Shared by: Miles Bodzin, DC
www.CashPractice.com

"Balance Your Stats for Profitability" 

October 12, 2003 

Here is the latest issue of Dr. Bodzin's Nuts & Bolts of Cash Practice 
Newsletter. I hope you enjoy it and learn something new. If you have any 
questions, feel free to contact me by email. Feel free to forward this 
newsletter to your fellow chiropractors. 

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In the last newsletter I talked about "Why Have a Cash Practice". If you 
missed it, you can read it Here. In this issue I will discuss the ideal stats for 
a low stress, financially stable, cash-based practice. 

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When running a cash practice, there are several stats that are very 
important to understand. I discussed one of the most important key stats 
(TCL) late last month in "Are Your Fees Too Low?" Read it Here. 

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In this discussion, there are a number of terms that are likely new to you. 
Be sure to read each one several times so you have a good understanding. 
This newsletter's topic is critical in understanding the "business" of running 
your practice. 

Now, lets get started. Would you rather have a practice collecting $900,000 
and netting $300,000 or a practice collecting $300,000 and netting 
$180,000? 

Although the first practice is collecting more, it is not very profitable and 
is probably over staffed and over stressed. The second practice is in perfect 
balance and is likely a very fun, low stress practice. When a practice is in 
perfect balance, its optimizing it's profitability. This is called being in 
Practice Equilibrium (PE). 

The business goal of running a cash practice is keeping it in Practice Equilibrium. 

Wouldn't you like to know whether or not you're practice is in Practice 
Equilibrium, thus optimizing it's profitability? There are three important 
stats that influence your profitability more than anything else. Any no, its 
not PVA. They each have to do with influeincing your Cost to Deliver care 
and your Target Collection Level (TCL). 

Key Stat #1 - Patient Volume (PV) 

The number of visits you have each week is inversely proportional to the 
cost to deliver them. In other words, the more visits you have, the cheaper 
it is for you to deliver them. This means, you can set a lower target for 
your average collections per visit. There is a balance point, or what I like 
to call a point of practice equilibrium (PE) that occurs where the target 
level for collection and the cost to deliver your care become balanced. 

Key Stat #2 - Actual Overhead (AO) 

This one seems pretty obvious. The higher your AO, the higher your cost 
to deliver your care and the higher your target level for collections has to 
be. So, if your actual overhead is too high (out of balance), you have to 
collect a higher amount per visit to remain profitable (Set a higher (TCL) 
target collection level). The TCL can't be set too high, so it is imperative to 
keep your AO in balance. If the TCL is too high, then your patient volume 
will decrease. 

Key Stat #3 - Desired Percent Overhead (DPO) 

This is less of a stat and more of a goal. However, it is important in 
establishing your TCL. I recommend setting your DPO to 40%. As low as 
30% is fine, however any lower and your practice will not grow. Higher 
and it will lose profitability. 

Below is a chart showing the stats of different practice levels in PE with a 
DPO of 40% and a TCL of $30+/-$1. 

 

As you can see, a practice can be in equilibrium at any level. Think of these 
ideal levels as steps. In order to go from one level of practice to the next, 
you have to be prepared to increase both your patient volume and actual 
overhead. But first, you have to make sure your practice is in balance. If 
it's not, you will have a very difficult time going to the next level. 

I hope this was helpful. If you need any further assistance, just let me 
know. 

Yours in excellent service,
Miles Bodzin, DC
www.CashPractice.com