Pro Forma Part 2: Operating Expense Projections

As a follow up to Pro Forma Part 1: Revenue Projections,

The next step in creating your pro forma will involve operating expenses, which are the costs to start and run your practice. You want to limit the guesswork to a minimum when estimating these costs. Try to find out the actual cost of as many items as you can. Ideally, you would want to obtain detailed quotes from various vendors, but this may be too inefficient. Instead, you can get a solid feel just by searching the internet. I found eBay to be quite helpful. Also, your consultant can provide you with fairly accurate market rates for many things.

Operating expenses can be further broken down to startup costs (cost to open doors) and recurring fixed expenses (cost to maintain practice).

Let’s go over the startup costs first. I will only provide a brief overview, and will go into much more detail when going over each item individually in future posts.

Here’s the list of anticipated startup expenses:

1. Office space acquisition (lease vs. buy, leasehold improvements, architect, interior designer)

2. Furniture & equipment

3. Advertising (newspapers, website development, brochure mailings, radio, open house)

4. Business establishment (business licenses, incorporation, fictitious business name, etc.)

5. Lease deposit (usually 1 to 2 months of the initial rent)

6. Initial supplies (office, medical & drugs, instruments)

7. Professional fees (consultant, accountant, lawyer, credentialing)

And the list of recurring fixed costs for maintaining your practice:

1. Physician salary (base, payroll, benefits)

2. Personnel expenses (administrative staff, clinical staff, payroll expenses, employee benefits)

3. Rent (base, utilities, property insurance, property taxes)

4. Telephone

5. Medical expenses (drugs & supplies)

6. Administrative expenses (advertising, computer maintenance, laundry & linens, malpractice insurance, office subscriptions, office supplies, printing, pager, repairs & maintenance, renter’s property insurance, transcription service, website)

7. Loan repayment

I also added a 5% contingency to my budget since things always go over budget. I probably will go over budget on my contingency as well…

In Pro Forma Part 3: Putting It All Together, we’ll go over how to calculate your estimated cashflow.

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