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 25 of 27

continued from page 24 With a bit of planning, you can painlessly sequester capital—and capital access—that will help you sleep more soundly and manage your organization from a position of strength increasing number even have a month or two each year (as is common for retailers and restaurateurs) where, as the old saw goes, "Your outgo exceeds your income, so your upkeep becomes your downfall." They run in the red. • Unplanned events: Some things like fire, flood, and doctor disability can be insured against. Other things can't. What if you're in a two-doctor practice and your partner leaves? You'll have to buy him out. You will lose his revenue production (while covering the fixed costs he left behind). And you'll have the considerable cost and time delays of finding a new doctor to take his place. You can calmly get through a crisis as if you have an extra half-million dollars at the ready. • Opportunities: What if a nearlying competitor retires abruptly and you can only win a bidding war for his practice if you can come up with cash? Or if you come across a terrific potential partner-track associate, but when she's hired, you're going to have a lean year personally covering her salary and costs until her practice develops. Think back. Every year there has probably been at least one great opportunity that you had to pass up because you didn't have enough of a cushion to be bold. 2. You need to know where you want to head. Look at the three domains above, estimate what kind of cushion you need, add it up, and then throw in a little extra that will help you sleep at night. Here's an example, imagining a fairly prosperous two-doctor practice, Smith Eye: 26 • Fluctuations: Smith Eye is in the Snowbelt. Both doctors like to take a month off in winter, which makes sense since many of their patients also fly south. They have two months, January and February, when core expenses are barely covered, and doctor draws are lean. They review the numbers and see that the difference between a crummy month and an average month is $50,000 in net cash flow. So they need a revolving $100,000 or so in the kitty to cover cash flow fluxes and the occasional blizzard. • Unplanned events: The two doctors who own Smith Eye enjoy practicing together so much that neither is going to leave voluntarily. And all of the usual contingencies, death and disability, fire and flood and the like, are more than adequately covered by insurance. All except for one biggie: a Medicare fee cut. The doctors figure that based on their current overhead structure, if there is a 10% fee cut (the most they imagine happening in any one year) they will have a net 15% pay cut. They think it will take the better part of a year to sort things out, reduce personal and practice costs, and boost patient volumes. They each make $350,000 a year now. A 15% pay cut on a $700,000 combined owner distribution comes to $105,000. • Opportunities: The owners of Smith Eye are pretty conservative and both in their late 50s. They are not interested in buying up practices or getting new equipment, but they ARE going to be hiring a new partner-track doctor Ophthalmology Business • December 2012 in about a year. They figure the new doctor will start covering their costs after the first year, but could end up being a net drain of $150,000 in the first year, a bit more if things don't work out well. • So all up, Smith Eye probably wants to have not less than $355,000 in liquid, readily accessible funds. $400,000 would be better. They set this higher figure as their target. 3. Bridge the gap. If you own Smith Eye, need $400,000 in liquid funds on hand, and only have $200,000, you're $200,000 short. The doctors of Smith Eye could catch up in several ways. They could catch up slowly by withholding an affordable portion of their draws for a couple of years. They could swiftly catch up by taking out a new line of credit or pledging a portion of their personal funds to the practice in the event of an emergency. They could even nibble away at the gap a bit by taking less vacation and improving their first-quarter operating performance. Or they could catch up by delaying the admission of a new associate until the practice is so busy that the new provider is immediately productive as soon as he/she arrives. There has never been a more critical time than now to start actively managing the liquidity of your practice. With a bit of planning, you can painlessly sequester capital—and capital access—that will help you sleep more soundly and manage your organization from a position of strength. Meet with your accountant and administrator soon. OB Editors' note: Mr. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979, with offices in San Diego. Contact information Pinto: 619-223-2233, pintoinc@aol.com

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