Building your practice takes more than increasing patient volume and practice revenues. The practice you strive for should allow you to make more money and work less while it continues to increase in value. Realizing this vision requires strategic planning and financial investments within the context of an overall financial plan.
Practice operating efficiency can be defined as the amount of net cash flow that can be obtained from each dollar of collected revenue. Net cash flow is critical because it pays for debt service (if any) and the practice owner’s salary. Many ODs feel the only way to increase practice net cash flow is to increase revenue. Increasing revenue is about marketing, translating it into more net cash flow requires good management.
Expand, Remodel or Relocate Your Practice
• Add a lane or two
• Expand the dispensary
• Add a pre-test area
• Establish a lab
Purchase New Equipment
Instrumentation such as OCT and digital retinal imaging often are profitable long-term investments.
Purchase an Additional Practice
Be aware that many second practice purchases where the second locations are maintained can result in break-even or even negative cash flow.
Cash flow may be enhanced by increasing revenues, reducing expenses (consolidating certain jobs), vendor discounts or paying off debt. If you are currently working in your primary practice less than five days per week, then the economics are better because you can also work in the second practice without additional associate expense. Each transaction should be analyzed for short and long term economic benefit and the ability of the primary practice to carry a portion of the investment. Remember, you don’t get paid anything extra for a long commute! Instead, this would be an excellent opportunity to place an associate OD in this new practice.
A lucrative alternative is to purchase an “in-market” competitor and consolidate into one location (known as a “roll-up strategy”). Not only does this enhance cash flow but it also eliminates competition. Roll-ups are management intensive, but if done properly, combining locations can drastically reduce overhead costs, thereby increasing net cash flow. Greater vendor volume discounts may also be available. In many instances, the seller continues to work in the consolidated practice as a minority owner or associate to ensure patients make the transition.
Sell a Part Interest in Your Practice
Multiple OD practice benefits:
• Backup when you want time off (vacation, health, etc.)
• Additional specialties
• Recent graduates are glaucoma-certified
• The ability to grow beyond a five OD per week practice
• Potential in-house buyer when you are ready to sell the practice
Additional benefits when multiple ODs own the practice:
• Dedication to the practice–many associates want to own a practice. What would happen to your patient base if your associate left? What if they opened up down the street?
• Limited patient transition risk when a senior OD retires and sells to a junior partner already in the practice.
• Lower OD turnover.
• The OD seller can raise personal cash from the sale of a partial practice interest. Funds can be used for purposes such as: your retirement fund, medical costs or a college education for the kids, etc.
Partial Ownership Acquisition Loans
Now you can retain your valued associates by making them a partner in your practice and avoid the non-economic situation of carrying the loan yourself. This can be accomplished through a knowledgeable financial institution.
Own Your Practice Real Estate
Instead of paying rent to your landlord, you may be able to build equity in your practice real estate through ownership. Real estate investments of this nature should be viewed over a minimum 20 year hold period to help avoid market cycles, increase the probability of long-term appreciation and provide time to pay off mortgage debt. Economic analysis should be performed with a knowledgeable local real estate broker and your accountant. Many acquisitions do not occur due to the impact on net cash flow. Mortgage payments often are much higher than rent, and most ODs don’t have the funds for the additional down payment to reduce payments. Down payments range from 10 percent to 35 percent or more. In certain locations the low price of real estate along with low interest rates makes mortgage payments roughly equivalent to rent.