Strategies to Take Your Practice to the Next Level

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.

Operating Efficiency

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.

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Offer Financing to Expand Purchasing Power

Offering financing on optical goods and eyecare services is a practice-builder—if you present it to all patients as an extension of their purchasing power.

Don’t Pre-Judge; Offer Financing to Everybody

A key to making financing work is to offer it to everybody. Financing should be introduced as an option for all of your patients, not just those who express that they have a financial concern. Most patients who opt to make their purchase via financing do so to buy even more than they would before. In other words, it isn’t just for patients who could not otherwise afford to buy anything without financing. Frequently, the ability to finance a purchase means a patient can purchase eyeglasses of a higher quality with a more expensive frame or a pair of sports eyewear for their son.

Not Just Another Credit Card

You should mention financing as an option to all of your patients as they begin to browse through your optical shop. In addition, you can have CareCredit point-of-sale materials such as posters and counter cards that explain the financing option you offer. However, you need to emphasize that this is not just another credit card. You should point out to these patients that the financing option  you offer is different in that, unlike a credit card, there is no interest for six months as long as payments are made on time. The ability to take six months to pay for a purchase without worrying about interest peaks patients’ interest. Unless there is an added incentive to use one of their existing credit cards, such as the ability to add airline miles, it is hard to find a reason not to take advantage of financing.

Ability to Use at Dentist and Vet

The financing option you can offer through CareCredit can be used at some dentists and veterinarians. You can explain to patients that becoming approved to use financing in your office will enable them to also use it for other family expenses, as well.

Commercial Optometry and the Complacency Trap

If you get accustomed to making a comfortable income from a practice with flat growth, you may face a sobering reality when it’s time to sell. Execute a detailed financial plan for continued growth—and reach your financial retirement goals.

The principle of relaxing applied to independent optometry has created too many complacent doctors, unable to retire or compete with commercial optometry. Most doctors work to the point of making adequate income based on their desired lifestyle, relative to the cost of living in their community. Once achieved, they focus on other goals or outside activities and stop driving practice growth. Competitive advantages of a large practice are not fully realized. The practice may be precluded from: utilization of multiple doctors that could offer specialty services; ability to open nights and weekends; the advantage of quantity discounts on frames and other materials; and other advantages related to economies of scale (also known in the business world as “operating leverage”). Here are tips to set the financial plan you need to successfully compete.

Determine Current Practice Value

Since practice value is a multiple of practice net cash flow, practice value does not increase when there is no growth in net cash flow. When the doctor reaches retirement age, too often the practice value is insufficient to fund retirement.

Determine Difference Between Wealth Target and Current Value of Assets

You may need third-party assistance to determine the difference between your wealth target and current value of assets. Companies like Vision One Credit Union, can provide tools and support to help a doctor transform their practice into a pathway to personal wealth. Understanding the relationship between practice net cash flow, value and wealth is a start. For example, you can take ODs through a Private Banking Services to establish a ”Your Personal Plan,” a process that involves wealth goal setting and creating a plan specific to your situation to achieve it.  An evaluation of your assets will be performed, including the practice. The difference between your wealth target and the current value of your assets will determine the amount of wealth that needs to be created (also known as the “GAP”). A practice growth plan can be designed to fit the remaining term of your career.

 

What is your most challenging financial management task and why?

According to a poll conducted by the Review of Optometric Business, 33% cited creating and maintaining an annual budget, while another 33% said inventory management was most daunting. 22% said negotiating with vendors was hardest, and 11% said payroll management was most difficult.