Many years ago I realised I had been asking practice owners the wrong question. When I first met up with them my opening line was always ‘How are you, are you busy?’ The reply was often the same and included details of how their filing cabinets were bursting with 9,000 patient records, there were not enough hours in the day to examine everyone and they had no time to assess the data coming out of their PMS.
Then it dawned on me that the question I should have asked them was ‘How are you, are you making any money?’
From many years looking under the financial bonnet of hundreds of practices, it soon became apparent that for many, operational activity was on the increase while profitability was waning. While I accept there are many reasons to run a practice other than for profits, the stark reality is that a practice will not survive in the medium term – let alone the long term – without surpluses to reinvest in equipment, staff training, marketing and rewarding owners/managers.
So what is the answer to this conundrum?
It is to reduce activity, or more specifically low return activity. How would your life/work balance be improved by producing more bottom line profits from less activity?
The solution is to adapt the seven-step approach below and revisit it each year:
1 Identify and record the top 10% clients (VIPs) by turnover over the past three years.
2 Identify and record the bottom 10% clients by turnover over the past three years. This will include ‘time bandits’ who drain the practice team of both time and energy and do not value the service they receive.
3 Amend both lists manually for new clients or practice ambassadors (each year the VIP percentage of the practice should grow).
4 If you have more than one consulting room, constantly pre-plan the clinical diary on a weekly and daily basis. VIPs should be examined unopposed and then handed over to a DO without any interference from a time bandit.
5 Cull the time bandits. This can be done via a combination of increasing fees, channelling them away from the star optom and DO teams or simply redirecting them someplace else (we need to set our price structure at a level which maintains the highest level of care our clients demand).
6 The cull in step five should result in an extra seven days of practice time per annum for each 100 patients that leave. That provides an extra 30 minutes of love and attention for each 100 VIPs, more than compensating the practice financially.
7 The strategy provides breathing space for practice owners. They have created prime time to work on the business rather than working in it.
In the commercial approach above the term ‘client’ has been used instead of ‘customer’. Client implies a duty of care by a trusted adviser. ‘Customer’ on the other hand simply implies someone who pays for goods and services. Practice owners need to be brave and focus their time and energy on developing clients.
Another area where the less is more strategy can help practices is in the area of stock. One of the first actions I take on visiting a practice will be to open drawers and value the old/hidden/excess frames. Often this can be a shocking experience for a practice owner when they realise the excess stock could have been reinvested in a practice refurbishment, new equipment or simply repaying practice loans.
The sheer quantity of different frame suppliers and lines can produce horrendously long stock reports that drown management. Far better to spend a proportion of the extra time now available from the above time bandit cull to formulate a tight stock policy. Establish the lines best suited to a specific practice’s demographics and then operate a strict stock control system on buying new frames.
The less is more strategies mentioned above are only the tip of the iceberg to enable practices to replace being busy for being productive and profitable.
How many other areas of your practice can you apply this to?
Marc Bennett FCA is director of entrepreneurial services at AEL Markhams (mb@aelmarkhams.co.uk). He has spent more than 25 years analysing and advising on the finances of some 1,000 optician practices around the UK, and is an expert in the areas of practice valuation, maximising VAT recovery and tax efficient exit strategies.