Inevitably, there comes a time when every physician takes a good hard look at the business machinery of his or her practice and decides that it's time fora tune-up. These thoughts typically arise when it becomes necessary for you to determine whether the current financial status of your practice can support hiring an additional employee, if it can support the current level of staff you employ, and most importantly, if your practice can continue to support the lifestyle you have become accustomed to. After all, it's not what you charge or even what you collect. What counts is what you bring home at the end of the day. Today's savvy chiropractor must master the art of efficient overhead management in order to guarantee success. As a practice management consultant, I often hear the same questions when working with the doctors I coach. Many chiropractors ask, "Is my practice over-staffed?"; "Can I justify adding another staff person?"; or '"Am I paying myself the right amount based upon collections?" The answers to these important questions can be determined by applying sound overhead management principles. What business-savvy guidelines for today's practice owners does studying the overhead management techniques of successful practitioners reveal? First and foremost, it is important to recognize that a chiropractor whose practice bills a million dollars a year can easily take home less than a practice that bills half of that amount when the overhead gets out of hand. Once your collections department is run in an efficient manner, and the income is flowing in, the task of effectively managing your collected income must begin. Unfortunately, many of the financial decisions made by busy practice own- ers are based on data collected in "freeze frames" that is glanced at. in between patient encounters, without a thorough analysis of the practice's financial statistics. Your practice overhead is a marginal percentage that reflects your preferred style of treatment and patient experience. It has been my experience that the most successful practices typically maintain a level of overhead of 50% of gross revenues or less. It is important to analyze the impact that each employee has on your bottom line. For example, if you compare the impact of a good marketing project which bears a 4-to-1 return on investment, for an associate to have a similar impact, they would have to be gen- erating four times the amount of revenue that they are being paid. If an office has a 50% overhead and the associate generates two times the amount that they are being paid, then it is safe to say that the majority of the amount left over is going toward office expenses, and very little is making it into the owner's pocket. As a general rule of thumb, a 4-to-l return on investment in any business endeavor is a good yardstick for making any move: and this should certainly hold true with regard to professional employees' compensation. Hach professional staff member should be subjected to this kind of finan- cial audit on a quarterly basis. When reviewing non-licensed support staff, the previous methodology must be modified. While it is useful to develop productivity statistics to analyze each position on your staff, it is also helpful to examine the financial impact of your support staff, as a team. The amount of income allocated to support staff each month should be based on gross revenue. The benchmark figure to use when analyzing staff expense is approximately 15% of gross collections. If your practice operates at 50% overhead, this leaves approximately 35% for marketing, supplies, rent, leases, management and consulting fees, taxes, other business-related expenses, and utilities, including telephone. When your staff performs efficiently, and the increase in collections outpaces the increase in staff expenses, the difference can be used to determine the level of performance bonuses, and also plays an important role in your determination to hire additional staff members. Using this formula, you can easily communicate to your staff how each team member's level of efficiency affects everyone's take home pay. An excellent way to motivate your staff to become more effective, and to increase the level of discretionary effort they contribute, is to let your team know that thev are reviewed as a team and that their effectiveness determines their level of bonuses. Whenever their combined pay comprises a percentage of collections smaller than 15%. the difference will be used for bonuses, or to hire new staff members. When your staff realizes that they could get the job done, more efficiently, with less people and earn more money, they'll be that much more motivated to perform at a higher level. This prevents many of the problems that come with overstaffing and constitutes a solid overhead control mechanism. If your total support staff expense was $7500 a month, then your staff would be entitled to a bonus when your collections rose above $50,000 in the same month. Collections above $50,000 will result in your total staff expense falling below the 15% average benchmark. For example, if you collected S60.000 in a particular month, then a percentage of the $10,000 surplus could be used to bonus the staff, or hire new staff members. The remainder is available for you to use, to invest back into your practice, or to take as profit. The percentage of surplus applied toward staff bonuses is at your discretion, but typically should not exceed 15%. In the previous scenario, S1500 of the surplus would be divided among non-physician support staff. When your staff is aware of how bonuses are structured, and how the bonus will be divided among the team members, their level of efficiency becomes highly focused. Staff members can do the math themselves and can determine that $ 1500/3 staff members results in a bonus of $500 per staff member. Hiring an additional staff member decreases their individual bonuses. SI500/4 staff members results in a bonus of $375, $125 less per staff member! It doesn't take long for your staff to realize the financial impact of adding another person to the team. A motivated and efficient staff can have a tremendous impact on your practice's bottom line. I have found that having a sound compensation formula for your staff has always contributed to excellent staffing decisions. Remove your emo- tions from staff compensation issues, and back up your decisions with logically determined numbers. In this manner, you can diffuse issues that could arise when an employee misunderstands his or her financial impact on your practice, and effectively support a highly motivated team. Charlie Schuster, DC. is a Senior Coach Jar Breakthrough Coaching. He can be contacted at 1-800-723-8423 or online at [email protected]!hreakthrough.coni.
