Optometric Management Tip # 117 - Wednesday, April 14, 2004
Gross Vs. Net, Part 2
Last week's tip touched on the importance of both the gross and the net income in a practice. Many optometrists concentrate mostly on the net, because it seems like a factor that the OD/owner has direct control over - while the gross seems like something that just happens to us. To improve the net, the OD/owner can cut costs and increase the net percentage. Of course, you can't cut your way to prosperity!
When it comes to gross revenue, many OD/owners just kind of hope for the best. Some practitioners view their only opportunity for increased patient acquisition as joining more insurance plans. And those same insurance plans end up limiting the fees that can be charged - so it's a double-whammy! While it doesn't seem like it in health care today, there are actually many other ways to build patient volume. We will probably always be involved with insurance plans, but it's a mistake to lose the philosophy of free enterprise entirely, and to let insurance plans and coding efforts drive our businesses.
I've met many doctors who seem almost disinterested in growing their practice. Perhaps this comes from not wanting the perceived headaches of a large practice, such as managing a larger staff and seeing patients at a faster clip. I've found that there are actually more headaches with a smaller practice, although the negatives are harder to spot because they are factors that are absent, and it's hard to notice something that's not there.
Deciding on the size of practice that you want is part of a good business plan. Practice size can be designed, rather than just waiting to see what happens. Decide what kind of practice you want and then go after the task of building it. Start by defining the traits of a successful practice in your mind. You may find that a large practice has more benefits than you realized.
How do you define success?
Here are a few characteristics to consider in your own definition:
What about the headaches of a big practice? There are some, of course, but the additional resources available generally make them easier to deal with.
- High personal income. Although income is not the only criteria for success in a career, it's certainly a big part to most of us. Even though results may vary, generally speaking, larger practices provide the potential for greater personal incomes.
- Job security. In independently owned practices, this may be construed as volume of patients, or patient demand. If something caused a downturn in business, how well would the practice survive? Larger practices have more cushion.
- Equity in the practice. Part of the reward for owning any business is its cash value if the owner were to sell it. This may be part of a retirement plan, but a practice is a huge asset with a real dollar value. That value is much more than the equipment and inventory; it's tied closely to the ability to generate revenue. Larger practices are worth more when sold.
- Pleasant working environment. In optometry, the working environment is defined by the resources available. It could include a spacious office with nice décor, advanced clinical instrumentation, advanced computer technology, large contact lens inventories, large frame inventories, an in-office optical lab, and even an excellent support staff. The list could go on and on, and larger practices can acquire these resources more easily.
- Enjoyable work with low stress. Life at work is better when you can perform tasks that you find desirable, fun, and challenging - and delegate other, less-pleasant or boring tasks. Larger practices allow each person to work at his or her highest level. And a larger staff creates a buffer so the doctor does not feel the pinch when someone calls off work, or quits.
- Flexible work schedule. The freedom to take long vacations, or to see patients only two days per week, could be part of a definition of successful practice. Larger practices frequently lead to employing other doctors, which can allow a flexible work schedule.
- Ability to earn income in absence. Many of us work very hard to increase our own personal value to our patients and to be needed. Unfortunately, this can be a case of "be careful what you wish for". If you build a practice that depends heavily on the OD/owner... that may be what you end up with. Larger practices develop a system that becomes more important than the individual doctors, and the practice can generate income even if the owner is away.
This topic is big enough that I'll write more next week, and I'll cover the secret to building the practice of your dreams.
Best wishes for continued success,
Neil B. Gailmard, OD, MBA, FAAO
Chief Optometric Editor, Optometric Management