When Practices Fail: Warning Signs and Solutions

Dr. "A" graduates from chiropractic college at the top of their class with clinical awards and having blown the board exams out of the water. They were voted "Most Likely to Succeed," and it appears they have everything going their way. They go to the city where they want to live with the dream of helping thousands of people with what they have learned in school and the vision of being very successful financially. Then, reality hits and somewhere between year one and year two, the credit that was keeping them afloat runs out and another chiropractor with huge potential is out of business.

Not an uncommon story in our profession, and over the last 10 years, neither is it uncommon to hear about the chiropractor that has been in business for 20 or 30 years has now run into difficult times and is barely hanging on, or is having to close the doors of a once lucrative practice.

So, what are the warning signs for scenario number one, a new doctor setting up practice. Warning signs are many, but the main problem is most of the new doctors coming out of school have been given great academic training to pass the boards, but just do not know what they don't know when it comes to setting up a practice and running a business.

Warning Sign

The first sign is when a new doctor actually has no business plan of any kind and thinks by simply opening their office doors, new patients will come flooding into their clinic.

Solution

The best way to handle a problem is to avoid the problem in the first place! So, the first solution is pretty simple, you better have a plan. Preferably a plan that has been tested and reproduced, a successful business plan, a successful marketing plan and a successful patient management plan. Flying by the seat of your pants, depending on your personality or thinking that your technique is going to draw them in will not work in today's market. The new doctor needs some kind of proven plan to implement to give them the best odds at success in a tougher than ever market.

Warning Sign

The new doctor is underfunded and has no idea what overhead is or how to manage cash flow. The second warning sign solution is probably the most difficult for new graduates. All they have to their name is $250,000 in student loans and now they need not only start up capital, but working capital.

Solution

First, control the overhead from the beginning. Don't go wild if you have access to the money and spend $100,000 to get the doors open. Yes, the clinic should be professional and look great, but there are ways to do that without breaking the bank. Second, make sure you have a minimum of six months operating and living expenses. The goal of a new practice is to be in the black in no later than three months, and if done right, you can be covering overhead in month one, but it's nice to have the reserve to take the pressure off if at all possible.

Warning Sign

New doctors have no market knowledge, they have not done demographics of their market, nor do they know what any of those numbers would mean even if they had collected the data.

Solution

They need to study possible markets, gather demographics and then choose the "best" market for success. If you are going to be a grain farmer, then you want to farm in the most fertile soil! So, don't go to the Rocky Mountains and expect a large harvest! Getting a practice started is hard enough work, don't put yourself in a nearly impossible situation to start with by not getting in a market that gives the best chances of success. There are obviously other factors and issues with a new practice, but having a solution to these three signs would eliminate a large percentage of early practice failures.

Warning Sign

What about the doctor that has been in practice for some time, and possibly even tells the stories of how successful they were in the past, talking about how many patients they used to see a week but things have changed, and now they are looking at the possibility of not being able to keep the doors open? The obvious warning sign is when either the income is coming down or the overhead is continuing to rise, or both!

Solution

A practice that has done well in the past has probably produced an overhead proportionate to the income. The doctor has also many times had their personal or home monthly nut grow with the increased revenues over the years. So, when the income starts to diminish, the overhead doesn't and all of a sudden there is financial pressure that hasn't been there in years and the business owner (doctor) doesn't know how to manage this situation and it leads to financial issues and sometimes closing the doors.

The first step to addressing this issue is to be aware of income and expenses. Hopefully, detailed practice statistics are being kept and good accounting procedures are in place to track and report on expenses. At the very first signs of increased overhead and/or decreased income, the problem needs to be isolated and steps taken to correct it. In order to truly manage a business, the overhead/income ratio needs to be closely monitored and the earlier a problem is found, the more manageable it will be. Most doctors I have seen have ignored or procrastinated in taking steps to right the ship and then it gets to a point that they can not dig themselves out of the hole. Don't wait, get on it ASAP!

Warning Sign

What do you do when you have a practice that has become primarily insurance dependent? And as we all know, insurance reimbursement is getting lower and lower and it is more work, more stress and more overhead to continue to play the "insurance game." This leads to the obvious, which is lower income due to lower insurance reimbursement, and another major factor is that the practice is no longer fun and enjoyable "like it used to be." Apathy sets in for the doctor and this leads to the practice going even lower.

Solution

Being insurance dependent is likely an issue that thousands of chiropractic practices are dealing with (or not dealing with it and slowly dying). The writing has been on the wall for years now, so start making your practice as insurance proof as possible. You may have a system in your office that works for insurance, but doesn't work so well for cash patients, and it sure doesn't work well when insurance starts taking 50% of the reimbursement away from you. If you know how to run an insurance proof practice then get that system back into play. If you never new how, or didn't know there was a way to do so successfully, then find out who knows how to do it and go learn. Talk about putting the fun back into practice! You give a fair service and the patient gets great results and pays you the fair value. That's what it is all about.

Warning Sign

What happens when the doctor is not adapting or is unwilling to adapt to the ever-changing market? They have always had plenty of new patients, but now the marketing that used to work great is no longer productive nor cost effective. And yes, there used to be only two chiropractors in town and now there are 35. And the doctor has been in practice for 23 years and shouldn't have to go do this or that to grow my practice. It may be apathy, complacency or pride that is holding the doctor back from adapting to the new market. Having been in practice since 1989, I have certainly seen the landscape change and it has changed even more for those in practice during the "Mercedes 80's."

Solution

Anyone that thinks they can still build a practice today, the way they built it in the 1980's has probably ran a cash practice from day one and has built a huge referral-based practice that requires no outside marketing efforts. If you are not that doctor, and you have not realized it yet, let me be the first one to tell you that things have changed. And you will have to change with them or be left behind. You may have to drop your pride or get rid of your entitlement attitude, or perhaps just get out of your state of complacency and start doing health talks in your community. You may have to go do those screenings that you have loathed all these years. You may have to figure out how compete with dozens of other chiropractors that are now in your market. Just relying on your experience is not enough any longer, you have to take it to the people.

It is obvious that the schools are preparing students to pass boards, not how to run a business, nor do I see how they would be able to do so. The bottom line is that the profession needs chiropractors in business and not just staying in business and getting by, but prospering in business. Our communities need chiropractic more than ever. We must be successful in business because so many people are suffering and they will not find answers anywhere else. There are so many talented chiropractors, whether just graduating or they have practice experience of 20 to 30 years, but that talent is not being utilized due to the fact that they do not know how to run a business. Unfortunately, many doctors are ending up not being doctors due to the fact they didn't know how to run the business, even though they had a lot to offer to there patients and communities. Watch for the warning signs and remember the best way to handle a problem, is to never have it in the first place. When you see the warning signs, don't wait, find out who knows the answers and get help before it's too late.