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 By Neil B. Gailmard, OD, MBA, FAAO, Editor October 12, 2011 - Tip #503 
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Opening Practical, Part 2


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I can tell I piqued your interest last week with my encouragement to open a new practice from scratch and to do it on a modest budget as low as $62,000.  So, let's dive into how I came up with that number.

Your personal income
We must be clear that my model for a low cost practice start-up does not have any room to pay the doctor a salary during the first year or more.  You must be willing to work in another practice as an employee as your sole source of personal income.  That should not be difficult - optometric jobs are plentiful and they pay very well.  You may want to find a position in a practice that is located far enough away from your office so it is not in the same market.  You could work in corporate optometry or in a private OD or MD office.

Depending on your willingness to work long hours, you may be able to work nearly full time in the outside employment position for a while.  Your practice will not require that many doctor hours in the early stages, and I advocate trying to schedule patients together as much as possible.  The appointment times that are in greatest demand are evenings and Saturdays, so try to reserve those for your practice.

Gradually, your new practice will begin to pay all its monthly expenses and have some amount left over as owner profit.  As that occurs you can reduce the number of hours worked per week at the other practice and increase the patient care hours in your practice.

Start-up costs
Remember that we are going to separate initial start-up costs and ongoing monthly expenses.  Our first goal is to keep both of these as low as possible while still providing excellent eye care services and products.  Our second goal is to move as many costs as possible into the monthly category and not pay for them up front.

Here is the sample budget for initial start-up costs totaling $62,000.

·Exam equipment
·Optical displays (DIY)
·200 frames X $60
·300 frames
·Contact lenses
·Computers/office equip
·Office furniture
·Decorating
·Other stuff
·First two months expenses
·TOTAL

Lease - no upfront cost
$10,000
$12,000
On consignment
Free trials only
$3,000
$5,000
$2,000
$10,000
$20,000

$62,000

As you can see, this is a rather bare-bones office.  I see many business plans for start-up practices that are much grander, and that is another way to go.  This plan allows you to grow into greatness over time, but given that you are going to see very few patients in the early months, I'm opting for a modest, affordable practice.  Equipment is just the basics.  No retinal camera to start and maybe not even an autorefractor.  Frame displays are also basic for now and maybe you have a friend who can help you with a do-it-yourself project. 

There are really no funds for an office build out, so you may need to find an older office building that had a previous tenant in which you can make the rooms work.  This is a temporary office.  You will move to a better one when you can afford it and when patient flow increases.  Or maybe the landlord will cover your build out costs; it is a renter's market out there right now.

Obtaining part of your frame inventory on consignment holds down one large start-up expense.

You should start with an office management software program and electronic medical records, but that does not need to be expensive for a small office and you already own a computer or two.

Reserve fund
I realize there is not much room for unexpected costs in this budget (and there often are some unexpected costs with any new venture), but I have $30,000 labeled as "other" and "first two months".  With such a low reserve fund, however, this model depends on the practice being able to pay its monthly expenses in month three.  I will make a good case for being able to do just that when we analyze monthly expense (more next week), but we really can't be certain of that.  Therefore, it would be best if you had a bit more of a cushion.  Maybe you can increase the budget to $90,000 and have more in reserve (just don't spend it).  Or maybe you can have a line of credit at your bank in case of emergency.  Perhaps a relative will help you out if you need some additional operating costs.  Or, you might be prepared to supplement your practice income from your wages earned from your other job. 

That last strategy is quite realistic if you are really dedicated to making your practice a success.  I don't know your personal financial needs, but let's assume you are a recent optometry school grad.  You may be able to earn $80,000 per year in your outside job and you may only need $50,000 to live on (OK, not for long, but bear with me).  That provides you with $2,500 per month that you could invest in your practice during the early going.

Monthly expenses
I'll tackle this next week and it is really the key to the whole business model.  What will those monthly expenses be and will you bring in enough income to handle them?  You may be realizing that we are actually constructing a business plan as we go along, but it is much more fun this way.  I'll itemize realistic monthly expenses and project patient income in a practical way, so you'll see when you can expect to reach a breakeven point.

What about your dream practice? 
Don't be disappointed at the prospect of opening with a very basic practice like the one I'm describing in this series.  I hope you know me well enough to know that I want you to have a large, beautiful office, the most advanced clinical instrumentation, a highly delegated staff, and a fantastic optical dispensary.  Keep that image in mind as you start modestly with a practice you can afford.  As soon as you are in the black with positive cash flow, go right ahead and buy the next great thing for your office.  Continue to invest in your practice.  Move to a nicer office in a few years. 

I started my practice in a rented office of 580 square feet.  I was turned down by several banks before I found one willing to give me a loan for my basic equipment.  My reception room furniture consisted of lawn chairs when I first opened!  You may be able to have real chairs right from the start.


Best wishes for continued success,

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


A Proud Supporter of

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.

Please Note: The views expressed in Management Tip of the Week do not necessarily reflect those of the sponsor.

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