Optometric Management Tip # 432   -   Wednesday, May 26, 2010
A How-to Guide to Instruments That Pay for Themselves

I've written articles about the clinical, financial and marketing benefits of adding instruments to your practice (see tip numbers 376 and 377), but here I'll present a how-to guide to determine if an instrument will pay for itself.  If you perform this analysis and find that an instrument will pay for itself, you should definitely buy it.

What instruments?
A variety of instruments can pay for themselves.  Some may be used in medical billing and some may function as screening tests for an additional fee that is not covered by insurance or vision plans.  Some instruments can be used with both methods of payment.  Here are some to consider:

Projecting gross fees
The first step to determine if a device will pay for itself is to determine how much gross revenue it will produce in your practice.  We must analyze how many tests will you do and how much will you be paid for each one.  Consider these factors:

Projecting expenses
The next step is to project how much the instrument will cost on a monthly basis.  Consider these points:

Resultant cash flow
Simply deduct the projected annual expense of the instrument from the projected annual gross income determined above and you have the profit you will generate in the first year.  Any profit at all is a good thing when you consider that you'll also benefit from the additional clinical data and the public relations value of the wow factor.  I'd buy the instrument even if it were a break even scenario in the first year because usage will often increase in subsequent years because having the advanced technology often leads to diagnosing more cases.  And don't forget that the monthly payment is typically for three to five years and after the instrument is paid for, the entire gross income becomes profit.

Tax incentives
In the United States, the IRS continues to provide strong income tax benefits for business owners who invest in capital equipment such as diagnostic instruments.  Section 179 of the tax code allows a business to deduct the full amount paid for the device in the year it is purchased.  Rather than having to depreciate the cost of the machine over seven years, you may take it as an expense all at once.  This deduction converts to a discount of an amount equal to your tax bracket.  If you are in the 35% tax bracket, a $60,000 instrument would actually cost $39,000.  I don't actually work this tax savings into the projection calculations, but I view it as a very nice bonus.

Best wishes for continued success,

Neil B. Gailmard, OD, MBA, FAAO
Chief Optometric Editor, Optometric Management