In the last two articles, I focused on some ideas for practices that are struggling financially, but those were mostly directed at short term relief. Today, let’s look at a moderate-term growth strategy for a practice that is getting by, but just barely. This hypothetical practice is profitable and the owner is drawing a personal income, but the income is on the low side and the practice is not really growing. Let’s further define this sample practice as one that is more than a few years old. It is not a new startup where we might expect growth to occur, but rather the owner has tried many different things to increase patient demand and waited patiently, but revenue production has seemed to hit a plateau.
It is up to each of us to decide what “enough” profitability for a practice is and how much personal income the owner should expect, but I’ll try to quantify it to make it more real. Let’s say our hypothetical practice is 8 years old and has gross revenue of $400,000 and the profit for the owner is around $100,000 per year. Again, your needs may vary, but many would agree that this is pretty good income, yet it may fall short of the dream that this OD had when he/she opened the practice.
I believe there are many practices in this situation.
Step back and regroup
If we look at this practice as a business, honestly and without emotion, we would step back and admit that the plan is not working. Of course, we could review the practice to see if there is some glaring oversight that has hampered growth and if so, we would fix it. But I have seen many practices like this and there is not always an easy reason.
Even with the best market research and with a very well designed business plan, there is always some element of risk in any business. And I think we have to agree that many (most?) optometric practices are started with less than stellar business plans. Most are started with a hunch and a hope for the best. Frankly, it is pretty amazing how well optometric practices perform with most ODs just hanging out their shingle, so to speak.
There is a combination of variables in the marketplace that can be hard to predict, but let’s assume our test practice had too much competition or a local economy that was weaker than expected or insufficient resources to change old buying habits. Maybe the location is not ideal. It may be possible to overcome these challenges, and I recommend that the practice owner bring in a consultant and try to work on it. But growth has been to slow.
Moving to Plan B
Given this situation, one strategy that I would strongly consider would be to open a second location. Double-down on the commitment to be a major player in the eye care market in your community. I realize this may seem a bit scary, but you can actually keep the risk manageable. At some point, some owners will decide that what they have been doing is not working and they must make it work a different way or choose a different mode of practice.
Consider these points about opening a second office in this situation.
• The present practice with a $400,000 gross is a part-time practice. The owner may be running it like it is full-time, but that number of patients could be seen in 2.5 days per week.
• Do some research and choose a new location in the same geographical region, but far enough away from the first location that you do not draw from the same market area. You want a new market with little overlap and you want a town that is growing and has a strong economy. Look for growth in residential areas and commercial development. The distance you need to be from the first office varies, but a 30 minute drive is usually safe.
• Opening a second location signals success to the public. This is a big marketing opportunity that can help the first location and the new one. The practice will gain visibility and its image will improve. The public and the existing patient base will notice.
• Resist the urge to open the Taj Mahal. The practice in our example has financial problems and we must be careful. Costs can be kept very low for this office and still have it look nice. Develop a budget and visit some local banks for a start-up loan, but don’t borrow more than needed. Have a reserve operating fund built in to help the new office get through the first year.
• Lease a basic lane of equipment and that is all at first. Try to get frames on consignment and use some closeouts and budget frames, but also invest in some high quality inventory. Frame displays can be a do-it-yourself project and still look cool. Hire a receptionist and keep the office open, but the OD will do all the optical work at first (except for basic deliveries). Always follow state law about licensed opticians, but ODs are allowed to dispense in all 50 states.
• Don’t spend a lot on a build out. You can do more construction and decorating later. This is a basic office with very few patients to start with.
• A second office will be more work, but that is the point. You already have systems and vendor accounts in place with the first office, so it is not that big of a deal. You know how to operate a practice. Let’s remember that you were not nearly busy enough in the old location, and you want to change that.
In a few years, if the second location can achieve the same production as the first one, this practice owner has a two-location practice that is approaching $1 million in annual gross revenue and a personal income of $200,000 or more. That’s more like it.
Best wishes for continued success,
Neil B. Gailmard, OD, MBA, FAAO
Editor, Optometric Management Tip of the Week
Dr. Gailmard's new book, Practice Management in Optometry: A Blueprint for Success Based on the Optometric Management Tip of the Week, is now available on Amazon.