If you’re a chiropractor that really wants to finally start your own practice, there is a HUGE critical ‘miss’ that almost all doctors are guilty of omitting that can make launching a successful new practice beyond difficult. Adding this one step to your planning process can eliminate a TON of mistakes and put much of your decision making on a type of autopilot that few chiropractors ever achieve. You can be one of these docs!
And NO, you weren’t taught how to do this correctly in college. Let’s face it, our chiropractic colleges truly do an incredible job of producing top flight doctors, but this aspect of launching a new practice simply isn’t in their sphere of excellence, nor do they have the time to teach business planning. That’s what business school is all about. In this blog, I’ll discuss how to build what’s called a proforma to the degree that it eliminates many of the hidden surprises that can doom a new practice.
The single biggest terminator of a new practice is what? If you said you run out of money before your new practice gets to breakeven, you’d be 100% accurate. Over the years, I’ve met more DC’s that had to close their practice because they ran out of money than for any other reason, by far. So if money is tight, and it usually is, it certainly was for me, then it’s crucial you build yourself a proforma so you know exactly how much cash you’ll need to get you to breakeven, so that you always know if you’re on track or if your practice it tanking. I still have the first one I built for my very first practice!
A proforma is sort of a fancy term for building a budget that clearly describes both the income your practice will collect and all the associated expenses your clinic will incur. Typically, we build a proforma for 12 month increments. For a startup clinic, I recommend you build a proforma for the first 24 months of operation. After that, one year at a time is totally fine.
A proforma isn’t just used to take to a lender to borrow money to start your practice. Not at all. This spreadsheet is reviewed every single week by you and your trusted advisors. You’ll closely monitor and compare the income your practice collects against what your proforma estimated you’d be collecting for each week. Then you compare expenses as well. This tells you if you’re on track, over track or are headed to insolvency.
I call this comparing your actual numbers against your planned numbers, or actual vs plan. Fortune 500 companies do this all the time as do the most successful chiropractors I know. In my businesses, I do this every single week. We teach all our doctors to run this way. This will give you valuable information so you can make better decisions and move toward your life’s vision faster with less mistakes.
Let’s talk a little about estimating what your clinic is going to collect each week and each month. How are you supposed to figure this out? Is it like throwing darts? It shouldn’t be. It should be fairly accurate. The reason estimating your collections is hyper critical is so that at a moment’s glance, you’ll know if you are going broke or if you’re marching to breakeven and then profitability right on target or hopefully well ahead of target. Remember, profit is not a bad word. If you don’t get profitable quickly, you’ll run out of money, have to close and then go work for someone else again, and that’s beyond demoralizing. Let’s dive in.
You begin estimating your collections by first projecting how many new patients accept care in your new office. Yes, this means you first have to build a marketing plan. I call this a marketing calendar. Marketing is also not a bad word. Good marketing will make or break your office, but more on that in another blog.
Let’s say you project that your new office will attract 25 new patients your first month. And to stay on the conservative side, let’s assume that for your first year in practice, you’ll attract 25 new patients every month. These are very doable numbers if you build a good plan and execute it correctly.
Next you must gauge how much revenue each new patient will bring into your office and on what kind of a time frame. To make this simple and formulaic, I suggest you estimate that it will take a solid month longer to collect all the revenue from each patient than a typical treatment plan runs.
For example, if a typical corrective treatment plan that you prescribe is about 12 weeks, then estimate that the revenue for that patient will be collected by your office over a 16 week time frame. Make sense? Using this example, you can estimate that about 15% of the total revenue will be collected in month number 1, 25% in month number 2, 30% in month 3 and the remaining 30% in month 4.
If you practice wellness care, that care begins at the conclusion of each patient’s active care plan, and that’s quite simple to estimate. But let’s get back to the example.
How are you supposed to know how much you’ll earn per visit? If you’ve worked in someone else’s clinic, certainly you’ve been informed. If not, you’ll want mentorship from a successful doctor in the vicinity. There are a few organizations in chiropractic that pretty much know conclusively what a typical collection is all across the States. HealthSource has the largest database. For our previous example, let’s say the average collection will be $80 per visit; a very reasonable number.
Now is when you build a spreadsheet that rolls in all the revenue you expect to collect on a weekly basis for the new patients you expect to attract. You know how you practice better than anyone else. If you often write treatment plans that run around 12 weeks, use that estimate. If you normally write programs of care that utilize various types of rehab, you’ll figure that into the average visit income you expect to collect. Is this starting to get clear?
Once you build this into a spreadsheet, it becomes extremely obvious what you project your new clinic will collect over the first 24 months. The most critical time is that period of time it takes to get you above breakeven. Lots of clinics can do this the first month, but to do so requires that you have painstakingly built a marketing strategy to attract enough patients to make your proforma accurate.
I encourage you to be conservative on both new patient acquisition as well as the revenue each new patient ultimately generates. Great care produces great patient results. Great patient results can produce a lot of referrals, boosting your new patients even faster and accelerating the growth of your new practice. In fact, overdelivering to your patients on every single encounter is about the best thing you can do to guarantee your success.
In the next blog, I’ll discuss how to handle estimating the expenses of your new clinic, how to do it accurately and how to combine it with the collections side of the proforma so that you have a document that you can rely on for your planning and your ultimate success.
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