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:
- 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).
- 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.
- 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.)
- 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!
