Achieving a Healthy Net
Keep up with the times and reinvent your practice to boost your net income.
By Richard S. Kattouf, O.D.
Q I'm an independent optometrist working 65 hours each week at one location and grossing $1,300,000. I'm ashamed to admit that my net income is $200,000. I only employ one associate doctor three days each week, so I work hard. It seems as though I should be reaping more income for the risk and energy factors I've put into building this practice.
Dr. J.A. Hughes, via e-mail
A: Dr. Hughes, you deserve congratulations for developing such a large gross income. Your work ethic is beyond great! However, you're netting just shy of 16% of your gross income. If you don't start changing your professional behavioral patterns, one of two things will occur:
1. Professional burnout, leading to a lack of interest in your practice. (This results in huge organizational, morale and financial issues.)
2. Health problems. Many professionals/business owners who continuously work excessive hours develop medical problems (because of stress, lack of exercise, poor diet, lack of sleep, family problems stemming from lack of time and/or absence of a social life).
Optometrists can achieve a 38% net to gross with proper organizational management and mode of practice. This goal is difficult to achieve in a managed care market, but it is achievable.
Evaluating practice facts
From the information you shared, it's obvious that your practice is concentrating on general optometry with a high volume of fixed-fee insurance patients. Doctors and staff in your organization aren't working as a team to increase unit sale per patient. It appears that your practice is working on a high-volume, low unit sale, low net basis.
To solve your dilemma, let's evaluate the following checklist:
Embezzlement. Are any employees stealing money, product or time? All businesses face this potential problem. If you haven't determined whether this is a possibility, you must address it before continuing on with our list. Accountants don't know our profession well enough to detect this type of employee. Hire a professional consultant who can guide you in detecting and preventing embezzlement.
Evaluate your cost of doing business. Percent of salaries to gross should range between 18% and 20% (for non-optometric salaries). Cost of goods shouldn't exceed 29%. If these ratios aren't in line, you need professional a consultant to assist you.
Net income is low when you deal exclusively with general optometry. You need to concentrate on high net procedures such as the following:
Medical optometry. Charging medical fees at the level of M.D.s and coding properly is a great service to your patients and significantly raises net income.
Specializing your practice. Corneal reshaping, orthoptics and developmental vision are just a few examples of services that garner a high net. Fee for service!
Stay with the flow
Many independent optometrists operate their practices as though it's commercial optometry. The result is loads of work and low net income. Over the years, I've consulted with hundreds of offices that had similar problems.
Dr. Hughes, when you pay attention and implement such services as I listed above, your net income will rise to $494,000 (an increase of $294,000 in profit). Accomplish this by reducing your weekly work hours to 40 rather than 65, which you can do because of increasing unit sale, maximizing major medical reimbursements and specialization of the practice.
The markets (both professional and consumer) have all changed drastically. You must change with the market!
Optometric Management, Issue: January 2005