Reducing Your Practice Overhead

Like many things in life, the proper way to manage overhead is not a rote formula and is certainly not the same for every doctor. There are many things to consider, including your practice goals, income goals, how much time you want to spend in the practice and what services you'd like it to deliver.

It is unwise to overlook any of these considerations, and it is particularly foolhardy to believe that having "low overhead" is the way to stay solvent. That is a trap that can have very serious consequences.

What Is Overhead?

Now, let's look at what overhead really is. Obviously, it is usually a good business decision not to waste money on unnecessary expenses. However, and this is the key thing to always remember: It is your overhead that actually produces income.

Included in overhead is your place of business, your supplies, advertising, staff payroll, and of course, your pay, your time, etc. So, if you continuously reduce practice overhead beyond simply eliminating truly wasteful expenses, you will inevitably contract the practice - and reduce its ability to make income. If this continues, you, the doctor, will be left in the trap of a low-producing clinic , doing everything by yourself for little pay, or go out of business altogether.

How to Make More Money

To make more money, you have three choices: cut waste, increase productivity or add revenue-building overhead.

The first possibility is to cut wasteful expenditures. Considering that this option should be done anyway, regardless of the practice's financial situation. That means we are really only left with two options when it comes to managing overhead for the purpose of increasing profit. The remaining choices are:

A. Increase the productivity of those things that make up your existing overhead.

B. Intelligently select what additions to overhead will generate more income.

It is important to note that these two options are ways to increase income and profits. They have nothing to do with cutting expenses or lowering overhead.

Most owners do not think this way - and they are losing money because of it. They are locked into thinking that cutting costs is the only way to stay ahead.

Evaluate Everything

To determine how you should manage your overhead, you need to evaluate what you want out of the practice - and your life. That could be a huge task, especially if you've never considered it. But you can take a quick look to see if the direction you are headed in is taking you where you want to end up. Ask yourself the following questions:

• How much time do you want to spend in your practice and what role(s) would you be most happy playing within the clinic (doctor, owner, executive, marketer, etc.)?
• How much responsibility do you want to take on?
• Do you want to be responsible for the health of a certain percentage of your community? What is that percentage? How many quality jobs do you want to provide in your community? Is the purpose of your practice centered more on personal benefits you and your family get from practicing, or do you aspire to have a much wider zone of influence?
• How much income would you like to make? How much income would you like your staff to make?
• Are you interested in building something in your community that lasts far beyond your retirement?

There are many more questions of this nature you could ask yourself. The answers are never wrong, unless you decide that an answer is wrong for you. These are personal decisions which are completely yours to create. Having answers to these types of questions will help you sort out what kind of overhead you should have in your practice.

It is important to realize that to consider a particular practice overhead as "high" or "low" is a viewpoint that could be different from person to person. For example, most chiropractors would be very uncomfortable with the thought of $40,000 to $50,000 in monthly overhead for a clinic. However, if that same clinic generates $30,000-a-month profit to the owner after expenses and allows them to work a 20-hour work week, it may be desirable.

[pb]I am certainly not advocating a "high overhead" practice as the solution, because "high overhead" implies that it is somehow wasteful and unnecessary. Instead, I am encouraging you to get educated on the subjects of chiropractic business and finance so you can think skillfully with that data and put it to use to evaluate for yourself what is an acceptable overhead for your practice.

Penny-Wise?

Personally, I was given "only low overhead" advice both from a school professor and at a practice management seminar I attended as a student. This fixed in my mind the idea that only by having low overhead could I stay solvent. This led to my decision to lease a very small space for my first practice - and I outgrew it in just over a year.

The time and attention it took to move to a new space after my initial two-year lease was up, not to mention the months I spent stuck in a small space searching for a larger one, severely limited my practice expansion.

The poor decision I made probably cost me about $100,000 - and all to save maybe $500 a month in rent! Had I better understood what I know now about managing a practice, I wouldn't have made that costly mistake.

One of the keys to making the best decisions in the business of operating your practice is to have correct data available on subjects such as finance, management, insurance, marketing, etc.

In addition, you must train yourself to comfortably observe your practice and the surrounding environment as it really is - giving yourself the opportunity to select the important aspects of it, which you can use to judge its condition. Then you can use logic to evaluate what actions are needed to improve conditions in your practice.

Don't Cheat Yourself

Last but certainly not least, never forget to include your pay and your time into the overhead calculation. Leaving your personal resources out of your overhead calculation is the nastiest trick you could ever play on yourself.

To continually strive to limit overhead to the irreducible minimum, while at the same time putting more and more of your personal resources into the practice to keep it alive, is a trap that only leads to burnout, poor service for your patients, family problems, and the laundry list of discontent unhappy chiropractors suffer from daily.

You are the most valuable asset of your practice, so be sure to account for that in your overhead calculation.

The better educated you become on the subject of chiropractic business, the better you will be able to properly predict future needs and therefore manage your overhead toward your ideal practice scene. Don't feel ashamed to study business or finance just because you are a health care provider.

Remember, the only reason medical providers can maintain a general ignorance of business and turn a nose up to you and me is because they are plugged into a business system which is using them to reap huge profits (Big Pharma and the insurance industry).

Be proud to be a chiropractor. Be proud to have the opportunity to own your business. Be proud that you are knowledgeable regarding that business (and business in general). And no matter what your practice or life goals are, be professional (as opposed to a dilettante) in attaining them.