The Income Equation
By David Foster D.C.
Published in Chiropractic Economics
“HOW TO SURVIVE A RECESSION”
Do what the fortune 100 corporations do …reduce EXPENSES.
Gross collections – EXPENSES = Income
Income equation tells it all
We have all read articles on how to build a chiropractic practice, including “silver bullet” ideas on how to build your practice. All of these tactics help increase a practice’s gross collections (the first part of the income equation, gross collections – expenses = income) and are of great interest and value.
But let’s look at the second and equally important component of the income equation — expenses. The principle couldn’t be easier: Lowering your expenses elevates your income. However, controlling expenses is one aspect of running an office that eludes many chiropractors.
EVERY DOLLAR YOU SAVE IN EXPENSE IS A DOLLAR ADDED TO YOUR INCOME
- Office supplies. Make a list of the most commonly used consumables: paper, toner, printer cartridges, file folders, paper towels, etc. Make a grid with at least three or four suppliers across the top and your supply list at the left. Fill in the grid with each supplier’s prices. You will then have a clear picture of which supplier is most competitive.
- Phone service. Telephone companies seem to prey on customers who do not analyze their bills. I have found hundreds of mistakes in my phone bills over the years and, not surprisingly, they are never in my favor.
- Insurance. Not all insurance companies are equal. Do not evaluate insurance by premium alone. When it comes to business liability, malpractice, or disability insurance, the financial strength of the company and what they actually cover should be more valued than lower premiums.
- Banking. Banks charge a variety of fees. Some are obvious, some hidden. Some banks charge fees based on the number of deposits or number of checks written per month. In this case, it is worthwhile to put forth the effort and calculate how many deposits you make and checks you write in an average month. In addition, every bank fee is negotiable and banks are very eager for your business. Negotiate with the branch manager and do not be afraid to play “hard ball” in threatening to leave. They need your business and are being pressured to do “whatever it takes” in many instances to maintain that relationship.
- Credit cards. Evaluate them the same as you evaluate banks. The two most important variables in credit cards are annual fee and interest rate. Be on the lookout for hidden fees here, too. Good rules of thumb when using credit is, if you can’t afford to pay for it now, don’t buy it.
- Marketing. To evaluate a marketing program or event, apply the income equation.
The question to ask is, “What will be my return on investment?” Always use past performance to predict future results.
For example: If a promotion costs $5,000 and you usually convert 50 percent of all new patients to long-term wellness care and each new patient yields $2,000 per year, your breakeven is five new patients.
Note: your goal is not five new patients. Your goal has to achieve two or three times your investment, or 10 to 15 new patients so any return on investment greater than 10 is considered a big winner.
The ability to analyze an expense or to project the feasibility of a marketing promotion accurately requires analysis and research. Do not be afraid to reach out to an expert in this arena and be careful of the colleague who spins great stories. Many in the profession are quite inflammatory in their successes in trying to impress you or get you to joint hem to defray their costs at your expense. Always strive for making a profit not breaking even.
- Staff. Staff is typically your largest expense, and unfortunately, its profitability is the most difficult to calculate. Yet, staff does add to profitability, because they directly affect patient retention, billings and collections.
I urge my colleagues to continue to improve themselves and their practices, not only with technical skills, clinical skills and practice expansion, but also with solid business acumen. In an environment in which the healthcare dollar is increasingly more difficult to put into the net income column, chiropractors must analyze their expense items in the income equation. If you watch your pennies, the dollars will take care of themselves.
In this series of consultations, I will be sharing in depth, on the “how to win in practice” with associate doctors and staff. The topics will cover hiring the right person, clarifying job descriptions so as not have false expectations that can destroy those relationship s and ensuring you have everything defined on paper to punctuate that clarity in expectations.
Staff can and should add to the profitability of your practice if it is done right!
About David Foster D.C.
Dr. Foster has practiced Chiropractic for the past 20 years and has co-owned 10 satellite practices. His undergraduate education includes a BS degree from Boston University with a major in finance and marketing prior to attending Life Chiropractic College.
With his acquired knowledge and experience Dr. Foster has consulted the Chiropractic community for the past decade in appraisals, Buy-Sell and Associate agreements in addition to a wide variety of legal, financial and strategic issues related to the business of Chiropractic.
Contact Dr. Foster now to pick his brain about your unique, individual situation. It’s FREE!!!
Call, text or email him now!!!