When is it time to open another office?
O.D.s who've done it give their advice.
BY KAREN RODEMICH, Senior Associate Editor
So you're contemplating opening a branch office, but among other things, you're wondering if it's the right time. How do you know? You don't want to lose money and you don't want to make any serious mistakes. What factors should you consider? What's the first step in your plan of action?
If you're thinking of making this great leap and you don't have a plan or you're not sure where to start or whether you even should, this article is for you.
Statistics aren't available on the number of U.S. O.D.s who have more than one practice, but anecdotally many O.D.s have at least one branch office. Here, you'll read about the experiences of six O.D.s who've successfully opened one or more branch office(s) and what they have to say about it.
We've also spoken with some top practice management experts to get their advice on the matter. Hopefully they'll answer some of those questions that have been looming over your head and their experiences will guide you in the right direction.
Why ask why?
To help you determine whether or not your motives for wanting to open a branch office are viable, here's a look at a few of the reasons why some of your colleagues chose to do so.
- Maxed out. James C. Lanier, Jr., O.D., F.A.A.O., who's been in practice for 20 years, has two practices in Florida. He opened his branch office because he was maxed out at his existing location. He bought beachfront property for the second site and had the office built on the lot, allowing extra space for rental property or growth in the future.
Dr. Lanier explains, "Demographically, this was an area very suitable for an optometric practice because it was underserved."
- Cater to patients. After graduation, Morris F. Sheffer, O.D., of North Carolina, joined a couple of doctors in solo practice in two separate towns. Eventually, the two merged,
remaining in their separate locations. A few years later, they opened up a third location. Dr. Sheffer has been in practice for 24 years and expects the opening of his fourth office this July.
"Basically, one of the main reasons for opening the third location was that we were contracting with companies to have their employees get their eye care through us," he explains. "Most of the companies were in different areas in Charlotte, so we decided to go right to where they were to be close to them -- as a matter of convenience."
Dr. Sheffer's fourth location will be an independent practice (not open to the general public) situated in the office complex of a national bank. Of the 10,000 people who work in the center, Dr. Sheffer says he sees many of them already. In fact, those patients were a big reason why the bank administrators asked him to open an office in the complex, where medical and dental care are already available.
- Change of roles. R. Whitman Lord, O.D., owner of five offices in Georgia, explains that he expanded so he could increase the overall business and take advantage of the economies of scale and purchasing. "I also wanted to tap into some other markets that I couldn't tap into from one location," he adds.
- Opportunity knocked. For some people, an irresistible opportunity just presents itself. This was the case for the following two optometrists.
- Daniel M. Bowersox, O.D., who's been in practice since 1995, is the proud owner of three locations in Kentucky. In answer to why he expanded into his third location, Dr. Bowersox says, "It was a golden opportunity to buy a strong and established practice."
- Ernest Bowling, O.D., M.S., F.A.A.O., of Georgia, met his opportunity when an elderly O.D. from an underserved area called to tell him that he was closing up shop because he lost his lease.
This other O.D. wasn't willing to sell his equipment or records to Dr. Bowling, but he did tip him off to a great opportunity. Dr. Bowling opened his second location in that town, which only 6 months earlier, was home to two full-time optical offices.
But how do you know?
We've heard why other O.D.s opened their additional offices, but we still haven't addressed the issue of how you know whether your decision is financially viable. Perhaps a few words from your experienced colleagues will help clarify the matter.
"If you need more patients and your current practice growth is slow, or if you're maxed out at your current location (can't see any more patients) and you can hire an associate to work for you, then it's going to be financially viable," says Dr. Lanier.
Others have a different philosophy. Take Gregg Ossip, O.D., of Indiana, for instance. His advice in a nutshell: "Don't do it!"
Now you may ask yourself why this owner of five offices would say such a thing. His answer: "Most practitioners can improve their own practice first. If business is slow, look within."
Dr. Ossip says he treats his locations as separate entities. He has a corporate staff, ranging from accounting, human resources, full-time buyer, insurance and recall, run each office.
"Most practitioners don't have this," he contends. "There's no way to run multiple offices and see patients. Everyone thinks bigger is better, but single location practices exist that are earning millions of dollars."
Pros and Cons from Those Who Know
O.D.s who have two or more practices point out the good and
the bad aspects of the responsibility.
|* A second location will hopefully generate more income
* You become more accessible to your patients
* It gives your practice a chance to grow and results in higher gross and net profits
* It's fun to put together
* It has a stabilizing effect on cash flow
* If the schedule at one office is full, we can offer to make an appointment at the other office
* You can sometimes buy in bigger quantities and enjoy a modest income of scale.
* You're more under the gun with a second office because you're only there for a fixed amount of time and can only do so much
* Paperwork duplication -- if you have patients who come to both offices, you may forget to transfer their information
* With a second practice, you have more to manage
* It's expensive to open, and you're overstaffed for a while
* More accounting, staff problems and advertising to be concerned about.
Location, location, location!
You've heard it before: location is key. And it's no different when you open another office.
"Choose a new location based on demographics and patient base," says Dr. Sheffer. "Don't look at one thing, just do as much as you can to pick a location that makes sense," he adds.
Dr. Lanier agrees: "Location is everything -- it's critical to success, particularly in a branch location," he says
Roger F. Shaw III, O.D., owner of five practices in Louisiana, also has the same opinion. "Some pieces of property are premier," he says, "and that's just my philosophy."
Part time or full time?
You also may have considered how you'd distribute your time if you did open a branch office. Would you maybe open the second location part time, or just dive right in full time? What have others done? What works for one person may not work for another, but the consensus among the O.D.s interviewed for this article is to open up a branch office full time.
"All of my locations have been full time from day one," asserts Dr. Lord. "So we bring in a full-time O.D. when we open a new location." He explains that each location has one full-time O.D. except for his main practice, in which there are two.
Dr. Lord's primary role in his five practices is that of an administrator, although he does fill in when others are sick or away. He also sees patients about 1 to 1.5 days per week in his main office.
Dr. Sheffer, who has practices in three locations, says, "Until 2 months ago, I spent time at all three locations, but it was a token appearance at the new office. I pulled out of that because it's doing well, so now I concentrate on the two original locations. However, I do a lot of administrative work, so I don't practice full time at either location."
Dr. Shaw employs two other O.D.s and one M.D. between his five locations.
Handling inventory and buying
When it comes to ordering inventory, Dr. Shaw has a free-standing business office staffed with five people.
So that each office doesn't have to run out and make its own deals, the staff at the business office orders supplies, which are delivered there.
Dr. Shaw explains that the location that does the most contact lens business orders lenses for all the other offices and keeps the stock there. Another office orders all frames and ophthalmic lenses and inventory costs are tracked separately by bookkeepers at the business office.
Dr. Bowersox handles his inventory and buying needs in a different manner. "Inventory and frame buying are done by the optician or staff member at that location. They know what sells at that location best," he explains.
"We limit the the lines of frames in both offices, and try to keep them the same. However, the style of frame that sells from one office to the other is different."
Dr. Sheffer's offices do their inventory and buying centrally. "We can buy in bulk and get volume discounts," he explains.
Tackling staffing issues
In planning to open a branch office, what considerations must you have about staff? Can you share staff? How
Pictured above is one of Dr. Lord's two mall
many should you hire for the new location?
- Those who share. "You have to share staff," contends Dr. Shaw. "If I'm the only doctor at a location, I'll have three or four staff members there and if I leave to go to another office, one or two will come with me -- especially if I don't have a doctor there 5 days a week." He estimates that he currently employs 42 people and at least two staff members are always at each office at any given time.
Drs. Sheffer, Lord, Bowersox and Bowling all share their staffs, to some extent.
"We rotate some staff, but for the most part, we try to keep them the same for continuity of care," says Dr. Sheffer. Staff that aren't shared are each location's office manager and the managers of each department.
Dr. Lord shares his staff only minimally in times when another staffer is sick or on vacation.
According to Dr. Bowersox, he's trying to hire a person to split between two offices because although he doesn't need a full-time person at either office, he does need help at both locations.
One tech floats with Dr. Bowling between both of his locations. He employs an office manager at his branch office in LaFayette, Ga., full time to keep the office open, make appointments and answer questions.
- Those who don't. Of the six O.D.s interviewed, Dr. Lanier is the only one who has a separate staff for both of his offices. However, all of his staffers meet monthly at the central office.
How would you handle finishing and surfacing ophthalmic lenses? Would you put a separate lab in your branch office, or would you use one lab to service each location? Most of these O.D.s have one lab that services all of their offices. No matter how these O.D.s swing it, they say it works well for them.
Dr. Shaw has an in-office lab with a crew that services all five of his offices. The same holds true for Dr. Sheffer. He says that all lab work goes to his one main location and is then farmed out by a courier service that transports items back and forth between his three locations.
Dr. Bowersox has a unique situation: He and another optometrist (who owns two practices) went in together and purchased a lens casting system. They have one of the people who purchases lenses from them cut their jobs or they use local labs.
And yet another option is demonstrated in Dr. Lord's situation. He says, "All five locations have their own complete labs including surfacing and finishing. I'm a big believer in immediate service optically."
Open mike for advice
The O.D.s quoted here were kind enough to share their experiences with you. The following are some final comments for you to keep in mind.
"I thought my second location would be a clone of the first, but they're like children," Dr. Lanier admits. "Their needs are different, their patient bases are different and they require some
different decisions. It's profitable, but you have to plan carefully."
Dr. Bowersox offers his view: "There are more headaches with more locations," he says. "Orchestrating staff, paying bills, advertising and running between offices are a few of the more major problems."
Aside from the problems though, he adds, "Having variety in your workplace and patient base, the possibility of increased revenue and the satisfaction of building a terrific branch practice are some of the satisfying aspects of having multiple locations."
Sleep on it
It's okay if you're still on the fence about whether to branch out from your existing practice. It's a big decision -- one that needs careful consideration and planning. These six O.D.s have all opened and maintained branch offices successfully, so they must be doing something right -- even though they might have taken different approaches. You'll adopt your own rules of thumb and guidelines, but to start you off, consider the advice mentioned in this article.
Rather than Two, How About Three or Four or Five?
How do you go from owning two practices to owning three, four or five?
R. Whitman Lord, O.D., owner of five practice locations, explains the differences as he sees them.
"The biggest issue in getting past owning just a couple of practices is that it becomes impossible for the O.D. to be in the remote locations frequently," asserts Dr. Lord. He continues, "You have to manage them from a distance. When you do that, inventory control becomes absolutely critical."
Here's some comforting news, though. Dr. Lord says that it was easier to open the fourth and fifth locations than it was to open the second. "There's a learning curve that you have to endure," he explains.
Good luck to those of you who intend to take on the challenge of opening up another office location!
Some Pointers from the Experts
Five practice management experts give their advice on opening up another location. Here's what they say.
Katherine A. Bumgarner, M.B.A., vice president of operations for EyeAmerica
Rather than just opening a branch office, you may even have an opportunity to buy a practice in the town you target. This provides instant patient flow and income, and sometimes equipment, inventory and staff are already in place. Katherine Bumgarner explains that a bad time to consider opening a second practice location is if you currently don't have the management expertise (either hired or personal) to truly manage a practice. She stresses the importance of having checks and balances in place. Because you can't be in two places at once, and you can't react to everything minute by minute, you need a good management system to help prevent chaos.
Ms. Bumgarner offers several aspects to consider before purchasing a practice. They are:
- Is the practice growing?
- How is the economy in that individual area?
- What is the competition like in that area?
- Do you have a doctor other than yourself who can work the practice?
- Financial Analysis
- What's the existing practice spending percentage-wise on occupancy, cost of goods, marketing, staff, office supplies and equipment? Look at these first to determine if they're in line with what's traditionally accepted in optometric practices.
- Look at the opportunities to increase fees or change the mix of services/products to produce more revenue per patient.
- Determine the practice's net income after paying the associate doctor, and assess your ability to move this in a direction that's financially beneficial as a shareholder.
Gary Gerber, O.D., founder of the Power Practice Seminar
Dr. Gerber's general concept is that most O.D.s who have branch offices don't need them because they haven't even come close to realizing the potentials of their first offices. He says, "The motive of most doctors who open a branch location is to make more money." However, Dr. Gerber believes you can make more money by focusing your time on your existing office.
"You have to be careful that the second location doesn't siphon off the first," he warns. "Survey the demographics of the existing location and ask your patients if they'd be likely to go to office #2 instead of staying at office #1. If some say they're willing to go, you probably just need to open the second office in the new location and close the first."
Finally, he adds, "You're going to net more in one location that grosses $800,000 than in two that gross $400,000 each because you have two overheads compared to one, so you get to keep more."
Basically, his advice is to focus on the potential net income of your existing practice instead of on the overall gross you'd bring in with two because double fixed expenses will eat you alive.
Jerry Hayes, O.D., president, Hayes Consulting
Dr. Hayes maintains that controlling your overhead is key to opening up a branch office. "My first piece of advice is not to get too far ahead of yourself with fixed overhead," he says. "Keep your space, occupancy and staff costs as low as possible and don't overequip your office until the patient load justifies it."
He says that the main reasons to have a branch office are: if you're not booked up in your main practice, or there's an enticing location that's underserved.
"The good thing about a successful branch office is that it lets you accelerate the process of bringing in an associate," he points out. Dr. Hayes says that the best time to open a branch office is usually in the start-up years of a practice when a younger O.D. has time on his hands. Then it makes a lot of sense because it gives you something else to do and generally helps supplement your income.
He counters this comment by giving an example of why opening a branch office might be a bad idea. "It's a bad idea in cases where an O.D. is divided between the two practices and he's not focused enough on growing the main office. It's easy to own a branch practice that's not very profitable but still requires a lot of your time."
Richard S. Kattouf, O.D., president and founder of Optometric Services and the Management Masters
Dr. Kattouf points out the positive and negative aspects of opening up a branch office.
"On the positive side," Dr. Kattouf begins, "when you have branch practices, you develop more clout with M.D.s because they view you as having a mini network." He adds that M.D.s who view you in this light are more amenable to co-managing the way optometry wants to comanage. He says that they're also more likely to come into your office and rent from you, which can lower your overhead.
On the negative side, he says, "In my experience, you see more embezzlement when a branch office is opened because of the absenteeism of the owner," he points out. "In both practices you may find embezzlement of monies, product and time."
Another possible negative point, according to Dr. Kattouf, to owning a branch office depends on how far the branch office is from the main office. If it's pretty far, then you have to consider your travel time back and forth, along with that of any staff you may share between the two locations.
"Any area can support another O.D. if he uses his imagination to the max -- you can't worry about every competitor, or else you'll have no energy left over to do positive things," says Dr. Kattouf. "Don't lose sleep over areas beyond your control."
Dr. Kattouf says that he's teaching O.D.s to change their roles and become solely the administrators of their main and branch offices. He says you can make more money and be more successful in this function than in trying to run back and forth seeing patients at both locations.
William J. Nolan, vice president, Williams Consulting Group
"As a general rule, you have to be careful when you open up a satellite or branch office," says Bill Nolan.
He qualifies this statement by explaining that typically, O.D.s don't think about the fact that when they open
another location, they take on a whole new set of overhead dollars. "Ideally, because of the additional overhead, it's better to grow one location larger rather than grow by physically expanding," he explains. As a guide of areas to improve upon in your main location, he highlights internal and external marketing, the organizational and management structures and your patient management skills. Mr. Nolan says that if you focus on these for a few years and you don't see an improvement, then consider opening a branch office.
So under what conditions does it make sense to open another location? Mr. Nolan says, "If in your main office, you're only 50% or 60% booked and you have plenty of downtime, you could be somewhere else producing revenue."
"It also makes sense with a successful solo or partnership practice that has an associate doctor on staff," he says. "If you can only schedule the associate a couple days a week, you could open a satellite office with your primary goal being to get her involved there. " This scenario gives the associate another opportunity, and your existing office won't suffer.
Step by Step
Dr. Lanier's Ponte Vedra Beach office
James C. Lanier, Jr., O.D., F.A.A.O., shares his thoughts on what factors to consider before branching out.
Analyze ways to see more people at your first location. Try to maximize that efficiency before you look at opening a second office.
If you do determine that you need a second location, get projected population studies from the county government and the department of transportation. This way, you'll know what's going to change around your neighborhood.
Get "hard numbers" for what you want to accomplish (e.g., do you want to rent, own, relocate, have one lane or two, surfacing capabilities, etc.)
Consider rental space first unless the market you're entering is booming with growth. If it is, then owning real estate can be profitable.
Project what you need to earn every day to cover your estimated costs.
Contact a real estate broker to buy or rent property.
Marry the banker's daughter.
Dr. Lanier recommends taking these steps one at a time and evaluating each. If it looks good, move to the next one.
Optometric Management, Issue: May 2001