By Chad Fleming, OD, FAAO
Starting a new practice cold may be more costly than you think. Here is how to break down the financials to project when you reach profitability.
LIST YOUR COSTS. Expenses include attorneys, contractors, marketing consultants, instrumentation, office supplies.
CALCULATE REVENUE-PER-PATIENT VS. ONGOING COSTS. Revenue-per-patient should be weighed against ongoing costs like rent, telephone, utility and staff salary.
ASK KEY QUESTIONS BEFORE TAKING LOAN. Ask if loan is fixed and if there is a penalty for paying it off early.
Starting a new practice cold is more costly than you may think. From my experience as a career coach for AOAExcel, an AOA-sponsored business education resource, the average cold-start practice (no building, renting only) costs $300,000-$350,000.
AOAExcel, a wholly owned subsidiary of the American Optometric Association, recently partnered with Healthcare Professional Funding (HPF), a subsidiary of the Bank of Maine, to offer financing for optometrists. HPF offers 100 percent financing with fixed rates for start-ups, practice acquisition, equipment, improvements, relocations and expansions.
HPF boasts a “dedicated team well versed in the eyecare marketplace” and “over three decades serving health care professionals.”
Click HERE or call (855) 944-2265 or (855) 944-2265 to learn more about AOAExcel’s customized financial lending for ODs.
Here is a breakdown of the major expenses of a new practice and some tips on how to manage those expenses. ODs now have help from a new partner of AOAExel, Healthcare Professional Funding (HPF), a lender to healthcare providers that features personalized guidance, in addition to start-up money, to those starting a new practice (see sidebar on left for more information).
Calculate Your Start-Up Costs
Team members (CPA, attorney, transition consultant, etc.): $10,000-$15,000
General contractor (build out if necessary): $50,000-$100,000
Architect (if desired, recommended): $15,000
Marketing consultant (if desired): $2,000
Interior decorator (preferably one familiar with optometry offices): $2,000-$3,000
Office signage: $10,000-$15,000
Equipment (size dependent, consider used market): $75,000-$125,000
Frame inventory (500-600 frames): $30,000-$40,000
Web site/Social marketing (this will then have monthly fees): $2,000
Practice Management software/licensing/etc.: Either monthly cloud-based (recommended for new practice) otherwise: $10,000-$20,000
Key Questions to Ask When Negotiating a Loan
With so many start-up expenses, many ODs seek a loan. A loan can be a great resource, as long as you fully know what you’re getting into. Here are key questions to ask:
Is the loan fixed or a balloon?
Calculate Your Total Operating Costs
Office Expenses $6,000
OD draw $70,000
Staff salary $36,000
Plus Start-Up Costs $338,000
TOTAL COSTS $503,000
Editor’s Note on Loan Expenses
Also to be factored in: The costs of financing your loans. Payments on a student loan debt of $160,000 will cost about $20,000 a year. Payments on a start-up loan of $500,000 will cost about $64,000 a year.
Is there a penalty for early payoff?”
What is the penalty for delaying payments?
During the first one to two years, can we have loaded payments in months that are historically strong? For example, many practices have very strong cash flow months in summer (before school), around March (spring break, aftermath of Christmas/finances better, etc) and during longer months (more work days in the month).
Calculate what you can afford to make in payments. This is part of a financial/cash flow calculation. In your business plan you will have to put together projections on expenses and revenue to determine how many patients will need to be seen to get to the break even point and how long it will take to get there. This will factor in the cost of your loan. Healthcare Professional Funding can help with resources to guide you through this process.
My best advice in negotiating loans is to explore three different lending agencies and compare what each has to offer, then when you write down everything that you believe is necessary for you to successfully move forward, present that to the lending agency. Most agencies say they do not have a lot of wiggle room, however, they want you for the long haul because they know if they give you your first big loan, and it is successful, then you will continue to use them for future loans. Don’t be afraid to communicate with them what other lenders are offering. Also, I have found that taking the time to build a relationship with a lender has opened doors to better financing that I did not know was available.
How Many Patients Must You See to Break Even?
Exams/Yr Revenue/ Exam Gross Revenues/Yr
1,000 $285 $285,000
1,200 $285 $342,000
1,500 $285 $427,500
1,700 $285 $484,500
1,765 $285 $503,025
Break even, Year 1
2,000 $285 $570,000
Related ROB Articles
Chad Fleming, OD, FAAO, is the Business & Career Coach for AOAExcel and also a partner with Wichita Optometry, P.A. in Wichita, Kan. He assists optometrists in the buying and selling of optometry practices, coaches ODs through the transition process from associate to partner, and speaks on business strategies for practice growth. To contact: BusinessAndCareerOD@ExcelOD.com