The following article is an excerpt from Profit First for Optometrists by Rachel Siegel
Most doctors, including chiropractors, heart surgeons, brain surgeons, general practitioners, and optometrists, are taught how to do a job and do it well. But they are not taught how to run a business.
We have seen it time and again: when doctors go out on their own or become a partner in a practice, they have no clue what is involved. That is especially true for optometrists who go out and buy a practice from another practitioner. The buyer typically assumes that the seller had figured everything out for them, and had that practice running smoothly. They expect to simply step into their shoes and be profitable from day one.
Unfortunately, this is typically not the case. Running a business is hard, and taking over an existing business is no easier. For example, as an optometrist, your cost of goods is extremely important. You need a good supply of lenses and frames and need to allocate appropriate monies for those materials. You’ll want to keep your equipment up to date and your doctors compensated well for their time and benefits. On top of that, you have the rest of the staff and other overhead like payroll, rent, utilities, licensing, supplies, Internet, cell phone, EMR systems, and billing systems — just to name a few. It’s exhausting just to think about.
Here’s what you need to know:
Where has all the profit gone?
The widely accepted formula for determining a business’s profits is the GAAP (Generally Accepted Accounting Principles) formula: Sales – Expenses = Profit. This formula is simple and logical in theory, but when put into practice, it often leaves businesses with less profit at the end of the year — or sometimes with no profit at all. The reason? It fails to consider that your business is run by humans, and humans aren’t always as efficient as they could be. When you are given two weeks to do a project, for example, you can complete it in two weeks; but when you’re given eight weeks to do that same project, you somehow manage to make it take eight weeks.
This idea that demand for resources always adjusts to meet supply is exactly why the GAAP formula doesn’t usually work in the management of business. In the GAAP formula, profit is just whatever is left over — a pleasant surprise at the end of the year. The problem is, because of Parkinson’s Law, your business might not have anything left over. You had it available to spend, so, of course, you spent it. It’s just basic human nature.
How to get your bonus back
The good news is that Parkinson’s Law works in reverse. Just like we could take eight weeks to finish an eight-week project, we can also figure out how to get that eight-week project done in two, if we had no other choice. Enter the Profit First formula, which flips the GAAP formula on its head: Sales – Profit = Expenses. It’s a simple change, sure, but it’s a powerful one. By deciding upfront how much you want left over at the end of the year, you force yourself to find ways to get the same things done for less money. The notion of calculating your profit first (that’s where the very clever name for the formula comes from), is nothing new. It uses the same methodology as “pay yourself first,” a principle that has been the driving force behind the power of 401K retirement plans and of many of the world’s wealthiest.
Profit First is among the greatest financial tools in the history of business, and it’s about time for you to start taking advantage of it for yourself. I’m not saying that just to say it because I am writing this book. I live it and breathe it every day. I implemented Profit First in my business during the pandemic. It is truly life-changing.
The growth question
My clients ask a lot of questions before starting to use the Profit First Method, but the one asked most often is “If I set aside my profits, how will I grow?” What I’ve found is that the fastest, healthiest growth comes from practices that prioritize profit. And it is not because they plow money back into the practice (or business). Profit First sparks faster growth because it makes you reverse engineer your profitability. When you take your profit first, your practice will tell you immediately whether it can afford the expenses you are incurring; it will tell you whether you are streamlined enough; it will tell you whether you have the right margins. If you find that you can’t pay your bills after taking your profit first, you must address those pain points, readjust, and make the fixes.
Fun fact: Taking profit first will help you figure out which of the many things you do makes money, and which does not. Then the direction is obvious — you do more of what is profitable, and you fix or eliminate what is not. You will focus on what makes profit for you, organically, and you will get better and better at it. And when you get better at what your customers want and like, they will like you more.
Specialists, like optometrists, know the secret. Keep doing a few things really, really well, and you will attract the best customers and see your practice grow. Profit First keeps you focused so you can do this.
