By Rajeev K. Raghu, OD,
FAAO
It’s holiday shopping time—but more important to your practice, it’s time to tally your finances for the past year and plan a growth strategy for the next year.
As the end of the year nears, many ODs are busy, like everyone else, with social gatherings and personal commitments. Layer on top of that the daily duties of leading a practice and getting ready for the end-of-the-year flex-spending rush, and it’s easy to overlook your role as head bookkeeper. You may have an office manager or accountant who you lean on to handle your financial planning, but, ultimately, it is up to you to track the profitability of the out-going year and decide how much of an investment you will be able to make–and for what purposes–in the coming year. I learned how to assess my practice finances the following way each year from participating in the OD group Power Practice.
The Eye Center at Jackson
Key Practice Performance Indicators
Gross revenue
The same since 2009
Expenses
Cut by 15 percent in 2011
Net Revenue
28 percent of total revenues
Key Trend
Decrease in expenses via less staff, more automation
Create Month-by-Month Reports
I gather data for my end-of-year financial analysis from my QuickBooks accounting software and from our Crystal practice management system and electronic records. Crystal PM can customize any analysis you want, and then turn it into a report so at the end of the month I just select the predetermined report to get a review of that month’s finances. This software cost $6,000 initially and requires an additional $1,000 in support fees each year.
Hold a Year-in-Review Meeting
We have a year in review meeting in January and break down all our expenses (cost of goods and other tangible items) that the staff can understand. Then we work on ways to cut expenses (brainstorm) and improve other areas. For example, in 2009 we found that our contact lens expenses went up by 20 percent but patients examined did not. We determined that it was because we started to stock contact lenses that our contact lens expenses rose. For our optical shop, we started to break down frame lines based on cost ($150- $200, $200-$300, $300-$400, $500+) and assess total sold per section. Besides COG’s (frames, ophthalmic lenses, contact lenses, nutrients) the next equivalent expense is labor costs. This is anywhere from 25 percent to 30 percent and obviously lower is better, but I try and evaluate quality of employee, salaried versus hourly wages and benefits instead of the bottom line.
Watch for Key End-of-Year Indicators of Financial Performance
One important marker is examinations per year. This grew in 2011 but dropped in 2012. I am still unsure why, but will be examining this question further over the next couple of months. Every year I make a budget for the following year and try to project next year’s gross revenue.
Watch for Trends in Revenue Growth and Loss–and Plan Accordingly
I primarily look for trends, whether good or bad. Gross revenue is the most basic and fundamental marker, but there is a lot more, and sometimes you can have less gross revenue but higher net revenue.
I learned this year that we have fewer 65+ patients but more 8-to-15 year olds. So, we added more frame lines and promoted orthokeratology. Regarding the 65+, we may try and find out why it is decreasing, call past patients and do more senior health fairs or auctions–and NOT invest in a new OCT. I have found it difficult to isolate a month and say “June is our busiest month, lets buy more frames in May to prepare.” Notoriously that “busiest” month becomes the slowest and May the highest. For that reason, I keep frame line investment consistent throughout the year.
Look at Year-Over-Year Trends
We analyze year-to-year comparisons. We have been slower over the past three years and this year decided to eliminate a front desk position completely. This saved us money, made our office staff less lazy and still able to provide excellent care to our patients. I try and maximize office productivity regardless of labor costs. I try and map out what positions are required in our office to provide the highest level of WOW. Our current labor costs are expected to be 26 percent for 2013.
Prepare for Next Year–and Beyond
I put aside 10 percent of revenue each month into a high interest savings account. This is used for any miscellaneous expenses or taxes. Unfortunately, there are times (like now post-Hurricane Sandy) that we may have to use it to sustain the practice. There is never enough money in our reserves and I always try and increase it, but it is very hard to do.
Our practice has been flat / stable for three years but we invest to try and provide better care for patients and in return increase revenue. This year we added an additional examination room, due to an increase in patient volume.
Plan Marketing Spend for Next Year
We try to create a marketing plan/budget per year.Based on this budget we make adjustments based on what worked well last year and what other demographics we are hoping to attract. This year we did an infant/ pediatric TV commercial on the NJ 12 television station. It was not on our budget but I felt it would help grow our pediatric base. It cost about $2,000. We were not able to track tangible patient growth, but all of our patients saw it and that always leads to more referrals.
End-of-Year Financial Assessment:
Key Data Points
We track everything! The most important data points to watch depends on your practice goals. But I would recommend that all ODs consider:
Recall rate (patients returning for annual examinations)
Revenue per patient
Gross expense per day/month/year
Gross revenue per day/month/year
Year-over-year comparison of all expenses and income streams
Net revenue
Related ROB Articles
Add An Additional Exam Lane? Calculate If It’ll Pay Off
Frame Inventory ROI: Track and Measure Proven Worth
Do a Financial Benchmark Reset: Revenue-Per-Patient
Rajeev K. Raghu, OD, FAAO, is the owner of The Eye Center at Jackson in Jackson, NJ. To contact him: drraghu@theeyecenteratjackson.com.
