Jerry’s Outlook For 2010 Practice Revenues

“I’ve always found that plans were useless once the battle started. But planning ahead was everything.” — General Dwight D. Eisenhower

As you prepare to close the books on 2009 and plan for 2010 (you are in the process of planning I hope!), let me walk you through a simple exercise that will help you get a better handle on your practice finances.

It’s my experience that one of the main reasons ODs don’t like to create financial plans is because many of us have a difficult time projecting what will happen in the future. This year, we’ll make it easy.

Project Your 2010 Practice Revenues

As I wrote in my last blog post, I expect business for independent ODs to be about the same in 2010 as it was in 2009, but in a mirror image.

By that, I think the national economy will continue to be soft in the first half of the year.  Which means your January – June 2010 revenues will be about the same as your July – December revenues for 2009.

And then, your July – December 2010 revenues should improve as business picks up in the latter half of the year.

That’s because two macro trends are set to reverse themselves.

1. Unemployment will continue to rise into the first half of 2010 and then improve over last half of the year.

2. An unprecedented number of vision plan and eyecare insurance patients used their benefits in the first six months of the year instead of putting it off as usual.

Base Your 2010 Practice Budget On 2009 Revenues

Even if you forecast flat year-end revenues for your 2010 budget, I want you to look at what your practice expenses are now.

Next, project what your net income will look like at the halfway point of the year if you don’t reduce some expenses.

Why? Because in most cases, profits will be down if your revenues stay flat.

That’s why you need to spend some time with your CPA or bookkeeper to create a practice budget designed to keep 2010 revenues in line, especially for the first half of the year.

Your budget for 2010 should look something like this example from the Hayes 7 Key Expense Areas.

Projected Gross Collected Revenue =     $500,000

1. Cost Of Goods Sold                          27 - 33%
2. Staff Salaries And Benefits                15 - 22%
3. Occupancy Costs                                 4 - 8%
4. Patient Care Costs And Equipment       3 - 5%
5. Marketing And Promotion                    1 - 2%
6. General Office Overhead                      6 - 9%
7. Net Income %                                   30 - 35%
Net income dollars =                          $150,000

If you haven’t done this before, don’t worry if your percentages vary from what is shown above. Just use these benchmarks as the starting point for your practice budget.

Contingency Planning For Ups And Downs

Projecting what will happen if your revenues stay the same in a slow economy is the first step of our process.

In Thursday's blog post, we’ll look at what happens to your net profits when your revenues go up (or down).

Regards,
Jerry Hayes, OD

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Disclaimer: The information and opinions contained on this site are for discussion purposes only and are NOT intended to serve as legal, accounting or investment advice. ©2009 Jerry Hayes, OD. Not to be reproduced without written permission of the author.