What Do You Want to Be?
Pull up the pants and tighten your belt. We are talking strategy. To conceptualise your direction, you need to answer the following two questions:
The answer to these questions will enable you to consider in what direction you want to take your practice. You may possess skills in behavioural optometry but have special interests in orthokeratology. Your main concern is to decide which of your skills or special interests will offer you the most job satisfaction while being profitable. It is not necessary to limit yourself to one area of interest. Many practices successfully specialise in more than one field, but it is up to you to decide what will provide you with the best return on your investment.
Management strategists talk about competitive advantage. What is it about your practice that enables you compete in your chosen market in a sustainable way? Not an easy question to answer if we are truthful and honest.
New or Existing?
So, we have two choices. Start a practice from new or buy an existing location. If all we are talking about is strategy and risk, there is no choice. An existing practice is by far the best option. Why? Because you can see what you are getting (to a large extent) and the outcome of ownership is more predictable.
Buying an established practice is not without its complexities. We can look at an existing practice and see pretty clearly how it runs, what it does and why, and assuming all goes according to plan, what you will get out of it by way of profit and income. An established practice is certainly easier to acquire and to move in to. But there are some things that might need some compromise.
You may have to be flexible on timing and location. Someone needs to be selling the practice you would like to buy.
You might want a practice with sales of over a million dollars, but the one for sale location might be only five hundred thousand. Is that acceptable? Can you get it to where you want to be?
Is there anything needing to be done to bring the practice up to your standards? Fit out, equipment, operations, patient care?
There are many other aspects to consider.
There is very much more risk involved in setting up your own practice. The main risk being cash flow and attracting patients. Twenty years ago, maybe even less than that, it was possible to set up a practice and almost be guaranteed of a flow of patients from day one. Not anymore. There are very few places to set up where there isn’t already at least one, but probably more competitors who already have the market spilt between them. Today, setting up a brand-new practice takes guts, a very clever plan, a bucket load of cash, and a pile of hard work.
An established practice comes with its own patients and cash flow. You will have to pay for this, but the price you pay will usually reflect the economic value of the profits available.
Can I fund the initial capital needed to set up and operate for several months?
You are going to need money. Setting up your own practice is going to involve half a million dollars (plus or minus depending on factors). When you have set up, its completely possible that you may have to fund the operations from your own pocket for 6 months or more. This is not always true, but its very unwise to expect profitability and break-even cash flow from day one.
Most health professionals can get money from financiers pretty easily. That’s nice, but caution and a dollop of realism is required. Fortunately, there are people in the finance sector who have a great knowledge of optics and know when and when not to lend. They don’t want you to get into trouble.
Can I get the appropriate return on investment (ROE)?
Owning a business is an investment. You will need capital to purchase or set up your practice, and like any investment it needs to provide an appropriate return by way of profit. We are talking about profit after salary. A practice which pays the owner $200,000 per year is providing about $80,000 of profit. We can’t count salary because you can earn that without buying a practice.
Of course, there are many reasons why you own a practice besides profit, but its pretty important. The return needs to be relatively high in percentage terms because we need to cover the cost of the capital and also the risk of being in business.
If you are buying a practice the ROE is easy to assess. Setting up a practice from nothing is much harder to work out.
How will I cope with the necessary management tasks?
Good news! You now have at least two jobs. You are an optometrist and a manager. The practice does not manage itself and managing a complicated business like an optometry practice is not easy. Hopefully you will have great staff who will help you, and if you are big enough maybe you will have a purpose-built practice manager. You can also buy management support in both general and specific areas of business.
A new practice will more than likely need the owner optometrist to sort out all the management activity. Most start-up practices will find it hard to afford support people.
Be rational about your skills and knowledge as a manager. This is an area of professional practice just like optometry. Sometimes it is more than one body of knowledge, like accounting and marketing. If you are DIYing, please make sure you know what you are doing, or get advice or do a course.
Do I want to deal with staff and industrial relations issues?
A very well known senior member of the optometry profession and practice owner once described staff management as “jelly wrestling with no beginning and no end”. It can feel like that sometimes. What he meant was that its complicated and demanding and needs continual management. Most small business owners will tell you that this is one of the hardest parts about owning a business, but as long as you are aware of your own limitations and know when to call for help you will quickly come to grips with managing people. But it’s not for everyone….
Get Some Good People Around You
Do I have a good accountant, solicitor, and business advisor who can act not only as technician on the necessary bits, but also as advisers and sounding boards in the course of your evaluation and business operations? Its always good to have people on your side who can handle the specialist stuff.
Do the Planning & Research
Understanding what you are getting into as fully as possible is a vital part of the process. In business, risk is all about information. Not enough information and your decision risk increases. Fortunately, we have many sources of information and there are very few guesses that need to be made.
The information available for setting up a new practice is very much less, and more speculative than investing in an existing practice. There are many helpful facts that we can research about the environment and practice operations that will help us such as demographics, industry KPI’s, competitor analysis and break-even analysis. The process is much easier with an existing practice. We know what’s going on and can see everything. Risk is substantially reduced. For example, a practice with rising sales and average income per patient is an attractive picture, but a closer look might reveal a falling ration of new to old patients. Maybe the practice is pushing price and sales to appear more profitable at the expense of long term sustainability?
Owning a practice is a wonderful thing and is a fundamental desire for many optometrists. Its doable but not simple of easy. Far easier and safer to buy something that already works rather than setting up yourself, but in the end its all a matter of judgement and research. Do your homework, get the fundamentals right and be confident.
One of the biggest negatives about depending on income made from your own business is that your earnings can be quite unpredictable. Especially if your business is brand new, chances ar
e that you’ll have absolutely no clue how much you will make in any given month.
This makes expense planning and budgeting extremely difficult, not to mention stressful. Imagine having to cover your mortgage, everyday expenses and bills based solely on sales projections and patients coming in through the practice front door….
Imagine trying to make a large purchasing decision that requires financing when you have very little idea whether you’ll be able to make the monthly payment. There will be a time when you look at the bank accounts and it looks like a black hole.
Fortunately planning and setting up properly can handle most of this potential problem, but its still a stress factor that generally doesn’t come with employment.
Do I want to leave the security and salary certainty offered by employment?
Owning a practice give you enormous freedom to practice in your own way, and to forge your own destiny, but it has a downside.
Everyone dreams of one day having their own practice – of one sort or another. As a health professional it’s the ultimate expression of professional practice, but its not without its considerations and there are important decisions to be made. Here’s some questions you might want to think about.