fix this practice

Low Net Income Is the Top Concern

By taking control of several key areas, you can achieve fiscal success.

RICHARD S. KATTOUF, O.D., D.O.S.

Q I read every practice management article I can get my hands on. What is the number one concern of your clients? How do you address the issue?

Dr. J.B. Klifton via e-mail

Al In my many years of consulting, the number one concern has changed. Prior to the influx of managed care insurance, patient volume was the number one concern of clients. Today, there is no question that low net income has taken front and center.

Here, I will list the major causes of low net income and the solutions to remediate the problem.

► Cost of goods (COGs) This encompasses your highest cost of operation. The national average is 29% of your collected income. Most optometrists simply accept this high cost. Yet there are wholesale optical laboratories that supply quality ophthalmic products at 50% less cost compared with what many of you presently pay.

What I observe is that the optometrist allows the optician to make the decision as to where spectacles are ordered. Many owners have an inadequate “pulse” on this high-cost portion of the optometric practice.

Do your homework. If you are paying $150 to $175 for finished free-form digital lenses, consider using optical labs that supply the same product for $70. Lowering your COGs by several percentage points raises your net income by the same amount. Take control of your optical department. Decide which laboratory gets your business.

► Credit card processing fees You can locate these fees on your “merchant monthly statement.” Your practice can save hundreds to thousands of dollars annually by putting this service out for bids.

► Percent of salaries to gross (STG) STG varies depending on the section of the country. It can be as low as 18% in the Midwest to 24% in the West Coast. Most O.D.s know their last year’s gross income.

If your STG is higher than your state average, you are endangering your fiscal security. Keep in mind that when you raise an employee’s salary by 25 cents per hour, you have created fixed costs of $480 for a full-time employee. Many owners give annual raises based on seniority not merit or performance. The solution: Establish a commission system based on monthly targets. If the “team” reaches or exceeds the target, they merit or have earned a pre-determined bonus. When the target is not achieved, no bonus is given. Now, you have created another area where employees can earn additional income. It is tied to performance; not years of employment. This lowers your cost of operation because it is not a fixed expense.

Unfortunately, many have no clue about COGs, processing fees or STGs. Doctors, the bottom line is that in order to increase your net income, you must be a business person who has a pulse on the total operation. The difference between fiscal success and inadequate cash flow is business pulse and control. The following quote is a must for all:

Resisting change is called suffering. But when we let go and do not struggle against it, that’s called financial transformation. OM

DR. KATTOUF IS PRESIDENT AND FOUNDER OF TWO MANAGEMENT AND CONSULTING COMPANIES. FOR INFORMATION, CALL (800) 745-EYES, OR E-MAIL HIM AT ADVANCEDEYECARE@HOTMAIL.COM. THE INFORMATION IN THIS COLUMN IS BASED ON ACTUAL CONSULTING FILES.