Article Date: 8/1/2003

business advisor
Can You Afford an Associate?
Think you're ready to hire another O.D.? Your numbers may disagree.
By Jerry Hayes, O.D.

If you're currently in solo practice, one of the most important decisions you'll ever make is whether to take in an associate. Not only do you have to decide if you want to share your office with another O.D., but you also have to work out some financial projections before making a decision. The big question is, "When is a good time to hire an associate?"

Gauging the right time

The most common mistake is to bring in an associate before your practice is economically ready. My rule of thumb: Make sure you're grossing more than $500,000 or netting more than $150,000 (30%) before you decide to hire another full-time optometrist for your office.

Your gross can be a little less if you have reason to expect dynamic practice growth over a two- or three-year period. Another exception is if you're nearing retirement age and want to bring in someone to eventually buy you out. For example, let's see what happens when Dr. Gee, who just meets my minimum threshold, hires Dr Young.

Reality check

If Dr. Gee's practice grows a healthy 10% in the next year, then his gross will increase to $550,000 (10% x $500,000) and his net will improve to $165,000 ($550,000 x 30%). Looks good, right? But let's subtract the new associate's salary, which would be at least $50,000. The result ($165,000 - $50,000 = $115,000) represents a $35,000 pay cut for Dr Gee.

Now let's assume that there was some pent up demand and that Dr. Young is enough of a go getter to help the practice's gross grow to $600,000 (20%). This would lead to a net of 30% x $600,000 = $180,000. Subtract Dr. Young's salary of $50,000 and you now have $130,000 left over. Dr. Gee is still making less than before he brought in an associate.

Big growth doesn't come fast

In this gross-and-net scenario, which is pretty typical, Dr Gee's revenues would have to increase to $670,000 (34%) for him to net the same amount ($670,000 x 30% = $201,000 - $50,000 = $151,000). Although that may not seem like much for another optometrist to add to the practice, that kind of growth rarely occurs in one year.

How should you proceed?

Depending on the personal income requirements of the practice owner, you should be able to forecast total practice profits in the range of $200,000 during the associate's first year. Otherwise, there just won't be enough net income to make two optometrists happy.

For those of you whose net income is less than $150,000, but you feel really busy, you probably don't need another optometrist You just need to delegate more. If you're grossing less than $400,000 and booked solid more than one week ahead, that tells me you need to see more patients each day. This doesn't mean you should start rushing through your exams. Just do what successful, high-volume practitioners do -- delegate more of the patient care process to your assistants.

Do what's best for you

If you're grossing under $500,000 and are preparing for retirement or you expect strong growth over the next few years, then go ahead and start looking for that associate.

If not, then learn to delegate more of the exam process so you can increase your net income before you hire an associate. 

A frequent writer and speaker on practice management issues, Dr. Hayes is the founder and director of Hayes Consulting.  You can reach him at (800) 588-9636 or JHAYES@HAYESCONSULTING.NET.

 



Optometric Management, Issue: August 2003