Last year, we implemented a two-tiered practice management improvement that has increased our ability to budget for expenses and keep spending in check. The result is a more profitable practice with more money available for practice-owner compensation.
The biggest change in our practice in 2019 wasn’t a piece of equipment or a new niche that increased our revenue. It was the owner-doctors of our practice reevaluating how we budget our money and manage our finances. It started with a course called “Profit First: Eradicating Practice Poverty” taught by Mick Kling, a consultant based in San Diego.
The program was offered through our optometric alliance, Vision Source, which enabled one doctor from our office to attend. Then the course was offered again closer to our office and this enabled more doctors from our office to attend.
The course stresses the importance of evaluating every dollar that is spent and not spending money based on what is in your bank account. An issue our practice had run into (and I’m sure many others have as well) is that when we had money in our account, we would use it. Whether that was for buying new equipment, a new line of frames, a supply of contact lenses to sell in-house, anything. We did this throughout the year, and then at the end of each quarter, we hoped there was enough money to distribute to the shareholders.
Our practice has grown steadily each year, at 3-10 percent, for the past six years, so there was always something left for the shareholders, so we never worried about it. When we would look back at our profit and loss statements for the past year and see that we spent higher than we had hoped on cost of goods or operating expenses, it bothered us, but it was too late; that money was already spent.
After the course, we opened new bank accounts for each facet of our budget, and immediately started to set money aside based on a beginning budget. This has resulted in at least 10 percent higher compensation for each of our doctor-owners.
Set Aside Money BEFORE Budgeting for Operating Expenses
What Profit First helped us to see was simple. Set aside money for distribution before you set aside money in your budget for cost of good or operating expenses; make the doctors’ bonuses and shareholder distribution a part of the budget.
As we got more comfortable with the program, we would adjust the budget accordingly to increase shareholder distribution and owner compensation. This may seem obvious to some doctors, but I’m willing to bet there are plenty of doctors out there that are just like we used to be, living and dying by what is in the bank account and hoping there is enough at the end of the year for a nice bonus.
Identify Products You Can Inventory for Less Money
The biggest result of the change in how we budget was increasing our bottom line. When we became more cognizant of where our money was going, and how every dollar was spent, we were able to find many areas of our office where we could cut costs without decreasing the quality of care we give patients or the quality of products we offer them.
The change in budgeting, with the greater knowledge of money spent, has pushed us to explore new sources for our ophthalmic lenses, contact lenses and frames.
We had gotten comfortable with the products we were selling, and just assumed that we were getting the best price possible, but when we went out and researched other options, we found we could often get the same quality of product for a fraction of the cost.
A conservative estimate is that each doctor in our practice took home at least 10 percent more in income last year than the previous year, thanks to this change in how we set money aside and budget.
Implement Further Improvements to Increase Profit & Owner Compensation
We plan to further increase our profit and owner compensation percentages in our budget. We’ve also started to look at ways to further increase profits with minimal investment or change to our existing space. We are planning to possibly hire a part-time doctor and possibly purchase a second practice location where we can implement these philosophies and ideas to increase our overall profits.