By Steve Sunder
July 15, 2020
The COVID-19 crisis has caused significant financial challenges for practices. One way to begin to address those challenges is by revising your 2020 budget. Here is how to ensure your practice budget is able to accommodate the needs of the new normal.
On average, my clients’ revenues are down 40 percent from where revenues were prior to the shutdown. The good news is, with practices reopening in May, and operating into July, most of my clients are seeing a high demand for services with typical next-appointment availability out nearly six weeks.
Establishing Your Practice Budget
All budgets should include the following components:
Preferably by designated revenue streams such as professional and optical
Insurance write-off as a debit to revenue (money billed, not money collected since insurance write-off has to occur)
Cost of Goods
Professional items, such as nutraceuticals and optical expenses including: laboratory, frames, other laboratory expenses and contact lenses
Gross Profit (this line item covers all the remaining practice expenses, overhead and staffing costs)
Total Practice Expenses
COVID-19 Financial Impact
From my experience, as a business analyst assigned to the finance department of a large, domestic health-care insurer, a standard operating procedure was to analyze the first-half financial performance of the business and perform a re-forecast, or management assessment and objective analysis, at mid-year. This financial assessment process takes into account cyclical changes in patient demand, purchases and business expenditures and then re-forecasts taking into account these changes, as well as the second half new business objectives.
Right-Sizing Your Budget
In the current situation we’re experiencing, I recommend “right-sizing” the practice for the second half of the year for practice sustainability that will achieve profitability. The key areas to review and make the “right-sizing” adjustments are:
All practice revenues
Assess your current fee schedule/structure to ensure you are billing the maximum to receive the maximum insurance reimbursement. This would pertain to medical plans primarily.
Do you have a patient’s prompt pay discount or program? If not, now is an excellent time to design and implement. My recommendation to ensure your financial house is in order is to review all variable expenses for reduction and/or cutting that will support positive cash flow.
Are you billing promptly…insurances and patient statements?
Is your staff collecting all patient responsibility fees at the time of the visit?
Have you adopted a return/refund policy for your office?
Cost of Goods
Do your frame purchases in the budget mirror actual patient frame purchases?
Do you have a large investment in frame back-stock? If so, this investment isn’t generating a return. Your money is not working for you, but against you.
Have you aligned with frame vendors whose philosophy is to support independent optometry and provide you with the opportunity to maximize gross profit?
If you’re a member of a buying group, are you quantifying and maximizing your purchase discounts?
Have you created lens packages taking advantage of your buying group purchasing power?
Other Articles to Explore
Does your practice provide online ordering for contact lenses such as Yourlens.com, Lensferry.com or MARLO, a new online ordering platform for Alcon contact lenses? These online sales platforms are a new profit center, as you receive a monthly check for patient purchases. This also basically eliminates staff time and resources to order, receive and notify the patient. It frees staff to provide face-to-face service in the office.
Have you taken the step of providing online eyewear ordering through a company such as Properoptics.com? This service was created for the independent optometrist to compete against Warby Parker, Zinni and other online retailers. Patients can order from 240 styles with high-quality single-vision lenses with anti-reflection, as well as polarized sunglasses. You receive the net revenue per month with no optician involvement. Opticians are freed up to service your in-office patients.
Is your staff reconciling the monthly invoices with statements to ensure you are being charged correctly as well as receiving any discounts?
Does your lab or frame vendor provide for a prompt pay discount?
What cost reduction initiatives are you adopting such as:
Control on non-essential marketing
Elimination of non-essential trips, lunches, etc.
Have you thought of having staff clean the office to reduce that expense?
The biggie here is to ensure your staffing levels are “right-sized” to the business demand, as this is typically your highest expense category.
Is your business supply expense including printing on a budget to be “right-sized” to the business?
Have you placed a hold on new equipment purchases?
Can you push off IT/computer costs? Have you evaluated the transition to cloud hosting from client-server?
Have you assessed your credit card merchant service costs…are there cheaper alternatives?
Are there less expensive phone alternatives?
Partner with Staff to Accommodate New Financial Circumstances
For most independent optometry practices, which employ 4-6 staff members, taking the transparency approach with staff is best. By keeping the staff actively involved in the status of the financial goals, such as the budget and the production goals, the staff will embrace being part of the team and buy-in to improving their performance and patient service.
As this is a new world into which practices have reopened from the 2-3 month shutdown, most of my clients have frozen staff bonus or incentive programs until the practice’s financial foundation can be re-built. This is where communication with staff is imperative to apprise them on the current status of the practice, the revised budget and the new action plan going forward. You need their buy-in to get the practice up and running again so that the bonus/incentive program can be re-assessed in the future. With revised budgeting, and help from your staff, you can begin the road back to financial strength and growth.
Steve Sunder is a health-care consultant with over 20 years of experience in the eyecare industry at a multi-location practice, and as a consultant to other practices. To contact him: email@example.com