Finances

Top Budget Priorities When Opening a New Practice

By Ritesh Patel, OD,

March 20, 2019

Opening a new practice means budgeting for many things. The question is: Which of these things should be priorities? Here are five key investments when starting a new practice.

Location, Location, Location
What type of practice are you trying to build? The classic rule of “you get what you pay for” applies here. Dive below the surface to better understand the specifics of where you want to be located and the types of patients you want to care for. Education level, household income and other demographic factors will allow you to decide whether each potential location is right for your dream practice.

Dr. Patel says spending more for a prime location can pay off with new patients finding you more easily.

Walkability, density (including mix of residential and working professionals), proximity to referral sources (family physicians, dentists), even being in the vicinity of a coffee shop (people walking by multiple times a day) is ideal.

All of these elements provide an edge for increased visibility. How close is your closest competitor? What services or experience will you provide that is different from theirs? Planning for the right location, with good visibility, always pays off.

How much money needs to be budgeted for it?
As you work through your business plan, you will have an idea of what your one-, three-, five- and 20-year revenue plans will be. Budget 1-5 percent of your revenue for location. The percentage of revenue allocated to paying for location will be higher in the beginning, and decrease as your revenue increases.

Tips for making this investment
If you can buy the location, buy it. In the long run it will pay off. Many local state or provincial governments have grants that pay for buying space and build-outs, as it is seen as economic development and job creation. You may not get the deal Amazon got, but there’s no harm in finding out.

I spent 2.5 years looking for the right location for my dream practice. Seems like a long time (felt even longer going through it!), but I knew that if I was going to be there for a good part of my professional life, I didn’t want to compromise. Like most other practice owners, I was scared about the unknown, which included high rent. However, as we eased into business, I realized how thankful I was that I was diligent about my process.

A design that wows patients sets the tone for the practice, and patient experience, making it a worthwhile investment.

Design/Leasehold Improvements
There’s an old adage that “If you build it, they will come.” This couldn’t be more true when it comes to your design and build-out. Are you building a practice for 2019, or are you building a practice for the future?

Younger generations of patients are looking for user experience in both digital and in a physical environment. The look, feel, smell and sound of your space all illicit different senses in your brain that trigger the thoughts of “Do I like this place?” “Do I want to trust this space for my healthcare?” “Do I want to make my purchases here?” The design/flow of your space is integral to this. Your focus is on eyeballs, not on “where should this audio speaker go?” So, leave it to the experts to get the best design for your office and target demographic.

Experience is everything in my practice. The doom and gloom of online can all be battled if you ensure your patient experience is differentiated from start to finish. This creates an atmosphere that will ensure your patients keep coming back for years to come.

How much money needs to be budgeted for it?
The amount of money that needs to be set aside depends on the space/design and look you are going for. Interior decorators typically charge $10,000-$15,000 for the overall job of designing a doctor’s office. In an urban environment, your leasehold improvements would likely cost $100 per square foot.

Tips for making this investment
Negotiate terms with your lender for a small business loan and/or a line of credit to pay for these.

Equipment
Your patients are coming to see you because they trust that you are the best at what you do. Even LeBron James wants to wear the best shoes. Your optometric equipment is essential as it allows you to show off all the imaging and diagnostic capabilities ODs are able to offer.

Some believe that you should only buy the essentials initially (manual phoropter, manual lensometer, etc.), but when it comes to patient experience, old is not gold. Patients want new digital equipment that wows them. Your equipment allows you to leverage your time and knowledge, and will ultimately springboard your cold start to a much faster trajectory.

How much money needs to be budgeted for it?
Digital autorefractor/Phoropter/lensometer – $10,000-$20,000
Slit Lamp with Slit lamp camera – $10,000-$12,000
OCT – $40,000- $100,000

Tips for making this investment
These items can be leased and purchased via loans from banks and credit unions. It is best to speak to your accountant about the option that is best for you.

Frames
In most practices, frame sales will account for 20 percent of revenue. Choosing the right frame mix is crucial if you are a dispensing practice. There are many questions  to ask yourself when deciding on what will go on your board (and in turn–whether you like it or not–represent your practice!). What is the local demographic looking for (older population versus younger)? Fashion oriented versus classic style? Name brand versus independent brands? Male versus female mix? Luxury versus budget?

Frames can be overwhelming, especially when there are minimum buys, return ratios, and vendor relationships to manage, but it is a part of your practice that will significantly add to your business success if done right. Take time when selecting inventory, as your turnover ratio won’t be high in the beginning.

How much money needs to be budgeted for it?
As a cold start, you should budget approximately $50,000 for frame inventory. That investment can purchase approximately 400-640 frames, depending on the frame mix and wholesale costs.

Tips for making this investment
Ask for terms of 30/60/90 days payment. Ask for reduced return ratios for two cycles to allow you to get a handle on what your patients want. Do business with companies that want to do business with you. If they make it hard for you in the beginning, with unreasonable buy-in requirements and return ratios, then walk away. It won’t be worth it in the long run.

Customer Relationship Management/Electronic Health Record Technology
Your customer relationship management (CRM) system is absolutely paramount for long-term practice growth. This technology provides the ability for you to connect with your patients on an ongoing basis that goes beyond the 30 minutes they have in your chair.

Imagine, you just diagnosed a patient with blepharitis. You click “blepharitis” in your EHR and voila! Instantly, you are provided with links to your dry eye treatment protocol, and videos to e-mail to patients. Every time this patient watches a video, they can get links to other videos/resources that bring the patient back to your practice for treatment, and ancillary products like eye drops and lid scrubs.

Integrated CRM and EHR technology can automatically send patients reminder e-mails when they are running low on dry-eye supplies, or when they are due to return to the office for a follow-up visit.

Now imagine this for every diagnosis. It’s even more powerful for contact lenses. This is the power of a good CRM/EHR. It acts as one your marketing tools and ongoing patient touch-points. The more your patient is aware of you, the less they stray to competitors when they need something eyecare-related.

How much money needs to be budgeted for it?
A strong CRM/EHR can cost $10,000 – $30,000. I’ve found little variability between systems at the higher-end part of the market for these systems. If you buy a well-known system with strong customer reviews, you probably won’t go wrong.

Tips for making this investment
My most important recommendation is to choose a cloud-based, rather than server-based, system.

There is likely an upfront cost and monthly user cost, as well. Ask about delayed payment options as you are starting out.

How I did it
I decided on “cheap and cheerful” for our first EHR, and realized how limiting it was. No EHR is perfect, but we have since moved onto a system that is able to communicate with our patients in a more seamless way. Do your homework to see what’s best for you. If you are considering multiple locations, the added price for a more powerful system is especially worth it.


Ritesh Patel, OD
, is owner and director of optometry of See & Be Seen Eyecare in Toronto, Ontario, Canada. To contact him: drpatel@seeandbeseeneyecare.com

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