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How Activity-Based Accounting (ABC) Can Increase Your Profitability

Keeping track of your finances gives a general overview of where your business is at and can provide a guide for what changes may need to be made. When keeping up with optometry accounting, you can use a variety of resources, which include accounting companies that specialize in optometry. One great practice to consider is an activity-based accounting that is designed to not only help keep track of finances but also increases your overall profitability.

 

What is Activity-Based Accounting?

Activity-based accounting is part of managerial accounting as opposed to financial accounting. It is more focused on assisting managers in making the best decisions about the business. Financial accounting, on the other hand, provides information for outside parties, such as the IRS and shareholders.

The purpose of this type of accounting is to improve management and admin costs and to assist the managers of the business with making better decisions. It can be used by optometrists to come up with short-term and long-term strategies for their practice and to help them stay focused.

ABC Accounting works by assigning costs to activities, then assigning these costs and activities to the products and services offered at the optimist practice. This accounting practice can help you stay competitive and know how profitable your business actually is.

 

4 Steps to ABC Accounting

There are four basic steps to activity-based accounting.

Step one is to create a chart with an outline of activities of all products and services that you offer to patients. Think of every aspect of your practice, from when patients come in for their appointment all the way through to the end.

For step two you will classify each activity into one of two categories, either as a value-added or a non-value-added activity. Value-added activities are when the activity increases the service of a product to a patient. Non-valued-activities are those that do not increase the value of a product or service to a patient and therefore can be dropped from the business. This will save on costs while not lowering your level of quality and service.

For example, outline chair time. Determine the costs associated with chair time, and then figure out how much potential chair time there is each month. Next, look at what the actual practice is and the actual chair time that the business allocates. Now, calculate the chair time cost of each patient, and determine the amount per patient that covers the costs. Anything above that cost is profit.

Step three is where you have recognized and classified each type of activity, and you now eliminate the non-value-added activities.

Step four involves continuous evaluation of the chart you created in step one. Look for ways to improve on any aspect of the business products and services that are offered or see if there is a more efficient option available to replace the current activities.

 

Make Routine to Increase Profitability

Performing ABC Accounting is something that should be done on a regular schedule, but not every day. Doing it monthly, quarterly, or even just annually is all acceptable. How often you perform this process is based on your needs and the size of your practice.

ABC Accounting will help you determine what you should be charging the patient and how much you are profiting off every sale for each product and service. Optometrists can improve their practice and eliminate products or services that do not add any value.

According to Solution Matrix Ltd., ABC accounting is much more accessible and affordable to businesses than it used to be. This is due to better costing software and the increase of business data that can be captured and made available.

Having an experienced accounting company to help perform this accounting process can be very helpful for those who are inexperienced or too busy. Find and contact a company that specializes in Optometry bookkeeping today to get started on this accounting practice that can increase your profitability.

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