THE OPTOMETRY OFFICE FINANCIAL “MAKE OR BREAK POINT”

Every practice has a financial make or break point.

This is the point, financially, where you are either making enough money to operate, pay yourself, your employees, all the basic operational cost, continuing education cost, the utilities, etc. Above this point you are making it. Below this point you are breaking it.

As a practice owner it is one of the most important tasks you have to work out what the financial “make/break point” is for the practice.

To do this take the following steps:

1. Take the last 3 months average of spending (include any amounts that are suppose to be covered that may not have been necessarily paid) and determine what your bottom line income needs to be to pay your basic bills (which, includes doctor and staff pay, utilities, bills, etc).

2. Compare this against the suggested ideal financial percentages of an optometry practice and determine where you are overspending.

It is important in managing the finances of your practice to monitor on a regular basis how much you are spending in your various expense categories.  Even more important than watching the gross amount of each cost is keeping an eye on each category as a percent of your collections.  Below are some guidelines to help you evaluate your key expense categories:

            Category                                              Percent of Income       

Cost of Goods Sold                                   27% - 33%

Staff Salaries and Benefits                          18% - 23%

Occupancy Costs                                        4% - 9%

Equipment                                                  3% - 5%

Marketing/Advertising                                2% - 5%

General Office Overhead                            6% - 9%

Doctor’s Compensation                             30% - 35%

These ranges can vary depending on the peculiarities of your practice.  But these are ranges that work for many successful practices.

In evaluating these percentages, you must realize, of course, that the higher the production level of a practice, the lower some of these percentages will go.  A smaller practice will have higher percentages because there is a minimum requirement to these costs just to open your doors.  As the practice expands, these percentages can come down.

Monitoring these costs and percentages on a monthly basis will help you confront and stay in control of your financial planning. 

3. While you work to increase your practice’s income, start planning, using an executive meeting (which I have laid out in a previous blog post), your weekly and monthly spending so that it is kept within your budget and the ideal percentages.

The office manager should be included in the basic financial planning so they understand the financial needs of the practice and can manage the practice with viability in mind.

(Note: If there is a concern on giving to much financial information to someone that is not an owner, they should at least be familiar with the percentages of the practices finances.)

4. Once you have your “make/break point” financial target figured out implement a bonus system (profit sharing, which I have posted about earlier) that awards the staff a certain percentage of the income that is above the “make/break point”. The percentage would be set-a-side and paid out quarterly to help motivate your staff to make your “make/break point” financial targets and would give them great responsibility to increase their own income by increasing the practices income.

Doing the above steps and using the suggested percentages as benchmarks for your practices financial wellbeing will give you much greater control of your finances and assist you achieving financial stability for the practice.

Good luck!