Ophthalmology Business

DEC 2012

Ophthalmology Business is focused on business topics relevant to the entrepreneurial ophthalmologist. It offers editorial, opinion, and practical tips for physicians running an ophthalmic practice. It is a companion publication of EyeWorld.

Issue link: http://digital.ophthalmologybusiness.org/i/98302

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Page 23 of 27

Liquidity management in the new era of ophthalmic economics by John B. Pinto "It's only when the tide goes out that you learn who's been swimming naked." W Warren Buffet hat a funny term, "liquidity management." What does it mean? Does it refer to keeping saline on an intraoperative eye? Staying hydrated during your next 10K run? Stocking up adequately for this Friday night's party so the punchbowl doesn't run dry? None of the above, at least if you own or manage a practice-business. Liquidity management is a core business discipline, and perhaps one of the most important skills you'll want to improve in the years ahead, 24 as fees almost certainly decline, expenses continue to rise, and the typical practice board member becomes inclined to take every last dollar of free cash flow out of the practice to sustain doctor lifestyles. "Liquidity" is simply your access to capital, cash—right now. If you are a highly liquid practice-business, you have a lot of cash or cash-equivalents at the ready. These equivalents include: • One or more lines of credit at your commercial bank • The doctor's access to available personal funds • Home equity credit lines that haven't been tapped • The practice's accounts receivable, to the extent they might be used as collateral by a receivables factoring company in a pinch Liquidity is not the value of Ophthalmology Business • December 2012 your optical frames on the wall or your drug inventory. It's not the value of your office building (unless you could rapidly sell it and lease it back). And it's not future earnings, which are not available if you need access to a near-term infusion of cash. Liquidity was once no big deal in the business of eyecare. Younger readers won't remember, but there was a time in this profession when cataract surgery paid nearly $5,000 in terms of today's devalued currency, and profit margins were commonly above 50%. In this long-ago environment, even the most ragamuffin ophthalmologist with the most profligate lifestyle could live in the nicest house in town, drive off in the nicest car on the lot, and still sock away half of his salary to loan back to his practice on a rainy day. It was also an era of lower risks: lower competition, fewer slip-andfall lawsuits, along with cheaper risk management. It was once a snap to get a disability policy that could almost immediately replace all of your income. No so much anymore. Liquidity is something that must now be closely managed. And you'll have to watch it like a hawk a decade from now, when the economic ecology of eyecare could be vastly different. Here are some basic pointers to get you started: 1. Keep your eye on three key domains, all of which drive the need for your ready access to capital: • Cash flow fluctuations: As described above, most practices have a soft first quarter. An continued on page 26

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