SurvivalStrategies.com: Your Practice or Your Life, Part 2
By Harvey Schmeideke | On May 9, 2008 | In Small-Business | Rated 
Happiness and prosperity are a part of being your own boss. By deciding to strike forth in a private practice, or as a team member in this quest, you are already a cut above the average. You have the heart and focus of a tiger. What you need now is the exact technology and strategic applications to survive in this adventure.
In the first part of this article series I covered an early step in this process which is to formulate and acknowledge your personal purpose in pursuing private practice.
Now in part two, we will focus on your current practice and career. I will cover how to have the Power of Choice over your goals and how a good exit strategy needs a good entrance strategy.
A GOOD EXIT STRATEGY NEEDS A GOOD ENTRANCE STRATEGY
Legendary New York Yankees coach Casey Stengel once said, “If you don’t know where you’re going, you’re liable to wind up someplace else.”
Now that we know money is neither your primary motivation nor the ultimate goal, let’s admit that it is absolutely essential that you prosper. You will not be able to achieve your dream, fund your expansion, or achieve the financial independence you desire, if you mess up the financial part of your practice.
Profitability is essential, both in the short and long term. Without adequate take home income, without profitability and building the practice value you will not be able to provide for your family or your future, let alone have a solid base and resources for practice expansion. It is worthwhile to consider where you want to ultimately be and the end result.
When it’s time to exit your practice, buyers take into account a variety of reliable and tangible numbers related to money such as profitability, equipment, assets, etc. An accountant uses these factors to help you determine a book value: what your golden egg is worth.
Goodwill value of a clinic is a major factor that diminishes or multiplies the hard numbers, the “negotiable” part. Examples of such factors deal with the health of the business itself and how you have nurtured the goose that lays the golden egg.
Goodwill value can take the hard numbers and magnify their value. That’s extremely important, because you want to maximize your company’s value.
Here is the BIG BONUS: The exact same elements that influence goodwill value are those that make your practice a dream or a nightmare to operate. We can refer to these as the keys to practice success, and it directly relates to the goal you identified in Part 1 of this series.
A common denominator and desired ingredient of every goal I’ve ever seen is the quest for Power of Choice.
Clients tell us that they want to be in a position where they had the power to choose whether to sell the practice, keep it as a source of income that operated remotely, or treat patients part time and play the rest. They want to be able to choose what kind of care to give their patients. In every important life and financial matter, it is choice that makes all the difference.
When one feels forced into responsibility, enthusiasm and life bleeds out. When forced to deliver sub-standard care because of insurance constraints, or to sell a practice because the problems are just too great; it’s a living hell.
With 4,000 clients we have learned that there are three areas of business that practice owners want power of choice to optimize. These same factors enhance goodwill value and boost the profits of the clinic: PR and Marketing with stress on patient referrals, Organization, and Cash Flow. Control of these three areas gives you your most important asset - Power of Choice.
It might even help you to remember these three - patient referrals, organization, and cash flow as “POC Factors,” which, oddly enough, also are the letters in Power Of Choice. POC as an acroynm, you see, not only stands for the above three general categories of practice development, but also for Power Of Choice.
We’ve described what these points are, but let’s look at financial independence as a goal for a minute, and how each of these three POC factors will impact practice value and your financial freedom.
P - PR and Marketing: Patient Referrals
Establishing and cultivating referral sources is an essential element of any referral-based practice. A good relationship with an orthopedic surgeon can mean $100,000 per year or more in the value of new patients. To cultivate and maintain referral sources, you must master creating and developing professional relationships.
Can you imagine a potential buyer of your clinic learning that your referring doctors have strong relationships with the staff of the clinic as well as you personally, so that even if you were departing, the referrals would continue?
Or a prospective buyer, when being presented with a file cabinet that contains profiles and referral histories of each doctor, their preferred treatment protocols, and a full referral development record of every key referral source?
What would the buyer’s perception be if members of staff were conducting on-going public workshops, writing regular columns in the local papers, and effectively educating doctors and medical students as to how to refer appropriately?
What if a very significant part of your practice income was cash from niche programs that made your clinic stand out as different from others and unique in the community?
Do you suppose he might be willing to pay substantially more than if he suspected the referrals hinged on your personality and would stop when you left or if the practice was unknown to the community and it had no real identity (brand) that made it stand out as unique and preferable?
In my book “Keys to Private Practice Success” you can learn more about PR and Marketing which provide the vehicle to build stable referral sources, endless referrals, and make your clinic stand out.
O - Organization
To better understand organization and practice management as it affects practice stability and value, take a step back and assume the viewpoint of the buyer. Answer the following questions:
Would you buy if a clinic were managed directly by the current owner who put in long hours and controlled all aspects of the marketing, management and finances? Might you look more favorably on buying if there were a stable executive structure in control that would remain when you, the new buyer, assumed ownership?
A buyer confronted with a departing practice owner who was the only one with referral relationships or who carried the practice on his or her back generally falls to only one workable solution if he doesn’t want to fall into the same trap: keep the old owner hostage for many months (or years!). It means added expense to the new owner while his managers gradually assume control and wean away the referral sources. Additionally, the new owner will have to confront spending the kind of hours in the practice that you have been doing.
To make matters worse, payment to the past owner is not usually up front, but doled out over a longer period while you work as an employee in your own former practice. Considering this, a potential buyer may look elsewhere or offer you far less than you want.
To provide value for your practice, you need to build a powerful stable management and clinical team. Your basic building blocks are trained and capable executives who hold their positions in marketing, clinical and administrative functions.
In my book I cover how to bring your team up to a stable, ideal executive structure.
C - Cash Flow and Control
By survey, the number one issue among today’s health care practices with regard to their finances is insurance and reimbursement problems. Second is the issue of how to build profitability in the practice. These are intimately related.
Lack of control at each vital point in the reimbursement process costs many practices hundreds of thousands of dollars.
Tightening each control point in the practice should be part of your day-to-day operation as well as your eventual exit strategy. Thorough review and reorganization of the entire process saves enormous sums of money. This includes analyzing which companies you choose to affiliate with and how your office staff handle patients, obtain patient information, handle claim submissions, etc.
Every clinic needs to have firm financial planning. Done correctly, a practice grows with strong reserves, salaries and perks increase, investments can be made and overall practice value grows.
It is a very large liability, particularly at time of exit, for an owner to have been paying his staff but not himself, and any knowledgeable buyer will see this. On the other hand, when you have been successfully operating your clinic at arm’s length for years and receiving a healthy management fee, a buyer is much more attracted to the deal.
The secrets to monitoring and improving profitability is through proper financial planning considerations. Read more about how to bonus staff to boost productivity without losing your shirt and other strategies covered in “Keys to Private Practice Success.”
SUMMARY
When it comes to the three POC factors and attaining true Power of Choice, put yourself in that rocking chair and see what you want to have accomplished. Or put yourself in the shoes of a potential, savvy buyer. Determine the actual goal that would be a win for you, for your staff, even for the buyer.
Mr. Schmiedeke is the nation’s foremost authority in the development of professional referrals, private practice management and marketing. As co-founder of Survival Strategies, Inc. (http://www.survivalstrategies.com), a consulting company for private practice health care professionals, located in Burbank, CA, he has helped more than 4,000 clients achieve real independence, flexibility, and the freedom to make their own decisions—the very qualities that attracted them to the business in the first place. He is the author of the book “Keys To Private Practice Success—Marketing and Management Skills They Didn’t Teach You In College”, http://www.survivalstrategies.com/email/kpps_book_promo.htm, the “Owner’s Manual” for private practice owners and other training materials.
In the first part of this article series I covered an early step in this process which is to formulate and acknowledge your personal purpose in pursuing private practice.
Now in part two, we will focus on your current practice and career. I will cover how to have the Power of Choice over your goals and how a good exit strategy needs a good entrance strategy.
A GOOD EXIT STRATEGY NEEDS A GOOD ENTRANCE STRATEGY
Legendary New York Yankees coach Casey Stengel once said, “If you don’t know where you’re going, you’re liable to wind up someplace else.”
Now that we know money is neither your primary motivation nor the ultimate goal, let’s admit that it is absolutely essential that you prosper. You will not be able to achieve your dream, fund your expansion, or achieve the financial independence you desire, if you mess up the financial part of your practice.
Profitability is essential, both in the short and long term. Without adequate take home income, without profitability and building the practice value you will not be able to provide for your family or your future, let alone have a solid base and resources for practice expansion. It is worthwhile to consider where you want to ultimately be and the end result.
When it’s time to exit your practice, buyers take into account a variety of reliable and tangible numbers related to money such as profitability, equipment, assets, etc. An accountant uses these factors to help you determine a book value: what your golden egg is worth.
Goodwill value of a clinic is a major factor that diminishes or multiplies the hard numbers, the “negotiable” part. Examples of such factors deal with the health of the business itself and how you have nurtured the goose that lays the golden egg.
Goodwill value can take the hard numbers and magnify their value. That’s extremely important, because you want to maximize your company’s value.
Here is the BIG BONUS: The exact same elements that influence goodwill value are those that make your practice a dream or a nightmare to operate. We can refer to these as the keys to practice success, and it directly relates to the goal you identified in Part 1 of this series.
A common denominator and desired ingredient of every goal I’ve ever seen is the quest for Power of Choice.
Clients tell us that they want to be in a position where they had the power to choose whether to sell the practice, keep it as a source of income that operated remotely, or treat patients part time and play the rest. They want to be able to choose what kind of care to give their patients. In every important life and financial matter, it is choice that makes all the difference.
When one feels forced into responsibility, enthusiasm and life bleeds out. When forced to deliver sub-standard care because of insurance constraints, or to sell a practice because the problems are just too great; it’s a living hell.
With 4,000 clients we have learned that there are three areas of business that practice owners want power of choice to optimize. These same factors enhance goodwill value and boost the profits of the clinic: PR and Marketing with stress on patient referrals, Organization, and Cash Flow. Control of these three areas gives you your most important asset - Power of Choice.
It might even help you to remember these three - patient referrals, organization, and cash flow as “POC Factors,” which, oddly enough, also are the letters in Power Of Choice. POC as an acroynm, you see, not only stands for the above three general categories of practice development, but also for Power Of Choice.
We’ve described what these points are, but let’s look at financial independence as a goal for a minute, and how each of these three POC factors will impact practice value and your financial freedom.
P - PR and Marketing: Patient Referrals
Establishing and cultivating referral sources is an essential element of any referral-based practice. A good relationship with an orthopedic surgeon can mean $100,000 per year or more in the value of new patients. To cultivate and maintain referral sources, you must master creating and developing professional relationships.
Can you imagine a potential buyer of your clinic learning that your referring doctors have strong relationships with the staff of the clinic as well as you personally, so that even if you were departing, the referrals would continue?
Or a prospective buyer, when being presented with a file cabinet that contains profiles and referral histories of each doctor, their preferred treatment protocols, and a full referral development record of every key referral source?
What would the buyer’s perception be if members of staff were conducting on-going public workshops, writing regular columns in the local papers, and effectively educating doctors and medical students as to how to refer appropriately?
What if a very significant part of your practice income was cash from niche programs that made your clinic stand out as different from others and unique in the community?
Do you suppose he might be willing to pay substantially more than if he suspected the referrals hinged on your personality and would stop when you left or if the practice was unknown to the community and it had no real identity (brand) that made it stand out as unique and preferable?
In my book “Keys to Private Practice Success” you can learn more about PR and Marketing which provide the vehicle to build stable referral sources, endless referrals, and make your clinic stand out.
O - Organization
To better understand organization and practice management as it affects practice stability and value, take a step back and assume the viewpoint of the buyer. Answer the following questions:
Would you buy if a clinic were managed directly by the current owner who put in long hours and controlled all aspects of the marketing, management and finances? Might you look more favorably on buying if there were a stable executive structure in control that would remain when you, the new buyer, assumed ownership?
A buyer confronted with a departing practice owner who was the only one with referral relationships or who carried the practice on his or her back generally falls to only one workable solution if he doesn’t want to fall into the same trap: keep the old owner hostage for many months (or years!). It means added expense to the new owner while his managers gradually assume control and wean away the referral sources. Additionally, the new owner will have to confront spending the kind of hours in the practice that you have been doing.
To make matters worse, payment to the past owner is not usually up front, but doled out over a longer period while you work as an employee in your own former practice. Considering this, a potential buyer may look elsewhere or offer you far less than you want.
To provide value for your practice, you need to build a powerful stable management and clinical team. Your basic building blocks are trained and capable executives who hold their positions in marketing, clinical and administrative functions.
In my book I cover how to bring your team up to a stable, ideal executive structure.
C - Cash Flow and Control
By survey, the number one issue among today’s health care practices with regard to their finances is insurance and reimbursement problems. Second is the issue of how to build profitability in the practice. These are intimately related.
Lack of control at each vital point in the reimbursement process costs many practices hundreds of thousands of dollars.
Tightening each control point in the practice should be part of your day-to-day operation as well as your eventual exit strategy. Thorough review and reorganization of the entire process saves enormous sums of money. This includes analyzing which companies you choose to affiliate with and how your office staff handle patients, obtain patient information, handle claim submissions, etc.
Every clinic needs to have firm financial planning. Done correctly, a practice grows with strong reserves, salaries and perks increase, investments can be made and overall practice value grows.
It is a very large liability, particularly at time of exit, for an owner to have been paying his staff but not himself, and any knowledgeable buyer will see this. On the other hand, when you have been successfully operating your clinic at arm’s length for years and receiving a healthy management fee, a buyer is much more attracted to the deal.
The secrets to monitoring and improving profitability is through proper financial planning considerations. Read more about how to bonus staff to boost productivity without losing your shirt and other strategies covered in “Keys to Private Practice Success.”
SUMMARY
When it comes to the three POC factors and attaining true Power of Choice, put yourself in that rocking chair and see what you want to have accomplished. Or put yourself in the shoes of a potential, savvy buyer. Determine the actual goal that would be a win for you, for your staff, even for the buyer.
Mr. Schmiedeke is the nation’s foremost authority in the development of professional referrals, private practice management and marketing. As co-founder of Survival Strategies, Inc. (http://www.survivalstrategies.com), a consulting company for private practice health care professionals, located in Burbank, CA, he has helped more than 4,000 clients achieve real independence, flexibility, and the freedom to make their own decisions—the very qualities that attracted them to the business in the first place. He is the author of the book “Keys To Private Practice Success—Marketing and Management Skills They Didn’t Teach You In College”, http://www.survivalstrategies.com/email/kpps_book_promo.htm, the “Owner’s Manual” for private practice owners and other training materials.