CONSIDER THIS: An established practice, more than 45 years in business, with 32 team members, six doctors, with steady growth — total revenue increases of 5% annually — that has outgrown its 6,000 square feet. Should the owners relocate or add a second location? You should consider several factors: space utilization, total revenue and O.D. hours. (See “Questions To Determine Whether to Add a New Location.”)
The practice outlined is my own. For years, my partner and I thought about moving to a beautiful, free-standing location, but we didn’t pull the trigger due to the huge undertaking and expense of the physical move and the possibility of losing patients in the transition. After doing more research, however, we determined that opening a second location would allow us to preserve and refine our original location.
Opening a second location can be a daunting task. The good news: You don’t have to re-invent the wheel! Others have done it, and we can look to their wisdom regarding the next steps to open that second location successfully.
1 FIND THE RIGHT SECOND LOCATION
The exact geographic distance your new office should be from your original office does not exist. However, evaluate a few variables, such as patient base, competition and demographics, to determine where to set up shop.
“You need to make sure you do not cannibalize the current location but allow for some overflow from the current location to start the new business on a high note,” says Rick Guinotte at Acquios Advisors, a Nebraska-based optometric consultancy firm.
Jerry Hernandez, O.D., of South Florida, suggests you place your second location in a new zip code to gain new patients who search for doctors through their insurance websites. This technique also holds true for search engines and social media.
In addition, consider competition. Evaluate, via Internet searches or discussions with colleagues, other O.D.s in the area and the services they offer.
Another variable: income demographics. Is the average income of the area you are considering comparable to that of your current practice? Does it suit your needs? Income demographics can be found through online resources or the local chamber of commerce. Along the same line, assess the managed vision care plan or insurance plan participation in the area. Do they align with those plans you accept? Assess your business plan, and see how these factors might affect you and your second location.
2 GIVE YOURSELF OPTIONS
Specifically, provide yourself with options in the construction phase. This includes taking bids from multiple vendors and looking to the Better Business Bureau, Yelp and other resources for information.
For example, South Florida optometrist Robert Easton says through his research, he found the companies that bid very low had bad reviews about up-charging clients. The middle bid was a well-respected contractor who did a great — and true to bid — job, he says.
3 ASSESS STAFFING NEEDS
Once you’ve found the location and outfitted it to fit your needs, who will work there? Perhaps you will devote half your doctor hours to the new location. By doing so, will the original location’s business suffer? Will you continue to work at both? Will other doctors in your original location split time in both offices?
Consider all these options specific to your situation. For example, in a multi-doctor practice, one doctor may be closer to the second location. Another factor is specialties. In a sports vision practice, the equipment is prohibitive to roaming between multiple locations.
In addition, could successful staff members at your primary location transition to your second location? A successful optician or technician could be persuaded, via a promotion, to move to your second location and lead training efforts. Hold discussions with these staff members to ensure that your expectations and your staff members’ desires are in line.
4 EVALUATE MARKETING EFFORTS
Can you revise marketing efforts to benefit both locations? For example, a spot on a local radio station may be revised with both locations. Social media, assuming both locations offer the same services, could be combined with one Facebook page, for example.
5 PROVIDE A FINANCIAL CUSHION
Set your budget, but expect extra costs, such as remodeling or new equipment purchases, in the first year in the new office. You want to allow for success, despite either budgetary or timeline setbacks.
In addition, have your goals in mind from the outset.
“An owner needs to have an income goal in mind for each new location,” says Nathan Hayes, Practice Finance Consultant for IDOC’s Prima Consulting. “I typically suggest a minimum of $100,000 in additional cash flow to the owner, (once the practice is built up, not necessarily from day one). Remember that the $100,000 is after making payments on a start-up or acquisition loan and paying a doctor to work there. The question an owner needs to ask: ‘How much money do I need to make off of this opportunity to justify managing an additional location?’”
Questions To Determine
Whether To Add a New Location
- Have you hit your maximum revenue potential? The areas where practices often need to have multiple locations are either in rural areas (because only so many patients are driving distance of any one office) and dense, urban locations (because the cost for a larger space is prohibitive), says Nathan Hayes Practice Finance Consultant for IDOC’s Prima Consulting. But many practices’ communities can comfortably support $2 million or more in revenues before the owner needs to consider a second location.
- Have you found an established location that you believe you could enhance? Optometrists Steve Bussa and Ally Kehoe, who have three practices in Florida, did this. Most of the patient base was there from day one, and, therefore, so was cash flow. That said, don’t forget to consider why the previous practice did not flourish, and make sure not to duplicate its mistakes.
- Are you seeing as many patients per hour as possible with no room for more “doctor hours?” Expansion or a new location may be needed.
6 SEPARATE YOUR BOOKS
“Finally, the new office must be managed financially on its own performance,” says Mr. Guinotte. “You do not want to have a second office only to find the first office is subsidizing the new location. Manage each location on its own books, and make sure you have separate drop ships from vendors to keep the inventory costs individual to each location as well.”
NO TIME WILL BE PERFECT
Understand there may never be a perfect time to make the leap. You have the desire to help more patients, you’ve done your homework and mapped out the process. So, are you ready? OM