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 By Neil B. Gailmard, OD, MBA, FAAO, Editor February 13, 2008 - Tip #315 
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Reinventing Your Organization


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Independent eye care practices, like any other business, can easily grow stale over time. At key intervals throughout the life of your practice, I think it's smart to reinvent the organization. Practice owners should perform an objective introspection, formulate fresh goals and develop a plan to implement change. This task can seem a bit overwhelming, but let's break it down and simplify it.

Strategic practice positioning

The biggest and most common problem eye care practitioners (ECPs) have with strategic planning isn't that they choose the wrong philosophy; it's that they don't choose any philosophy at all! Most docs I know have never really thought about how to position their practice. They just want to do the best job possible for as many people as possible. The pricing model is typically "to be competitive". This approach is so general that the practice ends up being lumped together with most other eye care practices in a sea of sameness.

The good news is that it's easier than one might think to change your practice positioning. Just start acting like your practice is how you want it to be in every way possible and patients will get the idea very quickly. Patients adapt very nicely to change when they like what they see and they don't remember your old philosophy all that well anyway. Evaluate your current practice philosophy and consider what would best serve your business needs, such as profitability, professional satisfaction, rapid growth or whatever your priorities are.

If we are very basic, you may want to start by thinking of just three practice philosophies:

  • Low price and high volume.
    This model can be very profitable, although it is obviously difficult for an independent practice owner to compete with national discount mega stores. Continuous advertising is the norm in this type of practice in order to maintain volume. This practice tries to produce a high gross income through volume but will have a lower profit margin than other forms of practice. Even a low net percentage, however, can produce big net dollars if the gross is large enough. Patient loyalty is not very high in this strategy because the loyalty is really to the low price, so if other practices ever undercut your pricing, you could be hurt.
  • Average service with high dependence on vision plans.
    The vast majority of optometric practices are in this model, especially if the owner did not proactively select a position and simply let the practice gravitate on its own. This practice type is middle of the road on everything. Since the practice can not freely set fees, gross and net incomes are both usually low. It may seem impossible to break free of this model once it takes hold, but if investments are made in the practice and staff, fees can be increased and some of the poorest vision plans can be dropped. The change can be implemented gradually so income does not decrease.
  • High fee structure with advanced service.
    This is a great model for independent practitioners. If you can build fairly high volume in this model of practice, which is really quite possible because patient loyalty is high, you will have it made. There is always a market for the best, even in middle class local economies.

Budget

The vast majority of ECPs do not have any practice budget at all, which is surprising because most business executives would never operate a company without one. Setting an annual budget can help you control expenses and increase your net income. Here is an easy way to do it.

Take your practice profit and loss statement (income statement) for the year 2007. If you don't have this at your fingertips, you need to set up a meeting with a CPA immediately! I like to reallocate the dozens of expense categories usually shown into just seven major ones, as made popular by Jerry Hayes, O.D. There are actually six expense categories and the seventh one is practice net. If you need a review of these, please visit Tip #266 at this link: http://www.optometric.com/mtotw/tip.asp?tip=266

Once you have those seven expenses, express each of them as a percentage of your gross income. Compare your percentages with the norms given in Tip #266 and decide if you can make any improvements in them and what you could realistically expect your percentages to be in 2008. Next, set your goal for gross income. You could just add 10% to the 2007 gross, or you could be more aggressive here and set an even higher number.

Once you have the projection for your gross, multiply it by the percentage for each of the seven expenses and express that category in dollars. You now have your budget for 2008 - both the income side and the expense side. I would divide those figures by 12 to arrive at a monthly budgetary goal. The hard part is holding to the budget, but you'll have to be creative and work to find a way to do it each month.

While we all love to keep expenses low, here is a word of caution. You can't cut your way to prosperity. Be careful of a strategy that tries to cut expenses to the bone to the point that services drop. You can create a downward business cycle where patient demand drops due to the reduced service, then income drops, then you make more cuts, and so on.

Your investment plan

I believe that ECPs should reinvest in their practice every year, even if you have to borrow to do it. Some years may warrant a large purchase (or two) and sometimes a small financial outlay will suffice. Develop your priority list including instrumentation, technology, physical office space, a branch office, staffing, marketing, in-office optical lab services and any other concept that will help your growth.

Staff motivation and training

Next week, I'll provide a guide to hosting an all-day staff retreat that will re-energize your employees and help them develop better attitudes and team work.


Best wishes for continued success,

Read Past Tips Neil B. Gailmard, OD, MBA, FAAO
Editor, Optometric Management Tip of the Week


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Send questions and comments to neil@gailmard.com.

Dr. Gailmard offers consulting services to eye care professionals through Prima Eye Group; information is available at www.primaeyegroup.com.
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