The series’ final areas of focus are essential elements in raising the value of your business
Part 2 of a 2-part series. See Part 1 here.
In the December issue, I explained why the strategies for preparing your practice to sell for top dollar are the same ones as if you’re growing it for your own benefit. In either case, your business needs to have a history of—and ongoing potential for—new patient growth and strong net profit, a high-performing team trained and committed to delivering a great patient experience, a good reputation and presence in the community, and physical and clinical capacity for growth.
Virtually all proven strategies that drive the value of your practice—for you or someone else—fall into what we call “The Big Five” key areas of focus: human capital, marketing, space and equipment, clinical duplication and financial discipline.
I talked about human capital and marketing first because these are the two most important areas to address and have immediate return on investment. In this issue, I’ll cover the last three areas, which require a bit more planning and investment but in turn can provide the most substantial ROI in terms of long-term business growth, personal net worth growth, and overall potential. In fact, my exact words were that they “can catapult your business and personal net worth to a level you may never have thought possible,” because they remove the limitations that are restricting your growth.
3. Space and equipment
“Space and equipment” includes everything that has to do with the physical building where your office is and all the equipment within it. Most importantly, let’s talk about the number of treatment rooms.
Only so many patients can be seen in each of your treatment rooms each week. Once you reach that maximum, you cannot grow your practice until you increase capacity by adding rooms. If you’re thinking there’s no point in adding treatment rooms until you’re ready to add another doctor or assistant, you’re underestimating yourself and your team.
While it’s true each doctor and each assistant can physically work on only one patient at any given moment, that doesn’t mean your team can’t be prepping other patients—unless, that is, you have no place to put them. Which brings us to the all-important point: You can’t generate more revenue by serving more patients if you can’t physically fit them into your space. Did you know that on average, a fully utilized treatment room in an efficient practice generates $35,000–$60,000 in production per month? That equates to $420,000–$720,000 per year. (We’ve seen upward of $250,000 per room per month in urban areas.)
In a nutshell, your practice makes money by maximizing use of your treatment rooms. The capital investment you make in additional rooms is guaranteed to have a positive return, as long as you put patients in them. You need only do the math to convince yourself. Still unsure? Prove it to yourself with a smaller investment, then go bigger when you see it’s a surefire strategy for increasing revenue and net income.
Start with a small investment to ramp up capacity by simply converting underutilized space, such as a break room or office. Some of our clients have even converted a storage closet into a treatment room. It’s time to get creative!
Then plan ahead to invest in longer-term growth with a larger space and more treatment rooms.
Better yet, invest in the building itself: Owner occupied commercial real estate is one of the best investments you can make in your future. Even if you sell the practice when you retire, you’ll continue to reap the rewards in the form of highly profitable rent.
The category of space and equipment also includes critical areas such as your lobby and building exterior. You want your patients to be wowed as soon as they drive up to your office and walk through your doors. And if you’re selling, you want those first impressions by prospective buyers to speak volumes about the quality and value of your practice overall.
4. Clinical duplication
The strategy of clinical duplication has to do with not clinical skills, but clinical capacity. This encompasses the clinical services provided by you and other revenue-generating team members such as associates and hygienists.
As the business owner, you mustn’t be so egotistical as to think only you can satisfy your patients. That’s a guaranteed recipe for plateauing your practice, because you can treat only so many patients a month. And after years of working, your mind and body will require more time away from the chair. You may still love what you do, but you won’t be able to keep up the pace, so your income—and your practice—will suffer. It’s also very natural for veteran doctors to begin finding the work somewhat less fulfilling after many years. If not yet in an advantageous position to retire, they can feel trapped and even resentful of what was once a life’s passion.
If you’re at either of those crossroads and your way out is to sell the practice, a prospective buyer will see that you’ve allowed the business to plateau before calling it quits. No matter how successful you used to be, the lack of current momentum will cost you at the negotiating table. So don’t let yourself get to that point. Create clinical duplication within the practice and reap the many advantages in the short and long term because it:
- Positions your business to earn even when you’re not there.
- Allows you to use all the space you’re paying for to its full income-producing capacity.
- Improves patient satisfaction due to greater availability of services (and ideally more hours).
- Brings you the personal satisfaction that comes with teaching and mentoring others to become more successful in their careers.
- Indicates to a buyer you were committed to ensuring your patients were cared for, even after you retired (or chose to sell the practice for whatever reason).
Once you change your mindset from the practice being “all about you,” you’ll realize you can work less while earning more, and lead a more balanced and fulfilled life in the process. Plus, you’ll maximize the value of the practice should you decide to sell. (But with the time and financial freedom, you may just change your mind and want to keep it!)
5. Financial discipline
The area of financial discipline is the most neglected of the five key growth strategies because few doctors consider money management a strong suit; quite the opposite. You may not enjoy all the financial management aspects of running a practice, but as a business owner, you must be adequately knowledgeable about—and in control of—money. This includes things like profit-and-loss statements, expenses vs. investments that generate ROI, capital investments, properly managing margin and debt, segregating business and personal finances, and tracking where money goes.
Without a solid understanding and good systems, you will inevitably fall victim to an iteration of Parkinson’s law, which essentially states that expenses rise to the level of income. That means most people squander additional revenue instead of using it properly to grow their business, increase net income and achieve the ultimate goal of increased net worth.
Of course, you should have an accountant and trusted financial adviser to help you in this area, but that doesn’t absolve you of your responsibility to understand and exert financial discipline as the business owner. Learning to master this area is less intimidating when you realize that making money on a large scale is the result of learning to control money on a small scale—that is, on a daily basis. That way you never have unpleasant financial surprises. And you can make better decisions based on knowing the true financial status of your business, not just what you think is in the bank.
Here are essential disciplines you should have in place so you always know the daily cash flow of your business:
- Collections: Know how much income you have coming in each day.
- Outgoing checks: Sign every check that goes out. Never delegate the checkbook. No exceptions.
- Credit card balances: Make an online payment every few days to avoid a large monthly bill.
- Debt payments: Systematically pay off your smallest debt, then the next, and the next.
- Payroll: Know exactly how much your payroll is per pay period.
In addition to paying today’s bills, have systems in place so you anticipate what’s ahead, and have the discipline to save for those things. You should have at least these four subaccounts established, into which you regularly set money aside:
- Major business purchases and projects (new equipment, lobby remodel).
- Taxes (to cover non-W2 distributions to yourself).
- Business savings (new building, real estate).
- Major personal expenses (college, wedding).
“The Big Five” growth strategies I’ve touched on in this two-part series work together as the foundation of a successful, profitable and growing business. These areas are key focuses the Scheduling Institute helps doctors with in its coaching levels to create and execute a growth plan. At times you’ll need to focus more heavily on some areas than others, but they all require the investment of your attention, energy and money over time.
Human capital and marketing are the first areas to execute, and they will give you immediate results. Almost every doctor we work with starts with a combination of those two. Space and equipment, clinical duplication and financial discipline are essential elements in raising the value of your business. The ROI on these strategies is not just incremental growth but an exponential increase in business income, long-term growth potential and personal net worth.
Moreover, you will be able to lead a more satisfying life while enjoying maximum income and profitability for yourself. And you will be maximizing sale value, so you can eventually enjoy retirement all the way to the bank!
Jay Geier is an authority on growing independent practices to keep for a lifetime of revenue or sell for maximum value. He is the founder and CEO of Scheduling Institute, a firm that specializes in team training and doctor coaching to help people live up to their full potential and uncover the blind spots that are holding them back from that potential. For a limited time, SI is giving a free Blind Spot Analysis to Townies; for more information, visit schedulinginstitute.com/townie.