Most optometry practices can cover their costs, even bring in a profit, with just the basic business know-how. But how much difference could you make to your practice profitability by taking a strategic approach to crunching the numbers?
Once upon a time, a person could get a degree in eye health, work for an established practice for a couple of years, then open their own doors. Not so anymore.
As the optometric landscape becomes increasingly more competitive, and costs of business continue to rise, sustainable financial success can only be achieved with savvy commercial skills, an ability to navigate the complexities of staff moods and motivations, strong financial management systems… oh, and all the clinical skills that come with being an eye health professional.
With a background as an accountant, Peter Baily, OPSM Director – Franchising and Acquisitions, says if you’re a practice owner and you don’t have those skills, you need to get them somehow – and soon.
If you, as the business owner, are the smartest person in the room at a planning meeting, you’ve got problems
“I see people in optics who are doing OK – they’re making reasonable profits – but I know that if they were working in a different industry they would be in trouble,” said Mr. Baily. “It just shows how good the industry has been… but I can assure you, practices are leaving a lot of money on the table simply because they don’t have the robust systems in place to maximise their practice potential.”
Mr. Baily said taking a strategic approach to financial management – establishing objectives, setting targets, benchmarking your practice against others, then regularly reviewing key performance indicators – is essential for success.
“As competition within optometry increases and the digital experiences available to customers proliferates, it won’t be quite so easy to cover costs and make a profit,” he said.
“Putting in place robust management systems, rather than simply looking at whether there is money in the bank or the appointment book is filled, is the only sound way forward.”
As much as objectives and targets are about looking into the future, Mr. Baily said the process requires a period of reflection as well.
“I’d suggest a practice owner starts by asking themselves, or reminding themselves, why they went into business on their own in the first place – why they didn’t remain an employee. What was the motivation? Was it about early retirement? Was it a lifestyle decision? Was it about putting the kids through private school?
“I see a lot of practice owners making a return that is at best what they could have earned as a wage, yet they have all the stress of employing people, managing loans and stock. Often they’ve lost sight of why they went into business. They’ve forgotten their original strategy because they haven’t regularly checked in on what they had in place.”
He said once you’ve identified your goal for being in business, the processes for management and planning will follow.
“If it’s early retirement you’re looking for then you need to identify when it is that you want to retire, how much money you will need and how you can manage your practice succession – who will acquire your practice and what type of business will they be looking for.”
Then it comes down to defining your key performance indicators (KPIs) – what’s your budgeted annual profit and loss; your annual budgeted cash flow? Mr. Baily said, with this in mind, it is possible to develop a strategy that takes into account the finer aspects of the practice such as the number of patients you’ll need, the average selling price of your services or frames and your staffing.
Big Picture Thinking
The problem Mr. Baily said, is that “most people spend the majority of their time working in the business rather than working on the business”. In essence, they manage the day-to-day operations without taking a step back to look at the big picture.
“Preparing monthly financial statements is very important – yet I almost never see it done – some practices prepare quarterly statements, some once a year just because it has to be done for audit purposes. But if you’re doing it because the government tells you you have to do it, rather than as a business tool, you’re not getting the information you need to maximise your practice potential.
“I’d be looking at sales based KPIs every day to see whether the practice has achieved target, to measure the number of customers who have been seen and to check for conversion rates.”
He recommended investing in a system such as Optomate. “These systems are ideal for KPI reporting, as long as you spend appropriate time setting them up, then regularly check the reports to monitor progress and constantly identify opportunities for growth.
“If sales are down or customers aren’t walking through the door, then it’s time to assess what’s going wrong and how can you reverse the situation,” said Mr. Baily.
“Is it your marketing? A poor location? Has the retail environment in your area shifted without you following suit? Has competition come in and changed the market place you operate in? Are your staff poorly trained?
“What needs to shift?
“Even if things are going better than expected, it’s wise to ask yourself why, and make a plan to leverage on that success.”
Mr. Baily said involving staff in setting, achieving and monitoring targets can be a valuable strategy. “People come to work with aspirations and some of these are fairly selfless. They want to leave a legacy, they want to be known for something – so I’d have an open policy around sharing some of the numbers (but not all), and an open policy about marketing practices – have the team help you build and implement your marketing strategies, you’ll get better engagement, and therefore, better results.”
Incentive plans to increase staff sales performance can be effective although making sure rewards go to the right person can be challenging, as can ensuring rewards are aligned to the original incentive.
“There’s an art to building a fair and effective incentive program and often people get it wrong,” said Mr. Baily.
Don’t Go Alone
Fortunately you’re not expected to come up with all the answers in business. In fact, seeking the advice of professionals is highly recommended.
“If you, as the business owner, are the smartest person in the room at a planning meeting, you’ve got problems,” said Mr. Baily. “So read, study, make sure you understand the broad
principles without getting into the specifics of areas like accounting or human resources, then engage experts – a business coach might be the right way to go, and I’d always recommend outsourcing book keeping and payroll because that will free you up to work on building your business rather than managing the day-to-day administration,” he said.
“Use your networks to find the best advisors for your practice and management style then talk to a few before you settle on a particular advisor. Often the first session is free and you’ll quickly get a feel for whether the advisor will be attentive to your needs.”
Yes, it will take time, even money and plenty of discipline… but the returns you’ll get for excellence will be well worth your while.
Top 10 tips for Better Financial Management
1. Understand your big WHY for owning a business and make sure your plans are working toward achieving it