Gross Collections – Expenses = Income
Gross Collections Expenses = Income
Gross Collections Expenses = Income
Understanding Chiropractic Business Basics through the Income Equation
BY
David G. Foster D.C.
The number one reason chiropractors read publications such as this is to read about our colleagues' experiences. The most read articles are the ones that explain and illustrate how the doctor has increased their income.
We have all read countless articles on how to build a chiropractic practice. Doctors delicately expose their secret "silver bullet ideas" on how to build your practice. Attract new patients! Keep new patients! Invite old patients back to become returning patients! Educate patients! You get the idea.
All of the above methods help increase a practice's gross collections (the first part of the Income Equation) and are of great interest and value to our profession. Doctors should always be in pursuit of new marketing to improve one's own practice, especially if the techniques have been proven by colleagues.
The purpose of this article is to discuss the second and equally important component of the Income Equation - expenses. The principle can't get any easier - lowering your expenses will elevate your income. The old saying "make more, spend less, or both" illustrates my thoughts. However, controlling expenses is one aspect of running an office that slips away from most chiropractors.
My skills to evaluate finances have improved over the past years due to my own unique necessity. Currently, I co-own six chiropractic practices, a chiropractic billing/collection company, and a chiropractic management firm. Because of the varied mission of each business, my responsibilities focus on all facets of strategic financial management, from new satellite office feasibility studies to reviewing each and every expense. I have obtained these skills through experience. But experience comes at a price emotionally, physically, and financially. In chiropractic terms, mind, body and pocket.
Chiropractors today must expand their minds and direct some of their talents from the practice of chiropractic to the business of chiropractic. Develop a business sense to recognize that income is not only a function of how much money you make, but how much you keep.
When you evaluate an expense, compare apples to apples by doing a thorough evaluation. Looking at the cost of one item or promotional idea is easy; the effort lies in the gathering of the information of the alternatives. Once the information on all options is gathered and reviewed, the choice is usually obvious.
Knowledge of price will increase your income by decreasing your expenses. Your motivation has to be that every one dollar you save in expenses is a dollar more in income.
The following are expenses you pay each month. Do you evaluate them critically for the possibly of reducing them? The effort to gain knowledge that reduces these universal chiropractic expenses will give you a significant return on your investment:
Office Supplies: Make a list of all of the most commonly used supplies - copy paper, toner, printer cartridges, file folders, paper towels, etc. On the top of the paper list three or four suppliers and make a grid. Contact these suppliers and request prices for each item. Fill in the grid with each supplier's prices. When finished, you will have a clear picture of which supplier is more competitive.
Your time spent gathering this information is well worth the return. If you (or better yet, a staff member) invest just one hour a month collecting this information and you save $1,000 per year, the return on investment is significant. Now, when one supplier offers a sale on a loss leader, you can take advantage of the sale without getting stuck buying more than you really need.
Phone Service: I personally have a low opinion of all phone services. My opinion is that they prey on the customers that do not put the effort into analyzing their bills. The bill is presented in a fashion that even the most intelligent among us have trouble figuring out. If you do have a question about your bill, you call their service center (what a deceptive name!), go through endless phone prompts and then wait, and wait, and wait, until your phone call gets disconnected! Their plan is to wear you down so you just give up. You then pay the bill as it is stated just to avoid any more frustration and problems. Sound familiar?
I have found hundreds of mistakes within my phone bills over the years and, not surprisingly, they are never in my favor. Challenging a company on my phone bill is, for me, a sport that goes beyond business and becomes personal. I oversee eight accounts with over forty lines, some with DSL lines and all with varying advertised fees. At least one of my bills is incorrect virtually every month. Through experience, I am able to tear the bill apart and identify the mistake in record time. This talent has taken me great time and effort but the financial return and emotional satisfaction of "winning" is well worth the effort. It's no different than analyzing EOB's to make sure you got paid correctly; spend some time examining your bills the same way. Again, every dollar you save in expenses is a dollar more in income.
Insurance: Not all insurance companies are equal. Do not evaluate insurance by premium alone. When it comes to business liability, malpractice, or disability, the quality of the company should be valued at a higher level than the cost. Once again, use a grid to compare companies with varying coverage options. When using this evaluation method, one company will eventually stand out to your liking.
Banking: Use the grid structure to compare several banks' services with fees. Banks have a wide variety of unique fees; some are obvious, some are hidden. It's up to you as the business owner to put forth the effort and do a historical analysis of how many deposits you make and checks you write in an average month. Banks usually differ in their fees for number of deposits and or number of checks written per month. Banks have programs that may fit your historical pattern, but may make them confusing and always to their advantage. You must first know your needs. Compare banks and their specific programs with accompanying fees, and then match your needs with the most compatible program.
Credit Cards: Credit cards are evaluated in similar fashion. Two variables are of importance: yearly fee and interest rate. Introductory incentive interest rates will always increase, so "buyer beware". A good rule of thumb is, "if you can't afford to pay for it, don't buy it". It sounds so logical, yet most people don't adhere to it.
Now that you have the fundamental concept of reducing costs, let's examine expenses from a macro level within your office. I split my offices into different profit centers: billing and collections, marketing, and staff. To evaluate the profitability of each department takes expense evaluation to a higher level. The costs you reveal may not only be the obvious financial ones, but the not-so-obvious intangibles as well.
Billing and Collections: One of the most important rules of thumb in managing expenses is to utilize numerical facts, not emotions. Allow numbers to confirm or disprove your emotions. This is never more important than when evaluating your billing department. Determine what it costs and the return you are presently receiving in-house, compared to what it would cost to outsource the function. The in-house costs include staff, taxes, insurance, phone, technology, postage, and vacation days. Add in the intangibles, such as employee demands, personalities, and the negative energy associated with dealing with insurance companies. The return is usually easy to compare; in most cases it is simply based on collections from insurance claims. I compared the cost of an outside billing and collection firm's fee of 8% to the in-house costs and went for the outside firm. My post-transition evaluation shows a windfall. By allowing the professional billing and collection firm to do what they do best, I have reduced my overall costs and obtained a higher collection ratio with less administrative activity. An intangible, unforeseen side-effect of outsourcing is that it created a vacuum effect; when billing and collections were outsourced it brought in more new patient activity. The most difficult part of this transition was to trust the numerical analysis - not the emotional attachment I had with my in-house billing department. It was a true leap of faith.
Marketing: The talent to analyze an expense or to project the feasibility of a marketing promotion is a learned behavior. Making an analysis on a future marketing program or event must be presented in an equation format. The question you must ask is, "If I spend X amount of dollars on this, what will be my return on my investment?" For example, what is the feasibility of a promotion that costs $5,000 to be successful? Always use past performance to predict future results. If you historically convert 50% of all new patients to long-term wellness care, and these patients yield $2,000 per year, your breakeven is five new patients. Note: your goal is not five new patients. Your goal has to be two or three times your investment, or 10 to 15 new patients. When planning a marketing promotion or event, never set your goal at simply breaking even. You should always strive for making a profit.
Staff: Staff is typically your largest expense, and unfortunately, the most difficult to determine its true profitability. The intangible attributes of a staff member present a complex analysis. For each specific position within your office, a unique blend of personality ingredients are desired. The front desk person needs a larger percentage of people skills than of any other. The insurance person needs a strong, determined attitude to combat the inherent frustrations of collections. A filing person with low patient interaction and low experience warrants a relatively low hourly wage. To complicate matters more, the staff member may increase or decrease their intensity towards their work over time.
The most successful chiropractors have a working relationship with their staff that is one of constant motivation and improvement of their professional and personal qualities. Through chiropractic seminars, personal development training courses, and in-house goal setting and achievement programs, your staff will be constantly improving in value.
With time, as you adapt these improvements into your practice, growth will result. The staff will develop a larger devotion to you, the practice, and patients. As this relationship grows the chiropractor always lags in wage for service you are getting more "bang for your buck". The staff typically does not feel underpaid due to their increase of worth and periodic increase of income. This is an honest win-win relationship. The only way the relationship is not equal is when the staff does not improve and you increase the wage for nothing more than service time. The staff will lack motivation to improve if they know that all they have to do is the bare minimum to get a raise after X amount of time. Therefore, you must always work on and with the staff.
Many chiropractors that I consult paid little or no attention to their expenses in the past due to their lack of insight of the rewards from this effort. Clearly, this article does not contain that one "silver bullet idea" to riches and fame. However, it does contain solid business fundamentals that many chiropractors lack. I urge my colleagues to continue to improve upon themselves and their practice, not only with their technical skills, clinical skills, and practice expansion, but also in business basics. In the present environment where the healthcare dollar is increasingly more difficult to put into the net income column, chiropractors today must analyze the expense items in the Income Equation; if you watch your pennies, you will not have to watch your dollars!
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