Managing finances in your practice starts with a Purpose-Driven Revenue Goal. If you don’t know your purpose for money, it is impossible to create this goal.
Before we can talk numbers you have to know what you want in your life. What are you working for? Take a few moments and write this down. I find most people have ideas about their personal goals. But if they’re not written down, they’re not concrete and they don’t become reality.
Take some time to visualize this so you can see, hear, feel, smell, and taste it. Involve all your senses and visualize it as though it is real. This isn’t the law of attraction. This is based on science and quite amazing. Your mind cannot differentiate between a real memory and a vision you implant there. Your subconscious mind will work to fill the gap between what your life is today and the vision you have for it.
Let’s be clear, it does not have to be elaborate. You can have a vision for your life 10 or 15 years from now. But you should also have a vision of what your ideal day looks like now. What do you want to happen in your life immediately?
What I have found to be true is those who make this realistic actually achieve it. Their life ends up transcending these goals. So take the time to know your personal vision. This leads to the purpose money will serve in your life.
You Have To Know What You Want
The money you make and keep will go to fulfill your vision. It’s time to put numbers to this. Even though money is not the most important thing, your vision will need some money to achieve.
Start simple and create a list of personal needs and wants.
Your personal needs cover those expenses that allow you to live comfortably. It pays for all your bills and a few thrills. Don’t be too modest with this list. You are college-educated. You have worked hard and paid your dues to get to this point. That deserves more than a minimum-wage lifestyle.
Don’t make this arbitrary either. Saying you need $8,000 a month to meet basic lifestyle expenses sounds made-up. Attach real numbers to your life vision and figure out what it costs. When somebody says they need $8,127 per month I know they have actually done the work.
When your practice is generating enough income for you to consistently meet your personal needs, start to include your wants. These are things like more charitable giving, ramping up your investments, and saving more money long-term.
Figure out how much money you need to reach those goals. If your number is annual, divide by 12 to get a monthly number. Once you have this you are ready to develop your Purpose-Driven Revenue Goal.
How To Craft A Revenue Goal With Purpose
Practice owners continue struggling year after year when their revenue goals are not supported with purpose. Most private practitioners start with what they reasonably think they can generate in collections. They base it on industry data or an advisor’s idea of what is practical.
It’s true this data and experience can keep us grounded. But it’s better when we know the revenue we’re working hard to generate is going to turn into money we can use to fulfill our personal life vision. And we have a system to accomplish that.
First decide to use either your personal NEEDS or WANTS goal. Then follow this step to develop your Purpose-Driven Revenue Goal.
We’re going to reverse-engineer a revenue goal for your practice based on your personal vision. I advocate for my clients that at least 15% of total collections becomes doctor compensation. If you’re the sole owner of your practice, you only need your number. If you have a partner they’ll need to include their number, too. And if you have associates on staff you include their compensation in this formula.
The formula for a purpose-driven revenue goal is simple.
Your number (personal NEEDS and/or WANTS)
PLUS your Partner’s number or associate doctor’s wages, DIVIDED by 15%.
This is reverse-engineering the revenue goal. Nothing made up. Nothing arbitrary. It is grounded in reality but not too modest. It is a goal you will strive for with passion because it’s attached to the vision you have for your life.
How To Make Your Revenue Goal Attainable
Once you have a Purpose-Driven Revenue Goal, you need to make sure the goal is reasonable and attainable.
What does that mean?
Remember one of the goals here is to avoid burnout and not work yourself to death.
You need to be able to actually enjoy your life throughout this process. Your practice does not need to consume all your time.
The process is simple.
The next step is to figure out what it is going to take to achieve that level of revenue in your optometry practice. So you need to break this down into your revenue model.
The basic drivers of revenue in your optometry practice are the number of exams and average dispensary sales.
If you have a medical specialty or other services that you provide, such as dry eye, myopia control, or another specialty, that would also be a revenue driver.
But let’s start with the basics.
The number of exams multiplied by the average value collected for those exams will give you the first step.
Your capture rate drives the average sale in the optical dispensary. How many of the patients who you examine actually use your dispensary?
You can start with an industry-standard goal here – around 40%.
Here is the simple revenue model formula:
# of Exams * Avg. Value Per Exam
# of Exams * Capture Rate * Avg. Dispensary Value
Add these two together and compare to your Purpose-Driven Revenue Goal.
How close are you to your goal? Is your goal attainable?
You may have adjustments to make at this point. Or your goal may be right on point. Either way, you are well on your way to a practice that supports your life. Instead of a life run by your practice.
If you liked this post, check out our Independent Optometrist’s Guide To Financial Freedom.
Eric Levenhagen, CPA CTS is the only financial consultant who helps private practice optometrists improve the financial health of their practice with a simple, proven process called Financial Harmony which will reduce their taxes and increase their after-tax profits by at least $10,000 in the first year, guaranteed.