How To Deal With Falling Revenue And Declining Profits
By Jerry Hayes OD | in
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1/15/2010 - 4:52 pm
Dear Jerry,
Unfortunately, your recent blog on ‘What Happens To Your Net When Your Gross Declines?‘ applies to me.
I created a practice budget projecting a decline in collected gross revenues for 2009. With the help of my staff, we made cuts in our variable expenses and even some staff benefits.
Ten months later, my gross is in fact down around 10%. But, the cutbacks we made have NOT come close to offsetting the losses. Just like your blog said, my net is down 28%!
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Asking for a rent reduction
My partner and I had one of those leases with automatic annual increases tied to the CPI for our area. When the economy slowed during 2008, we asked our landlord for a rent reduction and even offered to buy our building with no success.
In the meantime, our lease expired and we were on month to month. Early 2009, we asked for a new lease again with reduced rent - even 10% would have been appreciated. In spite of the hassle and cost of moving we were forced to find a new location and luckily we ended up moving in to a medical building across the street.
Our new landlord was a retired MD who was anxious and happy to have us. He built out the space to accommodate us with some of the costs billed to us over the length of our lease. Our rent was less than half of what we were paying even with the build out cost.
Our old landlord could not rent the building at the rate he wanted and subsequently had to sell. He did get his sale price but the buyer failed to get financing from his bank because, as you know or don't know, the market rental rate for the area is the determining factor for a commercial building's true value. Since we were closest to the building, our rental rate was that factor and as a result, our old landlord lost out big time.
We're just sorry we did not make our move sooner. I hope another doctor can make use of the the lesson learned here.
I would like to know what
I would like to know what your rent is as a percent of annual collected gross?
Dear Jerry,
Dear Jerry,
I am considering a practice analysis through a national consulting group.
During the initial phone conversation, I was asked about general trends. I felt this was appropriate because I should know the overall position of my business. In fact, daily numbers are constantly in my thoughts at the end of the day.
However, I felt the consulting group was more interested in my perusal of their business model. Unfortunately, the consultant did not keep his phone interview with me after I watched the 1 hour DVD about their company. Thank goodness I had only blocked off my lunch hour for his interview.
On another topic, I am in serious negotiation with my landlord for rent reduction. The landlord has recently hired a new management company since the current developer is bankrupt. This is not a small developer and in fact, it was recently a segment on NPR.
In addition to your expertise and "rule of thumb" operation guidelines, I would appreciate any citations that I can present to the new management company in order to build my case. I have started to do an in depth analysis on my own. I have a good accountant, but I'm not sure he is completely on board with the intricacies of optometry.