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Step 1. Understand how much it costs to practice.
To build profitability in your practice, the first step is to understand the nature of costs and how they effect what happens to your practice. In general, what you need to know is how much it costs to practice.
Costs come in two varieties, fixed and variable. Fixed costs are those expenses you have regardless of what goes on in the practice. The cost will be there whether you have one patient or one-hundred patients. Fixed costs come in monthly, quarterly and yearly varieties and include ongoing expenses such as rent/mortgage, electric, heat, telephone, salaries, taxes, advertising, office expense, all insurance, dues/fees, etc. As you can see, most of your operating costs are fixed.
Variable expenses include items you only need at certain times. These will include items such as nutrients, cervical pillows, orthotics, etc. Costs for things like X-ray film can be considered fixed if you take X-rays on a majority of patients or variable if you only take a few films.
To determine your cost structure, you need to determine your operating costs. You can take your expenses off your year end tax report or you figure it on a monthly basis as long as you apportion the quarterly and yearly costs along with the monthly figure. In either case, you need to deduct any expenses you have in your practice that do not go to the actual operation of the practice.
When you have your operating costs, you can:
• Divide it by the number of new patients to get your cost to operate per patient
• Divide it by patient visits to get your cost per patient visit
• Add back variable costs to the fixed costs on a per patient basis.
You now have an idea of what it costs you to have a practice. You can now also evaluate your practice to determine how to increase your profitability.
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