Ho Sun & Howie’s 2016 Overhead Expenses

Continuing on from Pro Forma Part 2: Operating Expense Projections and Operating Expenses for Year 1

Ho Sun’s 2016 Overhead Expenses

As a maturing practice, I have been able to streamline my expenses better so that there is less waste. I feel like I spend every dollar more efficiently today than I did in year 1. Although some of my expenses have had to increase, I’ve been able to keep my base expenses similar to my year 1 expenses. Here’s what I spent last year (excluding my personal salary & benefits as an employee of the practice):

  1. Accounting: $170
  2. Advertising: $15,000 (still majority to Korean newsprint ads)
  3. Bank Charges: $600
  4. Charitable Contributions: $3,000
  5. Computer Services: $7,000
  6. Credit Collection Fees (merchant services, collection agency, insurance overpayment refunds): $3,000
  7. Dues & Subscriptions (medical license & professional dues) : $3,200
  8. Employee Lunch & Snacks (I pay for my employees’ lunch every day): $7,000
  9. Gas & Parking: $600
  10. Gifts: $25
  11. Health Insurance Premiums: $31,500
  12. HSA Funding (I max out my employees’ HSA account): $11,000
  13. Insurance Premiums (malpractice, liability, workmen’s comp): $6,500
  14. Interest Expenses: $12,000
  15. Janitorial: $5,400
  16. Licenses & Permits: $200
  17. Meals & Entertainment: $500
  18. Office Expenses (Recurring): $2,500
  19. Payroll (salary, payroll taxes): $115,000
  20. Phone & Internet(including cell): $6,500
  21. Postage & Mailing: $1,500
  22. Printing & Copying: $800
  23. Professional Services: $400
  24. Rent: $48,000
  25. Retirement (employer contribution): $1,000
  26. Repair & Maintenance: $3,500
  27. Security: $500
  28. Supplies (Clinical): $5,000
  29. Supplies (Office): $1,500
  30. Taxes: $7,000
  31. Training & Education: $500
  32. Travel Expenses: $2,000
  33. Utilities: $3,000

Grand total for 2016 came to around $305,500, which is $78,000 greater than my year 1 overhead. However, over $50,000 of it went toward providing good benefits to my employees (buying lunch, paying for health insurance (including family members), maxing out their HSA accounts, contributing to retirement account, higher salary than market rate), whom I like very much. I believe in rewarding good employees and encouraging retention, so I “splurge” on them. I’ve only been able to do so because my overhead percentage was low in the first place, giving me a good amount of wiggle room. Of course, had I paid them less or given them fewer benefits, my productivity would have been lower because of higher employee turnover.

If you exclude these optional perks, my base overhead would have been around $255,500 for 2016 vs. around $218,500 for 2011. The greatest increase in expenses was payroll because I hired a second full time employee in 2016. Also, because my own salary was higher, $14,500 went toward paying for my personal FICA taxes (employer portion). The greatest decrease in expenses were in advertisement and interest expenses. Most other expenses remained similar.

Now we’ll go over Howie’s overhead.  Compared to him, my overhead looks like a cataract mill.  🙂

 

Howie’s 2016 Overhead Expenses

$36,000 office rent ($3000 per month)
$32,000 employee wages (about 33 to 36 hours per week, $2700 a month)
$7,600 advertising (Google AdWords, $630 per month)
$5,400 payroll and other taxes ($450 per month)
$9,800 insurances ($7,900 malpractice, $1,900 Business insurance; $816 per month)
$3,600 EHR fee ($300 per month)
$3,400 practice management system fee ($280 per month)
$1,200 claims clearinghouse fee ($100 per month)
$2,000 credit card processing fees ($170 per month)
$2,800 office phone and internet ($233 per month)
$1,100 cell phone and half of home internet ($92 per month)
$3,000 IT company fees including backup storage ($250 per month)
$1,550 ophthalmology society dues
$2,000 medical staff and credentialing dues
$500 medical license renewal
$1,000 mileage
$3,000 meals and incidental expenses
1800 travel and conference registration
$4,000 office supplies, copies; ophthalmic supplies ($333 per month)
$500 repairs and maintenance

Total about $120,000
Also amortization and equipment deductions

The two biggest expenses typically are staffing and office rent. The typical practice spends about 40 to 50% on overhead. Since I’m still not that busy I do a lot of tasks that busy doctors would delegate to their office manager or staff. I’m my own office manager, so that expense is spared. That’s why my ratio is at 26%. But if I hired another 0.8 FTE then the ratio would be up to 40%.

For office rent the typical practice spends about 10 to 15% of overhead. Of course this varies depending on what part of the country you’re in, and the location of your office. I know someone in a desirable costal city that pays three times what I do for the same size! But office rent ratio is lower than many people imagine, so it’s OK to pay for the slightly nicer or bigger office.

2 thoughts on “Ho Sun & Howie’s 2016 Overhead Expenses

  1. https://solobuildingblogs.com/2017/08/20/location-location-location/

    https://solobuildingblogs.com/2017/08/23/glut/

    https://solobuildingblogs.com/2017/08/23/i-have-chosen-wisely/

    It is absolutely a myth that solo practitioners need to open in underserved or niche areas. As per the third post, a good quality doctor will attract patients- regardless of whether this doctor is solo, in a small group of two or three, or in a mega practice. In fact, I would argue that an ophthalmologist who gets good results and who patients like is better off going solo than in a mega group because it’s easier for them to market their name, instead of being Dr. X lost in a group of 100.

    Many of us in the google group have opened in competitive saturated urban areas and are doing very well. Having said that, it’s definitely easier to get busy quick in less competitive areas- but the same holds true if you join a group.

    Like

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