Running a successful O&P practice takes vision, tenacity and a
willingness to open up the books and see where you are making mistakes. It is
not an easy process, but recognizing and overcoming obstacles to profitability
can pay off in a stable and potentially growing practice.
Robert Benedetti, controller for Delatorre O&P and consultant
for Promise Consulting, spoke about the pitfalls of operating an O&P
practice, and discussed ways to boost revenue and cut expenses at the American
Academy of Orthotists and Prosthetists Annual Meeting and Scientific Symposium
in Atlanta.
Benedetti outlined several common traps that business owners can fall
into. Failing to create a business plan suggests a lack of owner commitment and
vision, he said. Some business owners are uncomfortable dealing with the
monetary aspect of owning a business and shrug off the responsibilities of
financial reporting. He said up to 25% of small businesses do not keep accurate
financial records and do not even balance their checkbook.
Benedetti said there are two common financial myths that owners tend to
believe: that cash in the checking account and seeing patients all day both
mean your business is profitable. Neither is a true reflection of the health of
your business.
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Robert
Benedetti |
It’s important to focus on the present-day profitability of your
practice, and that can mean saying no to opportunities for growth that are not
in your strategic plan, at least in the short term.
Poor cash management
One of the major stumbling blocks to profitability is poor cash
management. Benedetti stressed the need for discipline.
“Your life has to be disciplined financially or none of this works.
No matter how big you are, no matter how small you are. If you’re big, you
can swallow some mistakes. But when you’re small, you don’t have the
luxury to make too many mistakes.”
Benedetti likes to see both big and small O&P practices have some
cash reserves set aside for emergencies.
“A healthy company should have 4% cash reserve based on top-line
revenue. So for a half million dollars in revenue, an appropriate cash reserve
would be $20,000.” Having a reserve is a healthy business principle, he
said.
“I know a lot of companies who have a revolving line of credit, and
that’s fine, but at some point you’re going to be challenged; at some
point the company is going to have a crisis. Hopefully that never happens to
you, but in our industry with small businesses it could happen. You could get
an insurance renewal that’s through the roof, and you may need to tap a
cash reserve to cover it.”
He also recommended compensating your employees and yourself reasonably,
borrowing money only when absolutely necessary, and paying off debt as quickly
as possible. And he advised against using the company as a personal bank.
“Don’t get your personal life get intertwined with your
corporate life. We run into that situation where the business owner’s wife
wants a new fill-in-the-blank. The business owner takes out a line of credit,
runs it through the company, and the wife gets what she wants. He says,
‘That was easy, let’s do it again for the SUV.’
“It’s unfair to the company and it’s unfair to the
employees. You need to discipline yourself and your family. You’re the
owner.”
Benedetti also advised against expanding too quickly. A small company,
especially, needs to have a thorough and deliberate plan for expansion that
should be thoughtfully analyzed before implementing.
“Leadership requires vision. Where are you today? Can you see
beyond where your company is and properly discern the business environment in
your city or your town?”
Entrepreneurial niche
If your goal is to generate more revenue and expand your market share,
there are different ways to accomplish that. But in this industry, you cannot
always raise your prices. Prices are locked in by Medicare and contracts.
Benedetti said if you can’t raise revenue by increasing prices,
then ask yourself what do you do well. And then strive to do it better by
creating an entrepreneurial niche.
“Is there a market for what you’re considering? Is there
someone on your staff with unique or specialized skills who is gifted or
trained to do something you haven’t done yet? Or can do something
that’s different, so that you can market that entrepreneurial
spirit…and is there a need in your city or town for that service?”
Analysis is key. “What is your breaking point? Ask yourself
‘How long do I do this until I decide it’s not working? How much do I
have to sell to break even? Am I willing to invest the time to market this
specialty niche?’”
If you’re willing to raise the stakes, you need to invest some
money into creating that niche. A new venture always has upfront costs, he
said.
Benedetti stressed the need to differentiate your business, and perhaps
open it up to new products and technology. Partner with an orthopedic practice
by introducing a stock and bill program, for example. Consider in-house
production vs. central fabrication; collect fees at the time of service; offer
pedorthic and post-mastectomy services; or provide in-services and other
education events for physicians and clients.
Don’t shy away from technology and using social media platforms
like Facebook to grow your visibility, particularly if your clients are young.
Gain market share
If you have competition that is firmly entrenched in your town, they
have more than likely locked up the hospital and the referring sources. This is
where your business has to understand what it does best, then get better,
Benedetti said. Do all you can to leverage your existing footprint.
“Know your core competencies. Respect existing clients and
don’t add new customers at the expense of losing loyal ones. Respect
existing competition; take the high road of integrity. There are a lot of
fly-by-night companies that come and go that may offer services that they
can’t come through with. You have to stay true to who you are and
don’t drop down to their level. It does you no good to badmouth your
competitors, because that can come back to haunt you,” Benedetti said.
Increase bottom line
There are always associated expenses with added revenue, whether
it’s in staff expense, operating expense, overhead, etc. If you can’t
raise revenues, you may have to go in the other direction by cutting expenses.
Cutting staff salaries can make a dent in expenses if you are
overstaffed with too many clinicians or front office staff.
“Or if that’s too draconian for your appetite, you can cut
overtime. Overtime should be episodic, not something that employees should
count on. Or perhaps someone wants to go part-time on your staff,”
Benedetti said.
Reducing expenses requires a clearheaded analysis of your ledger, going
through it line item by line item, and asking yourself tough questions about
how you spend your money.
Control costs
When you reduce costs and expenses keep in mind that every dollar you
save goes right to the bottom line. Opportunities exist to reduce expenses if
you look hard enough. Benedetti made these suggestions:
- Mileage reimbursement: Company policy vs. federal rate. You
don’t have to reimburse the federal rate. You are not required to pay
mileage at all.
- Liability and worker’s compensation. Rates can be very
competitive, so shop around.
- Health insurance. Again, it pays to shop around. You might have to
change to a cheaper plan with a higher deductible. If you have a broker, talk
to them about a health savings account or health reimbursement account. Do not
just accept what they give you. Get on the phone and negotiate.
- Flexible employment plans. Some employees may want to work part-time
from home, saving you operating and benefits costs. Sometimes a temp or
part-time person can give you the same value for your money and you’ll
reduce some of your in-house expenses. For example, even if you’ve hired
an officer worker for $12 an hour, if you’re giving them benefits, very
likely you are paying them double that.
- Ensure your marketing advertising dollars are spent strategically.
For example, a half-page Yellow Pages ad is expensive and may be seen by only
few people. — by Carey Cowles
For more information:
Benedetti R. What’s in your wallet: Staying profitable in the world
of O&P. Presented at the American Academy of Orthotists and Prosthetists
Annual Meeting and Scientific Symposium. March 21-24. Atlanta.