It Pays to Take a Chance
Webster's defines a "risk taker" as one who exposes oneself to the chance of harm or loss in the hope of profit. During our initial interview, Dr. Mark Reynolds described himself as a risk taker. Simply put, Dr. Reynolds is a man who knew what he wanted and risked his savings to go after it.
Charting a course
Like so many of today's optometrists, Dr. Reynolds had gone to work for a retail chain upon graduating. But this almost status-quo choice led him along a different path. Instead of paying down his school loan or enhancing his standard of living, Dr. Reynolds wanted to open his own practice.
When he called us six years after graduation, he had $200,000 squirreled away and wanted assistance opening a practice cold -- almost cold, that is; he had a patient database of 8,000 names that he could take with him when he left his current employer. We gave him three tasks that first meeting.
1. Develop a five-year business plan
2. Learn how to join the managed care panels that would give him access to his patient base
3. Put a phone number in the Yellow Pages.
As typically happens, his exit from retail optometry wouldn't coincide with the deadlines set by the phone books.
At our urging, he obtained a phone line and put in an ad promoting his services and his practice name but not giving a location -- at that point there was no practice location. He also arranged for all telephone calls to that number to be forwarded to his cellular phone. We programmed the cell phone automated call answering system to answer these calls like the front desk of a doctor's office.
When Dr. Reynolds' employer found out he was leaving, the employer fired him. Dr. Reynolds had no job, no practice and no income, but this risk taker never faltered. We didn't let this surprise fluster us either.
We researched his community's growth patterns and looked for either a location to rent or a professional building to buy. Whichever we selected had to not only be in a location that would attract patients, but would also keep the percent of occupancy under the 8% benchmark set by Dr. Jerry Hayes (see "Seven Key Expenses").
Twice, negotiations with landlords for renting a suitable space fell through. In the meantime, the opportunity to purchase a not-yet-constructed building in a great professional park became available. During his unplanned "sabbatical," Dr. Reynolds worked Saturdays at an ophthalmologist's office 30 miles away; during the week, he was Mr. Mom to his 12-month-old while his wife (also an optometrist) worked at the local Veterans' Administration hospital.
Because he and his wife had structured their personal spending around the hope of starting a practice, being unemployed for such a long time didn't cause Dr. Reynolds undue financial hardship. (He and his wife lived in a small townhouse furnished in "early college" and drove older, paid-for vehicles.)
Heading off trouble
The real worry was that his patients would find a new doctor (his former employer had instructed staff to tell patients that he'd left town). We mailed a postcard announcing our interim location (at the ophthalmologist's office on Saturdays) and followed up with an educational newsletter every six weeks. Note: The postcard mailing allowed the doctor to update addresses at a lower cost than a first-class letter-size mailing. It also winnowed down our database of valid names and addresses.
As D-Day approached
Dr. Reynolds didn't lose sleep over his bad luck but used his downtime wisely. Here's a partial look at his second to-do list:
- Make a list of new and used equipment he would need to open a new office.
- Visit all optical shops within a 60-mile radius and note frame price points and lines.
- Research practice management software providers for one that suited his purposes.
- Begin looking for a licensed optician to serve as his receptionist/front desk person.
- Survey patient database to determine what hours best suited their lifestyles.
- Hire an accountant who has healthcare experience.
We also made the following decisions:
- Even though his patients had first visited him at a discount retail chain, they were willing to pay for goods and services that met a need or solved a problem. (The optical manager of the retail setting he left told him that the average optical purchase at that location was $386.)
- Convenient hours were important to retirees. We chose 8 o'clock to 6 o'clock Tuesday through Friday and Saturday mornings 9 o'clock to noon.
- We selected our equipment vendors and offered to pay cash in exchange for the same prices offered as recent show specials.
- We received deep discounts by limiting vendors.
Seven Key Expenses
Cost of Goods Sold
|27% to 33%|
|Staff Salaries and Benefits||15% to 20%|
|Occupancy Costs||4% to 8%|
|Patient Care Costs & Equipment||3% to 5%|
|Marketing & Promotion||2% to 4%|
|General Office Overhead||6% to 9%|
|Practice Net||30% to 40%|
Tackling the salaries demon
Business plans aren't shelf documents. As we purchased equipment and set hours, we revised our projected expenses.
It came as no surprise when the hardest expense item to keep in check was staff salaries and benefits. Because the practice would be open more than 40 hours a week, it was impossible to hire just one assistant. And it seemed that every experienced optician interviewed wanted $40,000 a year or more; our income projections wouldn't support one optician in that price range much less two and keep staff salaries and benefits (including bonuses) at 20% or below. To be competitive, we advertised that we were offering full-time benefits to part-time workers.
Two days before opening, we hired two experienced opticians looking for part-time hours. We closed for training the third day. That first year, Dr. Reynolds grossed $180,744 with an average patient fee of about $234. In his second year, he performed 850 exams with an average patient fee of $280 and grossed $238,000. In 2002, he saw an increase of 30% and is on track this year to grossing $402,220.
Informed risk pays off
During a time when the stock market has gone through the basement and remained volatile, Dr. Reynolds took a risk. He invested $200,000 in himself and got the practice management know-how to minimize exposure to loss. From his termination to the day he opened his new practice it was 18 months. Four years later, his investment has doubled and he's living his dream. His next goal is for his wife to quit her job and join his still-growing practice.
As consultants, we've found that most O.D.s open practices without proper planning. And the value of planning ahead is:
- It makes decision making much easier
- Budgets provide benchmarks from which you can measure your actual performance
- It helps reduce the unknowns.
|Marilee Blackwell, senior consultant for Hayes Consulting (904-273-1115), and Donna Suter, president, Suter Consulting Group (423-236-5465), team up to offer financial guidance and on-site consulting services designed to increase your gross revenue while significantly improving your net income percentage.|