Nervous about Starting a Private Practice Now?
Nervous about Starting a Private Practice Now?
Three experts explain how hard-working ODs can succeed — even in today's daunting economic environment.
By Erin Murphy, Contributing Editor
HANG OUT YOUR shingle. For many optometry students and recent grads, that's the dream. While you've worked hard to build your professional knowledge and skills, you've envisioned a practice of your own, where you're the boss, you create the environment and you run things to your own high standards.
Then intimidating phrases like "economic downturn," "financial crisis" and "reset economy" became part of our everyday language.
How do you start a new practice during these difficult financial times? New OD asked three national consultants to weigh in. The consensus: If this is your dream, go for it. Just be sure to tailor your approach to the economic realities. Here's their advice on how to research, plan and launch your practice in a challenging economy.
What's It Like Out There?
Day to day, the economic news is good and bad. Asked about the current economic climate for starting an optometric practice, consultants also see a little of both.
"There's no question that it's a challenging environment from the consumer side. Consumer confidence is low. People aren't spending money on discretionary items, and consumers see many aspects of eye care as elective," says William J. Nolan, Vice President of the Client Services Group at Williams Group, based in Lincoln, Neb. "The good news is that the two big lenders are lending, so there's plenty of money to get practices started and finance new equipment purchases. It's also a great time to find an attractive space to lease for a good price."
Neil B. Gailmard, OD, MBA, FAAO, is founder of Gailmard Eye Center in Munster, Ind., and Gailmard Consulting, which has offices in both Munster and Sarasota, Fla. He sees more careful discretion these days, but also a steady demand. "Everyone is more cautious now," he says. "Credit lines and loans are available, but they require a little more money up front. New doctors may need to work for a few years to save up before they can launch a practice. However, there's still strong demand for eye care. Patients try to reduce their out-of-pocket expenses, but they still visit the optometrist."
Get a Financial Plan (and a Second Job)
If it's your dream to own your own practice, then you know that doesn't just mean building a profitable business. You're building a life for yourself. According to Donna A. Suter, President of Suter Consulting Group based in Chattanooga, Tenn., there's no way to separate those two things.
"Many times, recent grads have been living on red beans and rice, so when the money starts coming in, they overspend and accumulate credit card debt," Ms. Suter says. "Don't start a practice using your credit card and carrying a high balance. There's too much at stake. Debt and bad credit are no way to start a practice or keep one going, especially in uncertain times."
The idea is to pay yourself and protect yourself first. Don't start by thinking about your business plan, she urges. Instead, focus on your personal financial plan.
"The economic climate drives home the importance of building the professional budget around, at minimum, a bare-bones personal budget," she explains. "Plan to pay for your life, so when things get tough, you don't put yourself, your family and your credit score at risk. Forget vacations and holidays and restaurants — start by knowing how much you need to get by."
Experts agree that a big part of "getting by" depends on getting a second job, which you might need for about 1 to 3 years.
"As you set up your practice, your personal income (or the funding for your personal budget) will come from the second job," says Ms. Suter. "Between that job and the new practice, you may be working 12 hours a day, 7 days a week."
Dr. Gailmard suggests you maintain some separation between your practice and your second job. "You can work in a corporate setting, an ophthalmology practice or even with another OD, but I recommend that it's not too close to the new practice, so you don't have a conflict of interest."
Mr. Nolan adds the clincher: If you don't get a second job at the start, there may be no start. "To get a loan based on your business plan, banks need to see that you'll have money to live on," he says. "Your second job shows you can support yourself and also helps demonstrate that you're a good candidate for a loan."
|Buy an Existing Practice or Start from Scratch?|
|The economy has shrunk, consumer confidence and spending are down and the standards for business loans have risen. Is this a good time to start a practice from scratch, or is it more prudent to buy an existing practice? The answer isn't simple.
"Despite the current climate, I'm very bullish for new graduates opening cold," says Neil B. Gailmard, OD, MBA, FAAO, founder of Gailmard Eye Center and Gailmard Consulting. "It's the cheapest way to own your own practice. You eliminate the risk of overpaying for a practice that's been overvalued in its appraisals. You also aren't buying a practice that has things you don't need or is too large for you. When you start cold, you're creating the right practice for you at a reliable cost."
William J. Nolan, Vice President of the Client Services Group at Williams Group, takes a different perspective. "If I were out there today, I'd probably buy an existing practice before I'd start one," he says. "It's a good time to buy because there are many for sale, in full or in part. And that book of business is valuable. You might buy an existing practice for $500,000 (generally based on 60% to 65% of the practice revenue), compared to $300,000 for a startup. But with a 28% net, that $500,000 practice will give you $140,000 first-year salary right away. But if you start from scratch, you have none."
Research — More Than Ever
Where's your ideal spot to live and work? For some, the answer is easy. You want to live close to your mom, near the beach or wherever your spouse finds a job. Practice consultants say your success — and your ability to make a sound business plan that lands you the necessary loan — will hinge less on outside considerations and more on how well you research the location.
Mr. Nolan laments that even in this competitive economic climate, he sees some ODs limit their geographic considerations from the start. "You need a place that promises good growth potential when the economy eventually rebounds," he says. "Sometimes family location or a spouse's job may place you in an over-saturated environment, particularly a large metropolitan area, and your practice may struggle."
Optometrists don't have the luxury of overlooking research, which is a key step, according to Ms. Suter. "In a good economy, doctors can make a living despite inattention to consumer preferences and marketing detail. In a bad economy, you have to be on your game," she warns. "Research as exhaustively as possible. If you know the residential data, such as population and income, and a review of local practices shows an unmet eye health need in the community, then go for it. Invest in yourself."
Ms. Suter is particularly optimistic about some economic advantages — yes, advantages — to researching optometric markets in the coming year.
"Despite the economic situation, we're actually gaining some valuable research tools," she says. "This is a census year, so we'll have updated demographic information from all over the country. Plus, many states are verifying household information in order to meet federal support standards for 911 calls, and we'll have access to that data as well."
You can do the research yourself or enlist professional assistance. Consultants save you from reinventing the wheel, but Mr. Nolan says it's possible for optometrists to do the primary research on their own. "Demographic information like population, age, household income and other data are usually able on the Internet, and from local chambers of commerce," he explains.
Economy-Proof Your Business Plan
Not only will solid research help you find a profitable location, it also will be the backbone of the business plan that wins you a bank loan and guides your practice. A good business plan will guide your practice for years, including the ups and downs of the economy. Consultants say you need to show loan officers how you'll pay them back in any economy, down to the dollar.
"Loans for new practices average in the neighborhood of $300,000, but you probably won't turn a profit for 1 to 3 years. When will you break even? How will you pay your bills in the meantime?" Mr. Nolan asks clients to consider these key questions. "In your full business plan, you have to show the bank a complete picture: research, spending and cash flow analysis. Offer a breakdown of cash intake over 1, 2, and 3 years and include your outside income. Detail expenses, such as student loan payments, in addition to business costs, such as property leases and equipment expenditures."
Of course, to show the bank your predicted income from the practice over the first few years, you need to have some idea what it will be. Ms. Suter helps clients forecast those numbers. "I want my clients to understand the formulas for budgeting managed care plans. Before you can know what plans to accept, it's important to know how much it costs to turn on a light or pay for a receptionist. What will your costs be per patient? Can you afford to accept this vision plan?" Ms. Suter says she'd give this advice in any economy, "and there's even less wiggle room in a tough economy."
Start Small, Grow with the Economy
When you've been a student for years, your loan debt looms large. Consultants agree that in this economic climate, it's more important than ever for optometrists to resist temptation and start small. You can expand your practice later as your patient list grows.
"Just because you've borrowed $100,000 doesn't mean $5,000 is a small expense," Dr. Gailmard cautions. "Envision the future, but be economical. Just buy the basics. In the beginning, there's no need for an oversized office, full staff or expensive diagnostic instruments. You can invest in those things as your practice starts growing. First you have to establish a sound cash flow, and be sure to pay all of your bills on time."
However, Dr. Gailmard does recommend that startup practices invest strongly in the optical center right from the start, in both space and inventory, to ensure that patients don't buy elsewhere. And while you're buying less, Dr. Gailmard reminds you to do more.
"At the beginning, optometrists must be willing to do most things themselves. Later, you can hire staff and delegate," he says. He suggests long hours, too. "Show the community that you have a full-time office. Open every weekday, Saturday morning and one evening until 7 p.m. You should hire a receptionist and schedule patients by appointment, but be sure to have a human being there every day."
How do you know when it's time to increase your staff? "Even when your appointment book is filling up, you might not be able to start paying yourself, so don't be too quick to hire a second employee," advises Ms. Suter. "Hire a receptionist or an optician who will work overtime. When overtime equals half the salary of the first employee, then you can consider hiring a second employee."
Hard work and long hours come standard with your own practice, especially in the beginning. But if it's your dream to hang out your shingle, then these experts say get a shingle. With the right research, planning and hard work, your new practice will grow as the economy does. nOD
Optometric Management, Issue: November 2009