3 Tips for The Business Plans and Pro-Formas

Today, let’s dive into the numbers and talk about a pro forma and business plan. Why? One of the most important things you need to do before opening your own private practice is to crunch the numbers yourself. In our previous post, we talked about why you should consider going solo and how a solo practice can survive. Today, let’s prove it by letting you see how a lean practice does very well.

Both a pro-forma and business plan are essential at getting you a roadmap for your practice and an integral part at securing financing.

What is the difference between a business plan and pro froma?

1. Business Plan: A business plan outlines the overall vision, goals, strategies, and operations of a business. It typically includes sections on market analysis, product/service offerings, marketing and sales strategies, organizational structure, and financial projections. The business plan serves as a roadmap for the entire business, guiding its development and growth over time. For a medical practice – it answers the question – what is the purpose of your ophthalmology practice? In a way, define your niche and/or vision.
2. Pro Forma: Pro forma financial statements are a subset of the business plan, focusing specifically on projected financial performance. These statements include projected income statements, balance sheets, and cash flow statements based on assumptions and strategies outlined in the business plan. In other words, what you numbers are projected to become.

More About Business Plans

The purpose of the business plan is 2 fold

#1 It details the structure and function of your business.

#2 It explains why your business needs to exist.

Some use it as a way to get investors, but if you are watching this, you probably aren’t planning to draft that type of business plan

Here is a sample template right here, and it outlines some of the key information for your practice.

I like the sba.gov website. It is well written. Check out the link below.

https://www.sba.gov/business-guide/plan-your-business/write-your-business-plan

I think for the sake of planning, the lean plan in the above website has enough information. The lean plan provides a quick, high-level explanation of your business and is not difficult to create

More About the Pro-Forma.

The pro-forma will definitely be more detailed than a business plan because it dives into the numbers.

A Pro Forma is essentially a financial forecast. Basically, you are projecting how much you expect to earn.

There are several templates online that show how to create a pro-form using their templates. Check out the link below.

https://bench.co/blog/accounting/pro-forma-financial-statements

In addition, by finally writing down all the potential income sources and expenses, you really get to plan for the best and worst scenarios.

But a couple of things you want to remember beforehand.

#1 – Know Your Numbers: Gross Revenue, Expenses, and Overhead

First, try to estimate what types of visits rough estimate on the types of office visits you will have:

The most common visit types that I use are 92002, 92004, 92012, 92004, 99213, 99214.

Also try to figure out what diagnostic procedures that you often utilize are. Here, you will want to consider your refraction, OCT testing, visual fields.

Of course, as an ophthalmologist, I do a lot of cataract surgeries as well (CPT code 66984, 66982).

Next, check out the CMS physician fee schedule look up tool.

https://www.cms.gov/medicare/physician-fee-schedule/search/overview

And run the most common CPT codes that you expect to utilize. With that , you can calculate the amount of money expected to generate per patient encounter.

On average, I find that the reimbursement per encounter hovers around 180-200. This is all visit types, diagnostic testing, procedures, and even global visits.

Now once you calculate the number of patients you expect to see per month by the expected reimbursement per patient, you can calculate your gross revenue per month.

#2 Stay Lean: The Overhead is the MOST Important Thing To Monitor

Now that you have calculated your gross revenue per month, you need to calculate your overhead. This includes things like utilities, EMR bill, utilities, and staffing.

Remember your profit is essentially what is left once you have calculated your gross revenue and subtracted your expenses/overhead. Of course this is an oversimplification but it demonstrates one thing, the overhead is important to keep low.

For a discussion on overhead, please see my prior blog post.

#3 Be Conservative in Your Financial Projections.

Expect your first month or so to be slow with maybe 1-2 patients per day and increase your clinical volume slowly over time. That growth varies tremendously depending on location and the density of nearby doctors. I was very conservative in my projections.

Congrats. If you had download the templates and follow along, you have calculated your gross revenue and expenses. But don’t forget to add up all of the equipment you need to purchase prior to opening your office. This includes things like your slit lamp, computer, furniture, diagnostic equipment. The cost to open an office varies wildly depending on what you read. I have spoken to some doctors who spent over 500K to start their medical office. Staying lean was important to me, so I opened up as cost effectively as possible, so I was able to open for around 150K.

Anyways, I hope you found that helpful. Even if you aren’t 100% sure if going to go open up your medical office, I would still recommend going through this exercise. You never know if you are actually going to make the leap. I did, and I am certainly happy. In this previous post, I went over the reasons why I went solo. I will likely expand on that more.

In the next post, we will chat about how to find your first office space and some important considerations.

Don’t forget to post and comment below.