing the nature of your business, I'd suggest that your facility's finance people may have a policy on what they calculate as " direct cost " . Or, if you're a private practice, I assume that you have an attorney, an accountant, and a PT practice consultant. They should each be able to develop this for your practice. The total costs of your business are made up of: Direct costs -- the cost of actitivies actually attributable to producing the service, and Indirect costs -- the cost of organizational activities not directly attributable to producing the service. In general, the direct cost of producing your PT services consists of 1) Facilty cost: the PT building (rent, lease, or depreciation), the utilities, and perhaps housekeeping. 2) The cost of the PT equipment spread over its productive lifetime, 3) The cost of any supplies consumed in providing the PT treatments, and 4) The wage associated cost of the PTs, PTAs, and any PT techs, including the taxes attributable to their wages. The key is that these are all the costs which are directly traceable to performing a PT treatment. INdirect costs, while valuable and still very necessary, may include marketing, receptionists and clerical staff, billing staff, legal, accounting, and consulting services, printing costs, postage, staff development, travel, organizational taxes, owner's compensation (unless part of it is directly attributable to performing treatments). If one is REALLY looking for detailed cost analysis and allocation, there is something called a DuPont Analysis which might be done for you by an accountant or MBA, but that is better applied to manufacturing processes. Japanese management principles would suggest that it's preferable to minimize direct cost, then maximize volume. Hope this is of value to you! Dr. Dick Hillyer, PT,DPT,MBA,MSM _____ From: PTManager <mailto:PTManager%40yahoogroups.com> [mailto:PTManager <mailto:PTManager%40yahoogroups.com> ] On Behalf Of pristinehealth Sent: Tuesday, March 22, 2011 10:47 AM To: PTManager <mailto:PTManager%40yahoogroups.com> Subject: Direct cost of sales Does anyone have info on figuring direct cost of sales for a service business such as physical therapy? Thanks D. Cothern Quote Link to comment Share on other sites More sharing options...
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