Operating Expenses for Year 1

As a follow up to Pro Forma Part 2: Operating Expense Projections, My Startup & Equipment Costs, and Start Up & Equipment Costs, Part 2, let’s go over how much I spent running my practice in year 1.

The first year was definitely difficult. Given that revenue was expectedly low and operating expenses were high, I suffered on both the top line and the bottom line.  Your startup costs don’t end as soon as you open doors. Throughout the first 2 years, you will encounter additional upfront costs that you initially didn’t know you needed. In addition, you’ll be paying for things that are wasteful and unnecessary, but you won’t realize it until later. Only after the first few years, will you grasp which areas of fat you can further trim. Because I have constantly reviewed and fine tuned my expenses, I’m running a much leaner and more efficient practice today. Most of my current expenditures are absolutely necessary, yet at a competitive cost.

Just briefly browsing through my spreadsheet from 2011, I can say that I overspent on paid advertising, society memberships, accounting, and phone & internet.

Here are my numbers:

  1. Accounting: $400
  2. Advertising: $40,000 (most was on Korean print ads. I spent way too much, but that’s what fear and desperation can do to you.)
  3. Bank Charges: $75
  4. Business Gifts: $25
  5. Charitable Contributions: $500
  6. Computer Services (EMR/PM/website support, backup): $6,000
  7. Collection Costs (merchant services): $1,500
  8. Credit Reports: $200 (I was still trying get more loans)
  9. Dues & Subscriptions (hospital, IPA, professional societies, etc.): $2,500
  10. Gas & Parking: $0 (because I didn’t keep track 😦 )
  11. Health Insurance Premiums: $9,000 (I provided health benefits off the bat for my one employee)
  12. Interest Expenses: $33,000 (yikes!  that’s what borrowing a lot of money at higher rates does up front)
  13. Insurance Premiums (malpractice, general liability, workmens comp): $5,000
  14. Legal & Professional Services: $125 (www.justanswer.com was my legal team. lol)
  15. Meals & Entertainment: $750
  16. Recurring Office Expenses (water, payroll service, magazine subscriptions): $850
  17. Payroll (salary & payroll tax): $45,000 (I paid my single employee above market rates)
  18. Phone & Internet: $7,500
  19. Postage & Mailing: $500
  20. Printing & Copying: $1,800
  21. Rent (1,680 sf full service @ $3.00/sf): $60,000
  22. Repairs & Maintenance: $625
  23. Supplies (Clinical): $7,500
  24. Supplies (Office): $1,700
  25. Taxes (CA): $800
  26. Training & Education: $2,000 (just out of residency.  not sure about lots of things)
  27. Travel Expenses (AAO): $1,000

 

The total for year 1 came to: $227,500, or about $19,000 a month. The crazy thing is that these large, high volume cataract factories pay over $20,000 a month in rent alone! Lol.

My year 1 revenue ended up being $260,000, so I still made a profit on paper. Although a good chunk of that went into paying down my loan principal. On my tax return, I showed a net operating loss because I had so many deductions lined up. It was just that the first 3 months were painful because I was not self-sustaining on a month to month basis yet. Surprisingly, my current base overhead isn’t that much greater than my year 1 overhead. It’s just that my annual revenue has near tripled since then.

Next time, Howie and I will combine our posts, and go over what our individual 2016 overhead.

 

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