Business Aspects of Optometry验光配镜业务方面

Business Aspects of Optometry验光配镜业务方面 Business Aspects of Optometry Spring B, 2010 Syllabus Purpose This course introduces students to basic principles of business administration and law that are essential for the practice of optometry and assists students in developing a practice plan for their entry into the profession. Learning Objectives At the conclusion of the course, students should understand: , The practice options available to optometry school graduates , How to locate, equip, and start an optometry practice , The different types of business organizations used by optometrists , Fundamental differences between business retirement plans , How to formulate a business plan and obtain practice financing , How an optometry practice is organized and administered , Personnel management in an optometric practice , The management of ophthalmic materials in an optometry practice , How fees for services are established, billed, and collected , How to market a practice and analyze its economic performance , Fundamentals of personal and business income tax and income tax reporting , Basic principles of negotiation and key provisions of contracts for associateship or purchase of a practice , Fundamentals of life, disability, liability and personal insurance , Basic considerations in personal finance and estate planning Practice Plan At the conclusion of the course all students will have constructed a practice plan, which will be compiled over the quarter in a stepwise process. For most classes, there will be an assignment that is part of this plan. This assignment must be submitted on the date due to receive credit. If the assignment is not turned in on the due date, a point will be deducted from the student’s grade. Any late assignments must be submitted to the instructor by the last class of the quarter or an I grade (“incomplete”) will be awarded for the course. Assignments must be submitted in writing by e-mail. Two of the assignments for the practice plan—the tax problem and the final plan—will be accorded extra credit. Each of these assignments will be worth the equivalent of 5% of the grade for the quarter (10 points), for a total of 10% additional credit. 1 Textbook rd Required textbook: Thal LS, Quintero S, editors. Business Aspects of Optometry, 3 edition. Boston: Butterworth-Heinemann, 2009. Reading assignments for each lecture are keyed to this textbook, which is provided free of charge by the Association of Practice Management Educators. Attendance Attendance is mandatory. If a significant number of students do not attend, class roll will be taken. Students who are present will be given a one-point credit. Reading Reading from the textbook will be assigned for each class. Students are asked to read these assignments before class to facilitate understanding of the subject being discussed. Seminars The course will include four educational seminars held outside of class hours: the AOA’s “Career Advocate Program” and “AOA Group Insurance Plan”, Regions Bank’s “Borrowing and Credit”, and VisionAmerica’s “Practice for Success”. Testing Testing is based upon lecture material and reading assignments. There are two examinations, a midterm and a final, and each test counts for 50% of the grade. The final examination is not cumulative (it tests only material after the midterm examination). There are midterm and final exam review questions available on the course website that may be used to prepare for testing. Grading The grading scale used is: A=90-100 B=80-89 C=70-79 F=below 70 Student Conferences The instructor is available for conferences whenever a student believes a meeting would be helpful. Students may schedule appointments by telephone or e-mail; the instructor’s office phone is 934-6772 and e-mail address is jclasse@uab.edu. This e-mail address should be used for the submission of the practice plan assignments. 2 Class Website The website for the class is www.opt.uab.edu/opt336; the site contains all power point slides used by the instructor. Schedule There are Monday (8:00 to 10:00 AM) and Thursday (9:00 to noon) classes. The schedule for 2010 is as follows: Business Aspects of Optometry Spring B, 2010 Monday Classes Lecture Topic Date Assignment Practice Plan No class—NBEO Exam Mar 15 None Career Choices (Marbourg) Mar 22 Chaps1,2 Résumé Business Organizations Chap 3 Understanding Leases Mar 29 Chap 12 Business Entity Deciding Where to Practice (Fisk) Chap 10 Tax Recordkeeping and Reporting Apr 5 Chap 39 Practice Location Analyzing Practice Finances (Crooks) Chap 36 MIDTERM EXAMINATION Apr 12 None Patient Generation, Marketing Apr 19 Chaps 21,27 Financial Statement and Recall (Clark) Contact Lens Practice (Pierce) Chap 30 Professional Liability Insurance Apr 26 Chap 23 Financing Plan Personal Insurance Chap 25 Human Resources and the Law May 3 Chaps 17,18,19 Insurance Plan Personnel Selection and Management Chaps 17,18,19 (Gordon) ______________________________________________________________________ *Extra credit assignments rdRequired textbook: Thal LS, Quintero S, eds. Business Aspects of Optometry, 3 ed., Boston: Butterworth-Heinemann, 2009 3 Business Aspects of Optometry Spring B, 2010 Thursday Classes Lecture Topic Date Assignment Practice Plan Employment Mar 18 Chaps 4,7,9 Goals and Purchasing a Practice Chap 8 Use of Proprietorship Chap 3 Mentor Starting into Practice (Pate, Dudley) Mar 25 Chap 11 Practice Option Practice Financing Chap 11 Business Loans Chap 11 Income Taxes Apr 1 Chap 39 Contractual Business Taxes Chap 39 Obligations Third Party Reimbursement (Day) Apr 8 Chap 34 Tax Reporting* Billing and Coding Basics (ARS class) Chap 35 Tax Problem (submission date) Chap 39 Office Policies and Procedures (Hammonds) Apr 15 Chap 16 Equipment List Financial Planning Chaps 37,38 Fees, Credit, and Collections Chap 33 REGIONS BANK LUNCH (Allison, Hassler) 12:00 – 1:00 AOA CAREER ADVOCATE PROGRAM Apr 17 (Williams) 9:00 – 3:00 HIPAA, Records, and Confidentiality Apr 22 Chap 16 First Year Income Life Insurance Chap 25 and Expenses Disability Insurance Chap 25 Estate Planning Apr 29 Chap 37 Marketing Plan Investing in Your Future Chaps 37,38 Managing Ophthalmic Materials (Habel) Chaps 15,28 ALABAMA OPTOMETRIC ASSOCIATION 12:00 – 1:00 LUNCH (Pierce) Licensure in Alabama (Hammonds) May 6 Contingency Practice for Success (McNamara, Crockett) Plan VISIONAMERICA LUNCH (Marbourg) 12:00 – 1:00 FINAL EXAMINATION TBA Practice Plan* _______________________________________________________________________________________ *Extra credit assignments rdRequired textbook: Thal LS, Quintero S, eds. Business Aspects of Optometry, 3 ed., Boston: Butterworth-Heinemann, 2009 4 Business Aspects of Optometry 2010 Practice Plan One of the principal goals of this course is to start you on the way to finding a practice opportunity—if you have not done so already—by having you construct a practice plan. Although this plan contains certain components that are the same for all students, you are free to develop the details of the plan so that they reflect your own goals, ideas, and efforts. Thus it is fact individualized. You will construct your plan during the quarter in a stepwise process, through the use of a series of assignments. By the end of the quarter these assignments may be compiled to form your plan. If you have given your plan some thought, and taken the time to ensure that the information put into it is accurate, you should have a clear description of what you want to do and how to go about doing it. If you are unsure about what you want to do, and have not gathered much information, at least you will learn how to put together a plan and can fill in accurate information when you have decided the course you wish to take. But the coming summer is the last period you will really have the time to make practice visitations and collect information (other than during externships), so you are advised to “get on with it”. The 2010 practice plan assignments and due dates are: Monday Classes Assignments Thursday Classes Assignments Mar 15 None Mar 18 Goals, Use of Mentor Mar 22 Résumé Mar 25 Practice Option Mar 29 Business Entity Apr 1 Contractual Obligations Apr 5 Practice Location Apr 8 Tax Reporting* Apr 12 None Apr 15 Equipment List stApr 19 Financial Statement Apr 22 1 Year Income, Expenses Apr 26 Financing Plan Apr 29 Marketing Plan May 3 Insurance Plan May 6 Contingency Plan TBA (final exam date) Practice Plan* Please note that assignments need to be submitted by the due date and by e-mail (jclasse@uab.edu) for credit to be received. If an assignment is not turned in by the due date, a point will be deducted from the student’s grade. All assignments must be performed: any late assignments must be submitted to the instructor by the last class of the quarter or an “I” grade (“Incomplete”) will be awarded for the course. Two of the assignments (noted with an * above)—the tax problem and the practice plan—will be accorded extra credit. Each of these assignments will be worth 10 points (5% of the grade for the quarter), for a total of 20 points and 10% additional credit. These two assignments will require much more time than the others, and should be given attention early in the course so that sufficient time will be allocated for their completion. 5 Business Aspects of Optometry Assignment 1—Part I: Goals Assignment: You are to list, in order of importance (most important first), the personal and professional goals that you believe will be most important to you after graduation. Purpose: This list will significantly guide your efforts to enter the practice of optometry. Example: The example list on the attached page may be used as a template for this assignment. Discussion: Before you consider the type of practice opportunity you are interested in, you need to give some thought to your personal goals. What are the things that are most important to you? For example, the place you choose to live needs to offer the types of things that you enjoy. Do you want to live in a large city where there is always a lot to do and many choices are available? Or do you prefer life in a rural community where everyone knows one another and quality of life is high? Many times the choice of community is based upon the marital status of the individual: in small communities it may be difficult for single individuals (even professionals) to find marriage-eligible members of the opposite sex. (Of course, even in large communities that can be a problem.) So the size of the place where you choose to live is an important consideration. Personal “likes” and “don’t likes” are also important when considering a place to live. Do you prefer the mountains? The ocean? Do you want to live where it is warm, or do you like the change of seasons, even occasional snow? How about the availability of recreational activities? Is cost is a consideration? If so, you should consider places where the cost of living is reasonable, or there is plenty of affordable housing, or the presence of family or friends will provide a financial cushion. Having family near is another factor. Once personal goals are determined, organize your professional goals to identify the type of practice you want to be in. Today, most graduates aspire to be in a partnership primary care practice. There are different routes that can be taken to achieve this goal: the most favored is to start as an associate and in a few years to be invited to buy into the practice; in some cases the graduate may be able to buy into the practice immediately, creating an instant partnership; in other cases the graduate may start or buy a solo practice and when it grows too large to manage bring in an associate who will become a partner. You need to decide which route will be the best for you. It is also necessary to describe a timeline for attaining professional goals. If associateship is the preferred route, the number of years of employment before becoming a partner (1 or 2) should be specified, as should the number of years to become an equal partner (usually 5 to 7). In this way, progress toward achievement of the goal can be measured. 6 EXAMPLE PERSONAL GOALS 1. My goal is eventually to get married and have children 2. I want to live in the Southeast, in Alabama, Georgia, or Florida, because it is close to my family 3. Since I am not married, I would prefer to live in a large city where I would be able to meet people and enjoy an active social life 4. Due to my educational debt load, I do not feel I can buy a home until the debt is reduced, and I am worried that this will also affect my choice of practice opportunity, because I need to be able to pay off my debts right away—so money is an issue for me 5. Church activities have always been a part of my life, and I want to live where I can participate in an active church community 6. I enjoy outdoor activities, particularly on water, so the availability of this type of recreation is important 7. I would like to be able to travel 8. I don’t want to live where it is cold EXAMPLE PROFESSIONAL GOALS 1. My goal to be self-employed in a partnership primary care practice. 2. I plan to spend a year in an ocular disease residency after graduating from UAB. 3. During that year I will look for a private practice opportunity in Alabama, Georgia, or Florida where I can be hired as an associate. 4. I prefer to work in a practice that offers an opportunity to become a partner after one or two years as an associate 5. If I cannot find a practice that offers a long-term opportunity, I will work for up to five years in a practice setting where I can pay off my educational loans while looking for a practice with the potential for partnership. 6. My time frame for self-employment is to begin the process of buying into a practice within two to six years after graduation. 7 Business Aspects of Optometry Assignment 1—Part II: Use of Mentor Assignment: You are to complete the Mentor Program Annual Evaluation, including a written description in “Use of Mentor for Practice Plan” on the second page of the evaluation, detailing how you intend to make use of your mentor to achieve your practice plan. Purpose: A mentor can greatly facilitate your efforts to enter the practice of optometry and should be a key part of your plan. Example: Use the attached form for this assignment. Discussion: You have selected a private practitioner to serve as an advisor during the four years of optometry school. One of the most important areas in which a mentor may be of assistance is in developing a plan for entry into optometry after graduation. Your mentor should be located in the state in which you intend to live. The advantage of having a mentor who is familiar with state laws, the state association, the licensure process, the location of practices for sale, or the identity of practitioners looking for associates or partners, is obvious. During the last year of optometry school the mentor should be asked to help you identify specific opportunities after graduation. This assistance is of particular value if you live outside Alabama or outside the southeast, because travel is time-consuming and expensive. Trips should be devoted to visiting practices or meeting practitioners who have been identified as offering genuine opportunities rather than as efforts to find practices that might provide an opportunity. A mentor’s assistance is particularly valuable if you are seeking employment as an associate, because many practitioners do not advertise that they are looking for an associate and will trust a personal recommendation by a colleague far more than an application by résumé. If a partnership or practice purchase is the goal, a mentor may be invaluable in providing information about the personality and history of the potential partner or seller. Mentors can also assist in preparation for state board examinations by identifying individuals who have recently taken the examination or by finding resources that can be used to prepare for the examination. If residency education is sought, mentors may be able to identify practitioners who have received specific residency training and arrange a meeting or other communication to determine the strengths and weaknesses of the program. Be specific in describing how you intend to benefit from your mentor’s advice. 8 Mentor Program Annual Evaluation Student___________________________ Mentor__________________________ Academic Year 3 During the past year I visited my mentor _____ times and we spent _____ hours (estimated) together. Annual evaluations are needed to determine if students and Mentors are working together successfully, and are intended to reveal both outstanding features as well as any problems that may exist. Please circle the appropriate responses below and add other impressions of your experience on the second page. Strongly Moderately Neutral Moderately Strongly Disagree Disagree Agree Agree A. Accessibility 1. I knew the Mentor before starting optometry school 1 2 3 4 5 2. The Mentor was easy to contact 1 2 3 4 5 3. The Mentor replied promptly to my telephone calls, 1 2 3 4 5 letters, or e-mails 4. It was not difficult to arrange a date and time for a 1 2 3 4 5 meeting 5. The Mentor’s office or practice was conveniently 1 2 3 4 5 located and easy to reach B. Mentor-Student Relationship 6. The Mentor was interested in me 1 2 3 4 5 7. The Mentor encouraged questions and discussion 1 2 3 4 5 8. The Mentor made adequate time available to talk 1 2 3 4 5 with me 9. We discussed my practice plans and aspirations 1 2 3 4 5 10. We have achieved a good rapport 1 2 3 4 5 C. Goal-Setting and Advice 11. The Mentor helped me set goals for myself 1 2 3 4 5 12. The Mentor offered me useful advice 1 2 3 4 5 13. The Mentor discussed specific practice opportunities 1 2 3 4 5 14. The Mentor helped me find a practice opportunity 1 2 3 4 5 15. The Mentor introduced me to or put me in contact with 1 2 3 4 5 other practices and practitioners 9 Strongly Moderately Neutral Moderately Strongly Disagree Disagree Agree Agree D. Impressions 16. I was treated appropriately by the Mentor 1 2 3 4 5 17. The time we spent together was adequate for my needs 1 2 3 4 5 18. The Mentor was knowledgeable and helpful 1 2 3 4 5 19. This experience will affect my choice of practice 1 2 3 4 5 location or type of practice 20. The Mentor Program has been a rewarding experience 1 2 3 4 5 for me this year E. Recommendation 21. I would recommend this Mentor to other students 1 2 3 4 5 Use of Mentor for Practice Plan: Describe how you intend to use the assistance of your mentor during the upcoming year to accomplish your practice plan. Submit this form to jclasse@uab.edu to complete this assignment. 10 Business Aspects of Optometry Assignment 2: Résumé Assignment: You are to write a personal résumé. Purpose: This document will be an essential part of your efforts to locate a practice opportunity, especially if you are seeking employment. Example: A sample résumé that may be used as a template is included. Discussion: The use of a résumé provides several benefits: , It can create a highly favorable first impression , It succinctly describes a person’s achievements, experiences, and aspirations , It saves time when corresponding or communicating with potential employers There are several obvious rules that must be followed when writing a résumé: it must be neat, to the point, accurate, and appropriately spelled and punctuated. Although the format used in the attached example does not have to be followed exactly, it does provide information in the key areas that must be described, in a succinct format that can be fitted on one page. A one-page résumé is preferred, and you are encouraged to submit your résumé for this assignment in a one-page length. Résumés are particularly useful when looking for practice opportunities. Once you have identified a state, area, city or town in which you are interested, you should plan a visit to the area or community involved. One key goal of such visits is to look for practice opportunities (although evaluation of the area or community is also often an important goal). It is extremely useful to make practice visitations during these trips, and you are encouraged to use the “UAB network” already in place to assist you. To do this, you should go to the Alumni Office and ask for a list of UAB graduates in a given state, area, or city. Your coursemaster will help you select from the list those practices that would be most useful for you to visit. About a month before the trip, you should write a brief letter (or e-mail) stating that you are a UAB student, are interested in the state or area, and are planning a visit. You should say that Dr. Classé recommended making a visit to the doctor’s practice, and that you are hoping that it would not be inconvenient if you visited during a certain period of days. You should then state that you will call the practitioner’s office about a week before that time to see if a specific day and time can be arranged. In the letter (or e-mail) that you send, you should be sure to include the résumé. If you follow this approach, the likelihood that a visitation can be arranged is high. And you will most likely receive a cordial welcome because of the UAB connection. 11 SAMPLE RÉSUMÉ John O’Dee 2020 Optical Lane (205) 123-4567 Birmingham, AL 35294 JohnODee@inet.com EDUCATION 2007-2011 Doctor of Optometry (June 2011), University of Alabama at Birmingham School of Optometry, Birmingham, AL. Grade point average 3.2/4.0. 2003-2007 Bachelor of Science in Biology (May 2007), University of Alabama at Birmingham, Birmingham, AL. Grade point average 3.5/4.0. PROFESSIONAL Spring 2011 Externship: Vision Care Center, Birmingham, AL. CLINICAL About 500 patient encounters at a secondary care referral center, which included EXPERIENCE treatment of advanced glaucoma, severe ocular infection, cataract post-surgical complications, and diabetic patients with proliferative retinopathy. Winter 2010 Externship: Primary Eye Care, Rural, AL. About 500 private practice patient encounters, which included lens and prism therapy for binocular vision problems, pre- and post-operative care of cataract patients, glaucoma diagnosis and management, treatment of anterior segment and external disease, and contact lens fitting and management 2009-2011 Internship: UAB School of Optometry, Birmingham, AL Approximately 500 patient encounters in primary care, pediatric and binocular vision, cornea and contact lenses, low vision rehabilitation and ocular disease clinics; screened approximately 1,000 pediatric and geriatric patients for community vision services and 500 on SOSH mission to Mexico; examined and treated low vision patients at the Alabama Institute for the Deaf and Blind. CERTIFICATES 2010 Injections and minor surgical procedures 2009 CPR certification WORK EXPERIENCE 2010-2011 Optometric Assistant, Total Eye Care, Birmingham, AL. Tasks include optometric pre-testing, contact lens training, ophthalmic photography, ophthalmic dispensing, and filing of third party insurance claims. Worked approximately 12 hours/week during fourth professional year. SERVICE AND 2007-2011 Member, American Optometric Student Association ORGANIZATIONS 2008-2011 Member, Student Optometric Services to Humanity (SVOSH) 2009-2011 Community Service Chair, National Optometric Student Association (NOSA) 2010 Special Olympics Vision Screening, Auburn University 2009 Allergan / UAB School of Optometry NOSA Vision Screening, Eutaw, AL HONORS & AWARDS 2007-2010 Dean’s List 2009 Alabama Optometry Scholarship Recipient INTERESTS Golf, Spanish (moderately fluent), music (play the piano), photography, travel REFERENCES Available upon request 12 Business Aspects of Optometry Assignment 3: Practice Option Assignment: You are to describe the practice option that you expect to choose after graduation from optometry school and why you feel it is the best option for you. Purpose: This decision is one of the keys to your practice plan. The basic decision you must make is whether to begin as an employee or to enter into self-employment. In the latter instance, employment is often also part of the plan if a new practice is opened. Example: The example “practice option” on the attached page (which is for the purchase of a practice) may be used as a template for this assignment. Discussion: The basic decision you must make is whether to begin your career as an employee or as an employer. There are numerous factors that can influence the choice of initial practice opportunity in favor of employment: lack of experience in business, management, and administration; educational debt; lack of capital; and the competing plans of spouses or family that make opening a business enterprise impossible immediately after school. For these and other reasons, the majority of optometry graduates (60% to70%) initially enter employee positions. The most frequently-chosen options are: associate of an optometrist; commercial practice; working for an ophthalmologist; and in HMOs, multidisciplinary clinics, government, or the military. Economically, the best-paying employment (including benefits) is with an ophthalmologist, but there is little long-term opportunity to become an equal partner in MD-owned practices. Employment with an optometrist usually provides the lowest immediate income but conversely offers the best long-term income-earning potential: if a practice is selected in which partnership results, usually the highest career income will be earned. Working in a commercial practice typically offers better short-term income than employment with an OD, but after a few years self-employed income will climb significantly higher, and in a commercial practice there is no equity to sell at retirement as there would be in a private practice. Employment in HMOs, multidisciplinary clinics, government (Indian Health Service), or the military can provide good income and benefits, but of course these positions offer no ownership potential. For graduates interested in a career in academia or with the Veterans Administration, a residency is the necessary first step. If you believe your first stop after optometry school will be a residency (10% of graduates), you should use this assignment to help you identify the residencies to which you plan to apply. If you expect to become self-employed immediately after graduation (about 20% choose to “be their own boss”), use this assignment to describe your plan in general (sole proprietorship, partnership, buying a practice, opening a new practice, entering into partnership, commercial practice) and use subsequent assignments (on choice of business entity and practice location) to fill in the details. 13 PRACTICE OPTION Employment Example I have chosen to work for an ophthalmologist. There are several reasons that led me to choose this option: , I don’t know where I want to practice, but I do want to be in a large city and ophthalmologists have been hiring optometrists in two large cities that I like; I am doing my externship in an ophthalmology practice in one of these cities , The income and benefits paid by ophthalmologists are better than other types of employment; this is important because I have a large educational debt , Working in an ophthalmology practice will enable me to see a lot of patients, including many with eye disease and post-surgical problems, and I will also be able to fit contact lenses , Employment will give me direct experience in how to run a practice, which I need because I have no management experience , I will have the time to look around for long-term practice opportunities in the area , I am single, and I have the flexibility to try something else if this doesn’t work Self-Employment Example I have chosen to purchase a private practice. There are several factors that have influenced this decision: , I am older (29) and have previous work experience (as a technician) , My educational debt is low ($28,000) because I have a working spouse , There is a practice in my hometown that the optometrist is willing to sell to me , I have known the optometrist since I was a child and we have a good relationship, plus he is at the age of retirement (65 years old) , I have discussed the details of financing the sale with the optometrist and with a local bank, and I believe financing can be successfully arranged , I feel I can obtain the necessary administrative skills to run the practice by having the optometrist stay on for 6 months and learning from him , The cash flow of the practice will offer me a better income than starting a new practice My spouse strongly supports this decision, in part because it will allow her to quit work and concentrate on family matters. 14 Business Aspects of Optometry Assignment 4: Choice of Business Entity Assignment: Based upon your choice of practice option, describe the type of business entity you expect to immediately enter. Then describe the “ideal” practice entity for you, the one that you hope to enter for the majority of your career, and explain why you have chosen it. Purpose: The choice of business entity significantly affects income, liability exposure, autonomy, and a host of tax issues. This decision is of utmost importance and should be given due consideration. When starting a new practice professional advice should be solicited, although individual proprietorship, because of simplicity, is often preferred. Example: The attached example may be used as a template for this assignment. If you are going into an employment opportunity initially, but ultimately seek to become self-employed, the assignment should be used to guide you toward the long-term choice that will be best for you. Discussion: Income is but one of several important issues significantly affected by the choice of business entity. In general, self-employed optometrists earn higher incomes than employed optometrists. Among self-employed optometrists, members of group practices (3 or more) typically earn more than partners (2 ODs), who in turn earn more than solo practitioners. So a decision to be a sole practitioner, whether as an incorporated entity (PA or PC, S Corporation), as an individual proprietorship, or as a one-practitioner limited liability company (LLC), may have a larger economic effect than the choice of one of these business entities. Liability issues are not significantly different for these various types of entities, however, because in a one OD practice the individual most likely to create a liability issue is the OD. Sole practitioners do have more autonomy than partners, and solo practices may be preferable for that reason. For practitioners who want to form a partnership, a general partnership, LLC, PA or PC, or S Corporation all offer an opportunity for two practitioners to share ownership and income. However, liability exposure varies significantly, with corporations (PAs, PCs, S Corporations) and LLCs offering a degree of insulation from liability not found in general partnerships. There is not enough economic data yet available to determine if there are meaningful tax differences from among these business entities, but because general partnerships, S Corporations, and LLCs pay no taxes, they offer less of an income tax burden, which is highest for professional associations or corporations. If you are initially going into an employment opportunity, the employer’s business entity can affect the types of benefits that you may receive as an employee, but not your income. The income you receive from your employer is usually based on the type of practice (MD, OD, commercial) rather than the type of business entity. 15 EXAMPLE CHOICE OF BUSINESS ENTITY Associateship Leading to Partnership I plan to enter into employment with an optometrist, as an associate, in the hope that after a year we will decide to form a partnership. The optometrist I plan to work for is an individual proprietor. Therefore, to form a partnership would require us to choose a new type of business entity. Obviously, I do not know if the optometrist would have a preference, but my choice would be a limited liability company. The reasons are: , An LLC offers less liability exposure than general partnerships , An LLC is not as complicated or expensive to start up as a corporation (PA/PC or S Corporation) , LLCs do not pay income taxes, like PA/PCs , LLCs are not run with the formality of corporations , I can have pretty much the same tax-deferred retirement plan options as corporations , Tax reporting is less complicated than for corporations If my partner retired, I could still operate as an LLC, or take in a new partner. So I also prefer the flexibility of an LLC over other types of business entities. Self-Employment as an S Corporation My plan is to start a practice as a solo practitioner, organized as an S Corporation rather than as a PA/PC: , The cost and time needed to form an S Corporation is less than for a PA/PC , The administration of an S Corporation is no more complicated or time- consuming than administration of a PA/PC , The S Corporation pays no income taxes, the PA/PC does , Tax reporting for the S Corporation is less complicated than for a PA/PC , Benefits (tax deductible health care premiums, retirement plan contributions) are available under the S Corporation just the same as under a PA/PC , The transfer of ownership in the S Corporation is by sale of stock, which makes partnership readily achieved, and no more difficult legally than with a PA/PC , Liability claims for an OD in an S Corporation are the same as for a PA/PC; the corporation is responsible 16 Business Aspects of Optometry Assignment 5: Contractual Obligations Assignment: If you are planning to begin practice as an employee, the major contractual obligation that you will incur is an employment agreement. To assist you in planning for contract negotiations, list your goals—most important first—so you can negotiate them in the reverse order. If you are planning to buy a practice, prioritize your goals for the purchase (including key financial details). If you are planning to start a new practice, list the goals of your office lease, which will be your major contractual obligation (along with the purchase agreement for equipment). Purpose: This assignment summarizes your contract negotiation goals. For employment agreements, you must decide which terms are of the most importance, and thus relatively inflexible, and which terms can be subject to compromise because they are of less importance. The key terms, in most employment contracts, are those that deal with income. For practice purchase agreements, the major issues are the price and the allocation of price to the assets being purchased (essential for tax purposes). For office lease agreements, goals should be set for the major provisions (e.g., monthly rent). Example: The sample goals listed on the next page may be used as a template for this assignment. Discussion: Because the cost of professional negotiation assistance is usually not affordable for new graduates, you must be prepared to negotiate your contract yourself. Professional assistance is usually limited to advising you beforehand and reviewing your efforts as negotiations proceed; the actual negotiations are left to you. This requires preparation, and the beginning point is to prioritize the issues that you know will be included in the contract. If financial issues are most important, then they should be given priority. For example, in an employment agreement you should negotiate a salary, benefits (e.g., health insurance, malpractice insurance, C-E allowance) and any bonus income (usually a percent over a stated “floor”). It is essential to understand how to overcome an impasse; the most common impasse in employment negotiations is the salary. A skillful negotiator will know how to overcome a lower-than-acceptable salary offer by attempting to negotiate better benefits or by proposing a bonus income plan that can elevate the total financial package to an acceptable level. These offers should be prepared for in advance of the negotiations, by doing the necessary homework to know what benefits are feasible for the practice and by being prepared to discuss their tax ramifications (they are fully deductible for the employer, but minimally deductible for the employee). If bonus income is to be proposed, you should be able to show how you can “pay your own salary” (in terms of the number of patients seen per day), and to illustrate how patients seen in excess of this number represent an incentive for you and a profit to the employer (for which the employer must do nothing). Most importantly, in the give-and-take of negotiations, you must also know when to compromise. 17 EXAMPLE ASSOCIATESHIP CONTRACT GOALS 1. Covenant not to compete—since I plan to stay in the area if this associateship does not lead to partnership, I do not want a restrictive covenant in my contract or I do not want it applied to opening up my own practice. 2. Salary—based on cost of living projections, I need a base salary of at least $60,000. 3. Benefits—the most important benefit is health insurance; next is malpractice insurance; third is paid vacation; less important are a C-E allowance, disability insurance, optometry license fee; and cost of membership in the AOA. 4. Duties—I want to practice primary care, including treatment of eye disease, contact lenses, and post-operative care. 5. Hours—Sundays must be free, with half-days OK on Saturdays and Wednesdays. 6. Location—I only want to work in the main office, not commute to a branch office. 7. Term—a 1 year contract allows me enough time to decide if this practice offers long- term potential; I don’t want a multi-year contract that has no provisions for annual adjustments in salary. I should be allowed to terminate the agreement on 30 days’ notice. 8. Termination— 9. Equipment—the office should include specific equipment and instrumentation for me to use, which I will need to practice full scope primary care. 10. Disability—the definition of disability (before my job terminates) should be at least 90 days of consecutive inability to work, not 90 days total in a year. EXAMPLE GOALS FOR LEASE AGREEMENT 1. Office space—I need at least 1,200 square feet 2. Cost of lease—the average monthly cost of office space in the area is $8.50 per square foot; the highest I want to pay is $10.00; I want a “step up” payment plan 3. Cost of improvements—the costs of alterations to the office space should be paid by the landlord, or at worst on a 50-50 basis 4. Term—the original lease term needs to be 3 to 5 years 5. Option for renewal—there needs to be provision for renewal for two additional 3 to 5 year terms; the cost of rent increases at renewal must be included in the original lease agreement 6. Costs of utilities—utilities should be included in the monthly lease payment; if cost of living adjustments must also be paid, they should have a cap 7. Fire insurance—if my office is damaged and cannot be satisfactorily repaired in 60 days, I need to have the right to terminate the lease 8. Repairs—major repairs must be the responsibility of the landlord; maintenance of the building is also the landlord’s responsibility 9. Parking—I must be allocated at least 6 parking spaces in the lot 10. Sub-lease—I should be permitted to sublease the space with the landlord’s approval 18 SAMPLE ASSOCIATESHIP AGREEMENT Agreement made on ________________, 20___, between _________________________, hereinafter referred to as Employer, and __________________________, hereinafter referred to as Employee. WITNESSETH: WHEREAS, Employer is and for several years has been engaged in the practice of optometry in the State of ________________. Employee is an optometrist duly licensed and authorized to practice optometry in the State of ________________, and Employee desires to practice optometry as an employee of Employer. Employer has offered Employee employment and other benefits under the terms and conditions hereinafter set forth, and Employee is willing to accept employment on such terms. Now, therefore, in consideration of the above promises, it is mutually agreed as follows. I. Employment and Duties a. Scope of duties. Employer hereby employs Employee, and Employee accepts such employment, to render optometric services, to include examination of the eyes for optical correction and for disease, and to provide necessary health care. Employer shall have the power to determine the specific duties to be performed by Employee, and the means and the manner by which those duties shall be performed. Employer shall have the power to determine the assignment of patients to Employee, and Employee must perform services for such patients assigned to him. The power to supervise the duties to be performed, the manner of performing such duties, and the terms for performance thereof shall be exercised by the Employer. The Employee shall work four days during the week and one half day on Saturday. The Employee shall spend seven and one-half hours per day with patients, plus additional time for office staff meetings or other meetings called to maintain office procedures and policies. b. Exclusive service. Employee shall devote his full working time and attention to the practice of optometry for the Employer. During the term of this agreement, Employee shall not, without the written consent of Employer, directly or indirectly render services of a professional nature to or for any person or firm for compensation or engage in any practice that competes with the interest of Employer. c. Professional Standards. Employee shall perform his duties under this agreement in accordance with the rules of ethics of the profession of optometry, as enunciated by the Code of Ethics and the Standards of Conduct of the American Optometric Association. II. Term The term of this agreement shall begin on ____________________, 20___, and shall continue for one year or until terminated as hereinafter provided. III. Compensation a. Base salary. For all services rendered by Employee under this agreement, Employer shall pay Employee a base salary of $______________ per year, payable monthly in twelve equal installments of $_______________, each beginning on the effective date of this agreement and payable on the first day of each month during the term of this agreement. The base salary may be changed by mutual agreement of the parties at any time. b. Bonus compensation. In addition to the compensation referred to above, Employer shall pay Employee, beginning on the effective date of this agreement and payable on the first day of each month thereafter, or 19 as soon thereafter as calculated, a bonus which is to be determined as follows: Employee shall be paid a bonus of ___% of any income generated from his examination of patients that is in excess of $______________ gross income per month. c. Fringe benefits. As further compensation for the performance by Employee, Employer shall, within a reasonable period of time after the execution of this agreement, provide for Employee the following further benefits and any additional benefits that may from time to time be made available to optometrists employed by Employer. 1. The expenses incurred by Employee in moving his household goods and personal effects from _____________________ to _____________________, pursuant to this offer of employment. 2. An accident and health plan for the payment of Employee's and Employee's spouse's medical care expenses. 3. Employee's dues for the ________________ Optometric Association. 4. The cost of annual renewal of Employee’s optometry license. 5. The per mile expenses incurred by Employee for commuting to branch offices from home or the principal office, said reimbursement to be based on the annual miles recorded in Employee’s automobile log and to be paid at the rate of _____ cents per mile. 6. The expenses incurred by Employee in attending _____ hours of continuing education, such hours constituting the number required for renewal of Employee's license to practice optometry. 7. A group term life insurance policy, payable to the Employee's beneficiary, in the amount of $_________________, in the event of the death of Employee. IV. Malpractice Insurance Employer shall operate and maintain at its expense such comprehensive professional liability insurance as it shall deem appropriate, covering the acts or omissions of the Employee in the course of his employment. V. Office Facilities Employer shall operate and maintain facilities, and shall provide at its cost equipment, drugs, and supplies, suitable to Employee's position and adequate for the performance of his duties. Further, Employer shall supply and pay for assistants, technicians, and other personnel reasonably needed by Employee in connection with his employment under this agreement. It is anticipated that Employee will use from time to time certain equipment that is owned by him in the performance of his professional duties, and a schedule of this equipment is attached hereto and thereby made a part of this agreement by incorporation. VI. Patient Names, Addresses and Records All records, charts and personal files concerning the patients of Employer shall belong to and remain the property of Employer. On termination of his employment, Employee shall not be entitled to keep or reproduce the names or addresses of patients or to keep or reproduce Employer's records, charts or files related to any patient unless the patient shall specifically request that his records be transmitted to Employee. VII. Fees All fees and compensation received or realized as a result of the rendition of professional services by Employee shall belong to and be paid and delivered to Employer. 20 VIII. Vacation Employee shall be entitled to a paid vacation of two weeks. Without Employer's consent, vacation time may not be accumulated but must be taken in the year earned. Employee's vacation will be scheduled at those times most convenient to Employer's business as determined by the Employer. Employee's right to two weeks annual vacation will not accrue until he has been employed by Employer for six months. Employee is also entitled to vacation during annual office holidays, which are Jan. 1, July 4, Thanksgiving Day, and Dec. 25. IX. Illness and Disability of Employee a. Notice of termination of agreement because of permanent disability of Employee. Notwithstanding anything in this agreement to the contrary, Employer is hereby given the option to terminate this agreement in the event that Employee shall, during the term hereof, become permanently disabled as the term permanently disabled is hereinafter fixed and defined. Such option shall be exercised by Employer giving notice to Employee by registered mail, addressed to him in care of Employer at __________________________, City of ___________________, State of ________________, or at such address as Employee shall designate in writing, of Employer's intention to terminate this agreement on the last day of the month during which such notice is mailed. On the giving of such notice, this agreement shall cease on the last day of the month in which the notice is so mailed, with the same force and effect as if such last day of the month were the date originally herein set forth as the termination date hereof. b. Definition of permanent disability. For the purposes of this agreement Employee shall be deemed to have become permanently disabled if, during any year of the term hereof, because of ill health, physical or mental disability, or for other causes beyond his control he shall have been continuously unable or shall have failed to perform his duties hereunder for ninety consecutive days, or if, during any year of the term hereof, he shall have been unable or unwilling or shall have failed to perform his duties for a total period of ninety days, irrespective of whether such days are consecutive. For the purposes hereof, the term "any year of the term hereof" is defined to mean any twelve calendar months period commencing the date this agreement is signed, and terminating one year thereafter. X. Disability or Death of Employer If during the term of this agreement Employer should die, or if Employer should become permanently disabled as the term permanently disabled has heretofore been fixed and defined, Employer, or in the event of Employer's death, his successors, heirs and legal representatives, shall offer to Employee the option to purchase Employee's business. Such option shall be exercised by Employer, or Employer's successors, heirs and legal representatives, by giving notice to Employee by registered mail, addressed to him in care of Employer at __________________________, City of ___________________, State of ________________, or at such address as Employee shall designate in writing, of Employer's intention to sell his business to Employee. Upon receipt Employee will have ___ days in which to exercise his option to purchase the business. If Employee fails to exercise his option within ___ days, Employer or Employer's successors, heirs and legal representatives may thereafter sell the business to any third party of their choosing, and at the effective date of sale this agreement shall cease, with the same force and effect as if such day were the date originally herein set forth as the termination date hereof. XI. Covenant not to Compete For a period of ____ months after Employee ceases to be employed by Employer, Employee shall not, directly or indirectly, engage in the practice of optometry on his own account, or become interested therein, directly or indirectly, as a partner, shareholder, director, officer, or employee in competition with Employer within ____ miles of the City limit of _____________________. In the event of breach hereof, it is specifically agreed that Employer shall have all rights and remedies for relief as provided by law or in equity, including the right of injunction. Alternatively and in lieu of equitable relief, at the election of the Employer, it is specifically agreed that the Employer shall be entitled to liquidated damages of 21 $_____________. Employee has carefully read and considered these provisions and, having done so, agrees that the restrictions set forth are fair and reasonable and reasonably required for the protection of the Employer. XII. Termination This contract shall be terminated immediately: a. if Employee becomes disqualified to practice optometry in the State of _____________. b. on the death of Employee. c. if Employer and Employee shall mutually agree in writing to termination. d. if the Employer's business is discontinued. e. if Employee becomes or remains permanently disabled as set forth herein. f. if Employee fails or refuses to faithfully or diligently perform the duties of his employment and the provisions of this agreement. On termination for any reason, the salary due Employee to the date of such termination shall be full compensation in payment for all claims under this agreement. XIII. Governing Law This agreement shall be interpreted, construed, and governed according to the laws of the State of ______________. XIV. Amendments No amendments or variations of the terms and conditions of this agreement shall be valid unless in writing and signed by all parties. XV. Assignability Employee's rights and obligations under this agreement are personal and not assignable. XVI. Entire Agreement--Binding Effect This agreement constitutes the entire agreement between the parties and shall bind and inure to the benefit of both Employer and Employee and their respective successors, heirs and legal representatives. XVII. Counterparts This agreement may be executed in any number of counterparts, each of which shall be deemed an original. IN WITNESS WHEREOF, Employer and Employee have hereunto set their respective hands and seals to this instrument, executed in duplicate, on the day and year first above written. ____________________________________ Employer ____________________________________ Employee 22 Business Aspects of Optometry Assignment 6: Practice Location Assignment: Describe where you plan to enter into practice, to the fullest extent possible: state, city or type of community (urban, rural, suburban), and area within the community. You should use your personal goals to guide your decision, as well as your evaluation of the state, area, or community’s strengths and weaknesses. (If you are expecting to open a new practice, a more detailed and thorough “feasibility study” will be needed, which is beyond the scope of this assignment; see Dr. Classé.) Purpose: Making a choice of where to practice is often a difficult decision for students; this assignment is intended to help you think about the states and communities that you consider to be the most personally desirable and economically viable. This decision is of critical importance if you are going to open a new practice. Example: The attached checklist, from Business Aspects of Optometry, may be used to help you evaluate a particular community or potential practice area. Discussion: Decision-making about location begins with the choice of state. Realize that the state you choose is where you expect to be licensed. For that reason, you should be familiar with the scope of practice and any eccentricities of state law. If you are looking to start a new practice, you should identify the community (city, town) you want to live in. If you have not decided on a community, select an area (or areas) and devise a plan to visit there. You will need to gather information during your visit to construct a feasibility study (a determination that the community will support another practice). This assignment will help point you toward such an undertaking. If you are seeking employment, you should use AOA, state association, UAB, and other placement services to locate practice opportunities. Desired communities may or may not have job openings at the time you are looking, and flexibility and persistence may be needed to find employment in the location you have selected. Job offers are often tied to how well the parties know one another: the more times you can visit an office and the better you get to know the practitioner, the more certain you can be that it is a practice environment in which you are comfortable (as, hopefully, the potential employer is with you). “Arms-length” jobs, based on an application, formal interview, and one or two visits to the practice, have a much poorer track record of long-term success. If you are hoping to buy a practice, you should choose the state you prefer, then look for communities in which practices are for sale. The selection process becomes one of deciding which of the communities offers the best professional and personal potential. Once this has been done, a sales price can be negotiated. (It is pointless to haggle first over price, only to realize that you do not really want to live in the community.) 23 EXAMPLE PRACTICE LOCATION At the moment, my first choice for practice location is Tennessee. My alternate choice is Alabama, and I also plan is to become licensed in that state. I have decided to go into practice in the Chattanooga area of Tennessee because: , I grew up nearby and know the area well; my spouse likes it too , In the area I am interested in, the number of optometrists is below OD-to- population ratios cited for viable practice opportunities , It offers the kinds of amenities I want in a community, including lots of recreation, good schools, and nice areas in which to live , The Tennessee law offers a wide scope of practice, which I need to practice primary eyecare like I have been taught , It is well located so that Birmingham, Atlanta, and Nashville are not too far away I also plan to obtain an Alabama license because my fall-back plan is to open a practice in northern Alabama, in an underserved community that I like. Most of the reasons that led me to choose my Tennessee locale also apply to this site in Alabama, because it is not that far away. 24 COMMUNITY CHECKLIST Mark each item as being of high (H), moderate (M) or low (L) importance to you and compile results ___Clean water ___Commuting time ___Low crime rate ___Low unemployment rate ___Many doctors ___Proximity to a large airport ___Availability of hospitals ___Local amusements ___Strong state government ___Near places of worship ___Reasonable cost of medical care ___Near forests or parks ___Low incomes taxes ___Sunny weather ___Low property taxes ___Close to relatives ___Housing appreciation ___Quality restaurants ___Recession insulation ___Low housing prices ___Inexpensive cost of living ___Near a large city ___Strong local income growth ___Affordable public transportation ___Future job growth ___Museums nearby ___Low sales tax ___Major league sports teams ___Good public schools ___Local symphony orchestra or theatre ___Civic involvement ___Near zoos or aquariums ___Near lakes, oceans, rivers ___Near golf courses ___Close to colleges ___Skiing (water or snow) available Using a scale of 5 (highest) to 1 (lowest) rate each factor and add together to compare communities Community 1 2 3 4 5 Practice Potential Index OD/population ratio __ __ __ __ __ Vision care needs __ __ __ __ __ Types of practices __ __ __ __ __ Attitude of local health care professionals __ __ __ __ __ Number of physicians __ __ __ __ __ Opinions of optical labs __ __ __ __ __ Total Score Economic Index Employment statistics __ __ __ __ __ Retail sales __ __ __ __ __ Population growth rate __ __ __ __ __ Community buying power __ __ __ __ __ New building construction __ __ __ __ __ Business starts __ __ __ __ __ Total Score Livability Index Housing and neighborhood __ __ __ __ __ Schools __ __ __ __ __ Churches __ __ __ __ __ Cultural and recreational opportunities __ __ __ __ __ Shopping areas __ __ __ __ __ Community organizations __ __ __ __ __ Climate __ __ __ __ __ Your impression of the area __ __ __ __ __ Total Score Grand Total for Each Community 25 Business Aspects of Optometry Assignment 7: Tax Reporting Assignment: You will calculate your income tax as a non-incorporated sole proprietor for the past tax year. To do this, you will be provided income and expenses for the year and, based on them, you will complete a form 1040 and Schedules A, C, and SE. Purpose: All optometrists need to understand basic tax concepts, such as filing status, tax brackets, deductibility of business-related expenses, the “standard deduction” and calculation of personal expenses, the use of credits, the types of depreciation, and how income tax and Social Security/Medicare tax are calculated and reported. This assignment utilizes these concepts for the simplest type of tax reporting—for a sole proprietorship—and illustrates how the calculation of tax is performed. Example: The Internal Revenue Service’s publication 15 and 334 may be consulted to obtain information on the calculation of taxes for this problem (see www.irs.gov). Discussion: To begin income tax accounting, you must select your filing status (e.g., single, married filing jointly) on form 1040. This choice significantly affects the amount of taxes you must pay. Next you must determine your gross income. Not all income is actually taxable: gifts, inheritances, loans, life insurance death proceeds, and numerous other items are excluded from taxation. In addition, there are certain expenses that can be deducted from gross income, such as interest on student loans, moving expenses, and contributions to an IRA or other retirement plan. Although business income can result from numerous sources, in the usual optometry practice services and the sale of materials produce most income. The calculation of this income, and the subtraction of allowable business expenses, are key components of your tax reporting (performed on Schedule C). There are certain non-business expenses that you are also allowed to deduct from gross income. This means that you must be able to separate personal from business-related expenses, because allowable personal deductions are calculated separately (Schedule A): medical expenses, taxes, certain interest expenses, casualty losses, charitable contributions and selected other personal expenses are the major categories of permitted deductions. Or, you can choose the “standard deduction”, which is the governmental allowance for these expenses, if it is greater than your personal expense calculation. You are also permitted to exempt a modest amount of income from taxation, and equal amounts of income for your spouse and dependents. After all these calculations, you will have arrived at your taxable income, and by using the tax tables you can determine the income taxes you owe. You may then subtract any credits to which you are entitled, making a dollar-for-dollar reduction in your income tax. Your taxes must also include payments made to Social Security/Medicare, which are based upon the profit earned from your business (and are calculated on Schedule SE). When you add your income taxes to these Social Security/Medicare taxes, and compare them to the amount actually paid to the IRS, you take the last step: seeing whether you owe more tax or are due a refund. 26 Business Aspects of Optometry Tax Problem For Tax Year 2009 Dr. John O'Dee began the practice of optometry on January 1, 2009. He is married and has one child, who was born on December 31, 2009. To help with the expenses of starting a practice— and because he had the spare time—John taught part time at the UAB School of Optometry. Because of her pregnancy, his wife did not work during 2009. Personal Tax Data John obtained the following information from his personal checking account: Deposits: John's salary from UAB $3,700 Transfers from John's business account $26,850 Interest earned by John's checking account $100 Total deposits $30,650 Disbursements: Costs of drugs and medicines $300 Payments for medical care $500 Real estate taxes $400 Automobile tag tax $60 Home mortgage payments $3,500 principal $500 interest $3,000 Credit card interest $250 Student loan repayment $2,790 principal $2,200 interest $590 Charitable contributions $1,000 Living expenses $18,000 Contribution to an IRA $2,000 Safe deposit box $50 Total disbursements $28,850 Excess receipts $1,800 Based on this information, and the information pertaining to John's practice on the next page, please fill in the correct information for John's Form 1040 and attached Schedules A, C and SE. Note: please put your name on the top of each tax form; not Dr. O'Dee's. Remember that this problem is eligible for extra credit. 27 Business Tax Data John, who is on the cash system of accounting, has summarized the transactions from his daily receipts and from his business checking account, and the following information represents his business activities for the calendar year ending Dec. 31, 2009. John's automobile, which is valued at $7,000, was used 50% for business purposes in 2009; he drove a total of 14,000 miles. The value of his inventory of frames and lenses on Dec. 31, 2009 was determined to be $3,000. Deposits: Fees collected (exclusive of sales tax) $104,700 90 day renewable note @ 10% interest deposited on Jan. 1, 2004 $10,000 Discounts, rebates, and refunds for frames $2,100 Total deposits $116,800 Expenses: Purchases of frames and lenses (lab fees and inventory) $35,000 Bad checks returned by bank $500 Automobile expenses for gas, oil, repairs $1,200 Depreciation for car ($700) and equipment ($4,150) taken from Form 4562 $4,850 Equipment and instruments purchased $9,500 Optometry license $150 Professional organization dues $250 Insurance Automobile premiums $800 Malpractice premiums $500 Business coverage and workman's compensation $400 Term life and group disability coverage for Dr. O'Dee $2,000 Health insurance premiums for Dr. O'Dee $1,200 Health insurance premiums for employee $1,200 Interest paid on the 90 day note @ 10% $1,000 Attorney’s and Accountant's fees $800 Office supplies $600 Postage $180 Rental for office $6,000 Taxes Payroll (Social Security and Unemployment) $1,456 Business property taxes $179 O’Dee’s federal income taxes withheld (reported on W-2 by UAB) $665 Withholding for Dr. O'Dee's state and local income taxes $1,000 Federal quarterly estimated income tax payments $9,000 Telephone $600 Electricity, gas and water $1,200 Costs of attending continuing education $385 Wages for employee $8,000 John's personal withdrawals from the account $26,850 Total disbursements $115,465 Excess receipts over disbursements (profit) $1,335 28 2009 Selected Tax Tables 29 30 31 32 33 34 35 Business Aspects of Optometry Assignment 8: Equipment and Instruments Assignment: List the major items of equipment and instrumentation that you anticipate you will require for the initial practice option you have selected. This should be done on a room-by-room basis for clarity (e.g., data collection room, examining room, business office, dispensary). If you plan to start a new practice, include major fixtures as well (such as wall-mountable frame display cabinets), and any renovations or additions to an office that you must pay for. If you are going into an employee position, list the major items of equipment or instrumentation that you expect your employer to provide for you, and the instruments and equipment owned by you that you expect to use as an employee. Purpose: To ensure that your practice setting contains the equipment necessary to perform adequate examinations or any specialized services that you expect to provide, you must construct a list of essential items. This list should not include expensive items of equipment (e.g., digital retinal camera) that you cannot afford or that will not be provided by an employer. Rather, it should reflect as accurately as possible the major items of equipment or instrumentation that you will need in your initial practice opportunity. If you are starting a new practice, it is particularly important for this list to be both reasonable and affordable. Example: The lists on the attached page, taken from Business Aspects of Optometry, can be used for guidance. However, you should make your list as accurate as possible, based on your personal practice needs. Discussion: For graduates starting a new practice, instruments and equipment constitute a significant percentage of the costs of capitalization, costs that typically are paid for with credit. Since the key to successfully operating a new practice is to keep overhead low, and the “debt service” (loan repayment) is usually a significant part of overhead, the way to do this is to minimize the amount borrowed. With respect to instruments and equipment, a beginning practice must obviously include essential items, but the purchase of expensive items that will not “pay for themselves” (have frequent use) should be deferred until patient flow has increased to the point they are affordable. Another way to reduce the cost of instruments and equipment is to purchase used or refurbished items. If they are in good shape, this can be a satisfactory way to reduce costs. For employees entering a practice opportunity, it is important to ensure that ownership of equipment and instruments is clear, especially if it is used in the practice regularly. The reason for this is that questions about ownership may arise when the employee leaves, particularly if there has been a change of employer (a different individual). If there is no written documentation that supports the departing employee’s claims of ownership, a legal issue may arise. To prevent this, employment contracts should include a “schedule” that lists the equipment and instruments owned by the employee. 36 EXAMPLE EQUIPMENT AND INSTRUMENTATION Equipment Check List Data Collection Room Basic , Keratometer , Telebinocular , Color vision plates , Stereopsis test , Sphygmomanometer and stethoscope , Lensometer , Patient chair and examiner stool Advanced (substitute or add to above) , Auto-refractor , Non-contact tonometer , Auto-keratometer/corneal topographer , Auto-lensometer , Auto-perimeter , Retinal camera , Rotating instrument table Examination Room Basic Refraction , Examination chair , Instrument stand , Phoropter , Keratometer , Chart projector and screen or chart display terminal , Trial lens set and frame , Retinoscope , Examiner's stool Ocular Disease Management , Slit lamp biomicroscope , Hand-held 60, 78 or 90 D lenses , Goldmann tonometer , Binocular indirect ophthalmoscope , Direct ophthalmoscope Various hand held devices for emergency and primary care 37 Additional , Corneal topography analyzer , Electrodiagnostic instrumentation , Pachometer , Slit lamp 35mm camera , Slit lamp video system , Low vision diagnostic aids , Binocular vision testing and/or training equipment Laboratory Optical , Automatic diamond lens edger , Hand edger , Lensometer , Layout marker and blocker , Rimless grooving machine , Edge polishing machine , Lens tinting machine , Chemical hardener , Heat tempering oven , Frame warmer , Various dispensing tools Contact Lens , Contact lens modification unit and tools , Radiuscope , Shadowscope or dissecting microscope Business Office , Typewriter , Telephone system , Calculator , Photocopier , Answering machine , File cabinets , Postage meter , Dictation equipment , Computer system and printer , Fax machine Light signal system (interoffice communication) 38 Business Aspects of Optometry Assignment 9: Financial Statement Assignment: You are to complete a financial statement, which is a document that describes your current assets and liabilities. Purpose: Any application for credit will include a financial statement, so that the potential creditor can assess your financial status and capacity for repayment. Performing this exercise allows you to “see” yourself as the potential creditor sees you, and to determine if there are any potential obstacles to receiving credit. Example: You may use the form on the attached page (required by the US Small Business Administration) as the financial statement to be completed for this assignment. Discussion: The beginning point of any effort to secure credit is to assess your financial status. When you are first starting out, this can be a humbling exercise, because there usually are more liabilities than assets. This fact makes it particularly important that you do your best to “put your best foot forward”, by making sure you have presented your financial status accurately but favorably, so that credit can be obtained. When reviewing your debits, or money owed, it is helpful if your loans are not extraordinarily high (the mean nationally is over $100,000 for optometry students), and if your credit cards are not at the allowable limit (”maxed out”). The same is true for credit accounts at department stores or debts owed to other merchants. If credit has been obtained previously (such as for a loan to purchase an automobile), and successfully repaid, or nearly repaid, this is a good indication to another creditor. A past bankruptcy is usually a major problem for someone seeking credit, and hopefully will never be a part of your credit history. Past legal disputes, in which you were sued for payment of a debt, may also be a significant liability. On the credit side, it is quite helpful to have some sort of collateral (other than a used car or personal property). Any interest in real property (such as ownership of a home), or an investment (CDs, stocks, bonds, mutual funds) is a big plus. Remember that your professional equipment, books, instruments and so forth are assets (and in fact can be depreciated once you go into practice). If you have taken out a whole life (not term) life insurance policy, it will have acquired some cash value, which is also a helpful asset. Other assets include checking and savings accounts, the income produced by working spouses, any part-time employment, scholarships or awards, and sources of contingent income (e.g., the beneficiary of a parent’s retirement plan or insurance policy). Do not forget that past credit history is also an important part of any application for credit. To review your credit history, you must contact the major national credit reporting companies and ask for a printout. There may be a small charge for this, but it is worth it. 39 40 41 Business Aspects of Optometry Assignment 10: Part 1—First Year Income and Expenses Assignment: You are to estimate, based upon your choice of practice option, the income you expect to receive during your first year after graduation from optometry school, and the expenses that you expect to incur during that year. Since both income and expenses are estimates, the emphasis should be upon listing as completely as possible the categories of expenses that you anticipate (both business and personal), and a target income that is reasonable given the type of practice option you have chosen. Purpose: Whether you are going to be employed or self-employed during your first year after optometry school, you need to have some idea of your anticipated expenses and the income you will need, based on these expenses. While the actual numbers used in this assignment may only be estimates, this exercise can be used to create a template for the calculation of a first year budget once you are able to obtain more accurate numbers. Example: The list of expenses and projected income included on the attached sheet may be used to organize your estimates. Discussion: To make this assignment worthwhile, you need to be as thorough as possible when listing the types of personal and business expenses that you expect to incur during your first year after optometry school. Accurate numbers may be substituted for the ones used in this exercise when they can be ascertained during your fourth professional year or after graduation. When you determine the actual income for the first year, you will then be able to use this exercise to draw up a budget for that year (and subsequent years). For graduates who anticipate going into employment positions, reasonable target incomes should be used, based upon the type of employment chosen (e.g., MD, OD, commercial). Estimates of expenses should be based upon your knowledge of the costs of housing, subsistence, utilities, and so forth for the community (or size of community) in which you anticipate living. Again, accuracy of numbers is desirable, but of more importance is thoroughness of categories of expense and reasonableness of targeted income. For graduates who seek to start a new practice, if possible you should use actual expenses, but if they are not accurately known, again it is essential to list all anticipated expense categories and make estimates. Income projections should then be used to determine the number of patients necessary to pay for these expenses and create a reasonable cash flow. For graduates expecting to purchase a practice, accurate information should be readily obtainable with respect to business expenses, and the practice’s past income record may be used to project anticipated income (which will be reduced by the payments to the seller and creditors) for the first year after purchase. The seller should be willing to provide this information. 42 PART I--FIRST YEAR EXPENSES (Use the worksheets on the next page to calculate your personal and professional expenses.) I estimate that my first year personal expenses will be $____________ and my first year professional expenses will be $_____________, for a total of $_____________. PART II--FIRST YEAR TAX LIABILITY AND TOTAL INCOME (Select the tax percentage that applies to you and is listed on Part II of this assignment; you do not have to perform the calculations used in Part II, as they are for illustrative purposes only.) Based on my projected expenses, and an estimated tax liability of _____% of my income, I estimate that I will need a total income of $______________ for my first year in optometry. Note: If you are married and your spouse will be working, try and estimate the total first year expenses you both will incur, and include the spouse’s estimated income in your first year income projections. 43 WORKSHEET FOR DETERMINING EXPENSES Monthly Personal Expenses ________Rent or mortgage payment ________Utilities (heat, light, air conditioning, water) ________Clothing and grooming ________Telephone ________Subsistence (groceries, restaurants) ________Automobile expenses (insurance, gas, repairs) ________Health care (not reimbursed by insurance) ________Taxes (personal property, home) ________Interest expenses (credit cards, personal loans, home mortgage) ________Charitable contributions ________Non-reimbursed employee business expenses ________Contributions to a personal retirement plan (IRA) ________Child care or education costs ________Total x 12 = annual personal expenses Monthly Professional Expenses ________Office lease ________Staff salaries ________Staff benefits (health insurance, contributions to a retirement plan) ________Payroll tax (income, Social Security/Medicare, Unemployment insurance) ________Business property tax (equipment, furnishings) ________Office utilities (heat, light, air conditioning, water) ________Repairs and maintenance fees (equipment) ________Answering service ________Janitorial service ________Postage ________Health insurance premiums ________Life insurance premiums ________Property and casualty insurance premiums (including worker’s compensation) ________Professional liability (malpractice) insurance premiums ________Office supplies ________Computer supplies ________Income taxes ________Social Security taxes ________Debt service for professional loans (bank loan) ________Repayment of educational loans ________Contributions to a business-related retirement plan [IRA, Keogh Plan, 401(k)] ________Continuing education ________Travel, meals and entertainment ________Licensure fee ________Membership in professional organizations ________Legal and accounting fees ________Total x 12 = annual professional expenses 44 Business Aspects of Optometry Assignment 10: Part 2—Estimating Tax Liability Assignment: Determine the tax liability that you will incur, based on your estimated first year income. This assignment will give you an idea of the percent of income that must be devoted to the payment of federal, state, and local income taxes and to federal Social Security/Medicare taxes. Purpose: This assignment requires that you estimate tax liability for your first year after graduation. Knowing this, you can then determine how much income you will have left for the payment of personal and professional expenses. Example: The attached examples should be reviewed to understand the calculations that underlie the percentages used in this exercise. You do not have to re-do them yourself. Discussion: Tax liability constitutes, unfortunately, a growing percentage of the average American’s income. There are two significant components of taxation that must be understood: income tax; and Social Security/Medicare tax. The amount of these taxes that must be paid varies, based upon whether you are single or married filing jointly, and whether you are employed or self-employed. Most states also impose an income tax. To perform this assignment, look at the attached examples and decide which applies to you: single employed, married employed, single self-employed, or married self-employed. (The married categories include one child.) For each of these categories, the examples provide a rough determination of allowable tax deductions and of federal income tax, state income tax, local income tax, and Social Security/Medicare tax liability. The tax percentages that result from these calculations are: , Single employed taxpayer 30% of income paid for taxes , Married employed taxpayer 20% of income paid for taxes , Single self-employed taxpayer 35% of income paid for taxes , Married self-employed taxpayer 30% of income paid for taxes You have already estimated your personal and professional expenses. To these amounts you must add your taxes, which you can estimate as a percent of income. For example, if your total expenses are determined to be $55,000, and you are married and expect to be employed (20% tax bracket), then you would require an income of $68,750 (55,000 ? .8). Note that the calculations on the following pages are based on $85,000 of income. If your projected income is less than this amount, the percentage you will pay for taxes actually would be less. If your projected income is more than $85,000, you would pay a higher percentage in taxes. The figures provided, however, are “ballpark” estimates. 45 EXAMPLE TAX LIABILITY CALCULATION—EMPLOYED Projected first year income $85,000 Single Employed Taxpayer Tax deductions from income , Student loans $2,500 , Moving expenses $500 , Exemption (1) $3,650 , Standard deduction $5,700 Taxable income $72,650 Federal income tax (effective rate is 20%) $14,344 Federal Social Security/Medicare (rate is 7.65%) $6502 State income tax (Alabama rate is effectively 5%) $3,633 County and local income tax (Alabama rate is about 2%) $1,453 Total taxes (about 30% of income) $25,932 Income after taxes (effective “take home” percentage is 70%) $59,068 Married with Child Employed Taxpayer Tax deductions from income , Student loans $2,500 , Moving expenses $500 , Exemption (3) $10,950 , Standard deduction $11,400 Taxable income $59,650 Federal income tax (effective rate is 13%) $8,116 Federal Social Security/Medicare (rate is 7.65%) $6,502 State income tax (Alabama rate is effectively 5%) $2,983 County and local income tax (Alabama rate is about 2%) $1,193 Credit Deduction (1 child credit) $1,000 Total taxes (about 20% of income) $17,794 Income after taxes (effective “take home” percentage is 80%) $67,206 th! This is why ―Tax Freedom Day‖ in 2009 was April 13 46 EXAMPLE TAX LIABILITY CALCULATION—SELF-EMPLOYED Projected first year income (profit from business) $85,000 Single Self-Employed Taxpayer Deductions from income , Student loans $2,500 , Health insurance (100%) $4,000 , Moving expenses $500 , Social Security/Medicare (50% of 15.3%) $6,503 , Exemption (1) $3,650 , Standard deduction $5,700 Taxable income $62,147 Federal income tax (effective rate is 18%) $11,719 Federal Social Security/Medicare (rate is 15.3%) $13,005 State income tax (Alabama rate is effectively 5%) $3,107 County and local income tax (Alabama rate is 2%) $1,243 Total taxes (about 35% of income) $29,074 Income after taxes (effective “take home” percentage is 65%) $55,926 Married Self-Employed Taxpayer Deductions from income , Student loans $2,500 , Health insurance (100%) $7,000 , Moving expenses $500 , Social Security/Medicare (50% of 15.3%) $6,503 , Exemptions (3) $10,950 , Standard deduction $11,400 Taxable income $57,097 Federal income tax (effective rate is 13%) $7,726 Federal Social Security/Medicare (rate is 15.3%) $13,005 State income tax (Alabama rate is effectively 5%) $2,855 County and local income tax (Alabama rate is about 2%) $1,141 Deduct Credit (1 child credit) $1,000 Total taxes (about 30% of income) $23,727 Income after taxes (effective “take home” percentage is 70%) $61,273 47 Business Aspects of Optometry Assignment 11: Financing Plan Assignment: Describe how you plan to finance the practice option that you have chosen. If you are entering an employment position, you may not need credit for your job, but personal needs such as a car, home, or other items—if they will require financing— should be discussed. If you are planning to become self-employed, you will need to describe how you will finance the start-up, purchase, or part ownership of a practice. Any personal financing should also be included (for a home, automobile). For all financing, indicate how much credit you anticipate you will need, the type of creditor you will seek (e.g., bank, savings and loan, SBA, relative), and the terms of the loan (interest, type of loan, repayment period). Purpose: Credit is usually required by graduates, either for personal or professional reasons or for both purposes. Professional and personal financing needs to be coordinated and the amount borrowed needs to be reasonable given the graduate’s financial status. This assignment is intended to make you consider how much credit you think you will need and how it can be obtained. Repayment will be considered in another exercise. Example: A sample financing plan is attached and may be used as a template for the assignment. Discussion: There are customary reasons for securing credit: to purchase a car, home, business, equipment, boat or airplane, or to use for a special occasion. Financing of these loans can come from various sources, including banks, savings and loans, government (Small Business Administration), mortgage companies, or even merchants (such as an automobile dealer). It is left to the borrower to select the creditor and negotiate the terms of the loan. Getting the “best deal” is usually determined by two key terms: the actual cost of the loan (which includes the type of interest (simple, compound), any loan (“origination”) fees that must be paid, as well as the annual percentage rate (APR) for the loan); and the type of repayment plan agreed to (renewable short-term note, installment note). You need to be aware—before you enter the creditor’s office to apply for a loan— the basic differences between these choices and which best benefit you. In fact, you should “do your homework” and know what you want from the creditor before you actually apply. Although a new graduate who has more liabilities than assets may not seem to be very credit-worthy, creditors such as full-service banks prefer young professionals (even those in debt) because they know they will be excellent long-term clients. Large banks will customarily have special departments (often called “trust” or “professional” departments) that in fact cater to professionals and offer them financial counseling and legal services. Establishing a personal relationship with a creditor is a good way to obtain helpful guidance through the maze of requirements and regulations that can complicate the successful application for a loan, and creating such a relationship should be one of the first goals of any graduate entering practice in a community. 48 EXAMPLE FINANCING PLAN I intend to open an individual proprietorship in Plano, Alabama. This will require financing from a creditor to provide the capital to purchase the needed equipment, instruments, furnishings, supplies, and inventories, and to provide the initial cash flow for the practice. Financial Status A current financial statement is attached. My most significant liabilities at this time are my educational loans, which amount to $80,000, and an automobile loan, which has $6,000 remaining to be paid. I have an estimated $15,000 in assets, including automobiles, personal property, and the cash value in my life insurance policy. Credit Needs I will require a line of credit of $100,000 to purchase the necessary instruments, equipment, furnishings, computer and electronic equipment, supplies, inventories and fixtures, make the necessary alterations to the office, and to provide the initial cash flow. Of this amount, about $20,000 will be unsecured. I plan to obtain this line of credit from Full Service Bank, in Plano, which offers simple interest business loans of 2% over the prime rate. My debt service for this loan should initially be about $1,100 per month. Personal Financing I will not require further credit for personal needs during the next year. 49 Business Aspects of Optometry Assignment 12: Marketing Plan Assignment: You are to construct a marketing plan for your choice of practice opportunity, composed of a mission statement, marketing goals, and the strategies that you expect to employ. This plan will be simplest if you are seeking to be hired as an employee, more complex if you are buying a practice, and most detailed if you are starting a new practice. (If you are going into a residency, your plan should be for the year after you finish the residency and actually begin the practice of optometry.) Purpose: The necessity for marketing yourself is obvious, especially if you are seeking to be employed, but also if a practice is being bought or started “cold”. The key to a successful plan is to show how you will add to practice growth. Example: The attached marketing plan may be used as a template for this assignment. Discussion: A marketing plan begins with the mission statement, which is essentially a description of what the marketing plan hopes to accomplish. For example, if a graduate is purchasing a practice, the mission statement might be to “communicate the transfer of ownership as thoroughly and positively as possible to the existing patient base so that a maximum of patients would return for care from the new doctor”. Marketing goals are set—based on the mission statement—to provide a means of measuring if the mission statement has been accomplished. For example, a goal of the sale of a practice might include informing as many established patients as possible of the transfer of ownership over a 3 to 6 month period, called the “transition period”, while the selling doctor is still in the office. Another might be for the number of patient examinations performed by the buying doctor to remain the same or increase during the 6 months after the selling doctor has left, as compared to the same 6 month period the previous year, before the practice was sold. Marketing strategies describe the ways that goals are to be achieved. For example, for the goal of informing as many established patients as possible of the transfer of practice ownership, strategies might include sending letters to all patients seen within the past 5 years, and having the selling doctor introduce the buying doctor to all established patients who return to the office during the 6 month “transition period”. Another strategy would be to generate new patients by introducing the buyer to other health care practitioners in community, to members of the business community such as accountants, insurance agents, bankers, and attorneys, to the sales representatives for companies providing ophthalmic materials, and to other key individuals in the community, such as service club members. Marketing strategies can also emphasize the personality, skills, or interests of the buyer, and how they can be used to facilitate the economic success of the practice after the transfer of ownership has been completed. 50 EXAMPLE MARKETING PLAN FOR ASSOCIATESHIP Mission Statement The purpose of my marketing plan is to obtain an associateship position in a primary care practice. Goal 1 Identify at least 2 potential associateship opportunities. Strategy: e-mail a cover note and my résumé to selected UAB graduates in practice in the Atlanta and Orlando areas. Strategy: use responses to these e-mails to schedule visits to selected private practices in the Atlanta and Orlando areas. Strategy: choose at least 1 practice in each location for followup visits. Goal 2 Identify 6 ways to add to practice income as an associate. Strategy: volunteer to work after hours and on weekends. Strategy: offer to see specialty patients (due to specialty training in externships or residency). Strategy: provide medical care that is not being provided by the practice. Strategy: volunteer to assist in the dispensary, finishing lab, or with frames sales reps. Strategy: volunteer to participate in office administrative duties (e.g., HIPAA privacy officer and security officer). Strategy: when not in the office, perform activities such as screenings, talks, and attending service meetings in order to promote the practice. Goal 3 Prepare 3 strategies for avoiding an impasse over income when negotiating an associateship agreement. Strategy: determine the minimum base salary necessary to sustain life. Strategy: devise a bonus income system, using a percent of income above a monthly “floor”, that will add to the base salary. Strategy: list the fringe benefits that are needed, beginning with the most necessary, to determine which benefits are least negotiable. 51 Business Aspects of Optometry Assignment 13: Insurance Plan Assignment: Insurance coverage is an essential part of practice planning, and for this assignment you are to determine the type and extent of insurance coverage that you will need for the practice option you have chosen and for your personal needs during the first year after optometry school. Purpose: Insurance coverage is a complex but necessary topic that must be addressed by all optometry school graduates. Although individual needs differ, insurance is an integral part of doing business as a professional. All graduates must decide which insurance is most appropriate, the amount of coverage needed, and its affordability. This exercise focuses on the first two requirements only; you will need to determine the cost of coverage by consulting reputable insurance agents once your practice plan is set. Example: The attached summary of insurance coverage choices may be used to craft your individual professional and personal insurance plan; an example plan is provided. Discussion: Insurance needs may be divided into professional and personal categories. Both types of needs must be analyzed to create a comprehensive insurance plan. Professional insurance needs include insurance coverage required by a creditor to protect against loss, such as term life insurance equal in value to the loan balance, or property and casualty insurance required by a leasing company to ensure payment of the lease balance in the event property is lost, stolen, or destroyed. Or partners may choose to take out life insurance policies intended to pay for the value of a deceased partner’s interest in the practice. Worker’s compensation insurance may be needed to provide coverage for employees who are injured on the job. And sole proprietors may decide to purchase office overhead insurance, in the event the practitioner becomes disabled. Of course, professional liability coverage is needed to protect against malpractice and other liability claims. Personal insurance needs are varied, due to marital status (life insurance is more important for married professionals), age (health insurance needs are different for Medicare-eligible individuals), sex (disability coverage is more often needed by women), and economic status (homeowners need coverage not required of those leasing an apartment). Insurance coverage that may be required includes life, disability, health, automobile, real and personal property coverage. In addition, the types of insurance vary: for life insurance, for example, there is a choice between term, whole life, and universal life policies. And there is also the issue of coverage: how much is needed? More importantly, how much is affordable? A comprehensive insurance plan must address all these issues. Such a plan must also be periodically reviewed, because insurance needs change with time and must be updated. 52 EXAMPLE INSURANCE PLAN I have taken out a term life insurance policy, initially in the face amount of $80,000, to pay off my loan if I should die before the debt is retired. In addition, I have acquired an umbrella liability policy in the amount of $100,000 for personal injuries or casualty loss to personal property in the office, and $1,000,000 worth of professional liability insurance, including “worker’s compensation” coverage for my employee. I have also purchased personal health (HSA), automobile ($100,000/$200,000), and personal effects (homeowners) coverage (60% of policy face value). Within the next 5 years I will add . disability coverage INSURANCE COVERAGE CHOICES Business Type Purpose LIFE Decreasing term Security for business loan (assigned to creditor) Group term Benefit for employees Cross or entity purchase term Payment at death of partner DISABILITY Group or private Benefit for employees Office overhead Payment for fixed operating expenses HEALTH Group or private Benefit for employees LIABILTY Professional liability Liability claims against OD and employees Casualty Loss of office contents from fire or other peril Worker’s compensation Work-related injuries to employees Embezzlement Theft by employees Premises Injuries to persons in office or on premises Personal LIFE Term or universal life Security for family DISABILITY Group or private Payment for loss of capacity to work HEALTH Group or private Medical and hospitalization costs HOME Decreasing term rider Payment of home mortgage at death Premises Injuries to persons on the premises Homeowners Loss of home and personal effects from casualty VEHICLE Liability and collision Damage to property and injuries to persons Uninsured motorist Personal injury from an uninsured driver Casualty Vehicle loss or damage due to fire or theft 53 Business Aspects of Optometry Assignment 14: Contingency Plan Assignment: It is good planning to have both a primary and an alternate plan, with the alternate plan being contingent on a determination that the primary plan will not be successful. For this assignment, you are to describe a contingency plan for entering the practice of optometry, which you will use in the event your primary plan cannot be implemented. Purpose: Although previous assignments have focused on constructing a plan for your entry into the practice of optometry, there is a chance that you will not be able to realize this plan. You might not pass the licensing examination in the state you have chosen, or even get a chance to take it (due to a transportation failure or other calamity), or you may eventually decide that the practice opportunity you have selected will not be appropriate or that negotiations have not produced a workable contract. Or, you may set out on a course of action—such as starting a new practice—only to discover that you have not been able to make the venture economically viable. Because of these possibilities, it is essential to have an alternate plan, which can be resorted to in the event your original plan is not successful. Example: The attached example may be used as a template for this assignment. Discussion: A contingency plan does not have to be constructed with the same thoroughness as a primary plan, but it does require consideration of the same basic components. In this exercise, you need to describe in general terms an alternate plan that will provide a means of entering the practice of optometry should your primary plan fail. The essential parts of such a contingency plan are: , Selecting an alternate state for licensure (you want to take at least 2 state exams) , Choosing an alternate practice opportunity (this should be in the second state, but often an alternate opportunity in the preferred state is found) , Describing how you plan to develop this opportunity (while still giving preference to your primary practice choice) Although attention is naturally directed at your primary plan, you should make an effort to follow through on your contingency plan. Occasionally, an alternate plan may turn out to be actually better than a primary plan. Even if it does not have to be implemented, the experience gained in considering it and putting it together is usually worthwhile. Another benefit is that it requires you to select a second state for licensure and take the licensing examination immediately after graduation. Because licensure by reciprocity or endorsement is rarely granted, it is wise to take licensing examinations after graduation in all the states in which you would like to practice. It is easier to maintain these licenses over the years than to take the licensing examinations again years after graduation. 54 EXAMPLE CONTINGENCY PLAN My states of licensure will be Alabama and Florida. If my primary plan does not work out, my alternate plan is to find employment with an OD for a year in one of these states; at present I have a part-time employment offer in Birmingham. Although I intend to live in Alabama, I plan to keep a Florida license since I may move or retire there. My primary plan is to start a new practice as an individual proprietor. If my practice revenues prove to be inadequate for my overhead costs, I plan to seek additional employment in the Plano area. Options include working in the practices of practitioners who need coverage, teaching biology (my college major) part time at the Plano Community College (which could be performed largely in the evenings), and volunteering to serve as the eyecare provider at the Big House Correctional Facility, located within an hour of Plano. In addition, my spouse is prepared to work extra hours and weekends as necessary to increase her income from the hospital. 55 Business Aspects of Optometry Assignment 15: Practice Plan Assignment: You are to construct a comprehensive plan for your first year as an optometrist. This plan should describe how you intend to enter the practice of optometry. Purpose: This assignment “puts together” the information you have collected in previous assignments to form a plan for life after graduation. If you have been thorough and have tried to be accurate, you will now have a clear enunciation of your goals and how you intend to meet them. If you have not, you will at least see how to go about creating such a plan when you are able to collect meaningful information. Example: The attached plan can be used as a template for this exercise. Please note the format to be used, which divides the plan into 11 areas: practice options, practice location, beginning date, contractual obligations, financial status, credit needs, first year projected income and expenses, insurance plan, marketing plan, contingency plan, and long-term plans. Certain documents (e.g., résumé, financial statement), are customarily included with the plan, but are not necessary for this assignment. Discussion: This exercise is the culmination of our efforts to develop a personal plan for you. Your practice plan should describe, in some detail: , the type of practice opportunity you have chosen (and an alternate), including where you intend to be licensed and the type of business entity selected , where this opportunity is located (state, area, city or town) , the beginning date for the practice , any contractual obligations that you will incur (employment contract, office lease, practice purchase agreement) , your financial status (remember that you will need to update your financial statement at graduation to remain accurate) , any credit needs (both personal and professional credit needs should be included) , your first year anticipated income and expenses (this requires a detailed list, whether you are entering employment or have chosen self-employment; in the latter instance if you are starting a new practice you will actually need to project your expected income and expenses for the term of the loan used to finance the startup of your practice (see Chapter 11 in Business Aspects of Optometry) , an insurance plan (liability and casualty insurance for your practice assets, malpractice coverage for you, term life insurance to cover any loan repayment, and health, automobile, and homeowners insurance as needed) , a marketing plan (as necessary) to promote you or your practice , a contingency plan that you can turn to if your primary plan does not work out or does not produce revenue sufficient for your needs , a brief description of your long-term plans and goals (next 2 to 10 years) 56 PRACTICE PLAN Practice Options I have chosen to begin a new practice in Plano, Alabama. To minimize the costs and organizational details of starting a practice, I have decided to begin as an individual proprietor. I will have one employee. My states of licensure will be Alabama and Florida. If the above plan does not work out, my alternate plan is to find employment with an OD for a year in one of these states; at present I have a part-time employment offer in Birmingham. Although I intend to live in Alabama, I plan to keep a Florida license since I may move or retire there. Practice Location My practice will be located in southeast Plano, on Vision Ease Road. Although there are several dentists and pharmacies in the southeastern area of the city, there is no vision care provider closer than 8 miles to the proposed site. The southeast of Plano is a rapidly growing area (30,000 population) that will need and support a practice offering vision care services for decades to come. Area health care providers report that the great majority of their income is derived from third-party plans, including Medicare, Universal Care HMO, and Blue Cross/Blue Shield. I will be a provider for all these plans. Beginning Date I plan to address the issues of office lease, renovations and alterations, equipment and furnishings list, and insurance needs during my fourth year of optometry school. My plan is to open the practice within 6 months of receiving my license. Contractual Obligations I can lease 1,200 square feet of office space in a medical building that has 5 other occupants. Preliminary negotiations have indicated that I can lease this office for less than $1,000 per month for a 5 year term, with an option to renew for another 5 years. The cost of alterations to the office would be equally shared with the landlord. I have also negotiated (but not yet signed for) the purchase of $60,000 worth of equipment from Ophthalmic Sales, Inc. In addition I will need to purchase about $20,000 worth of furnishings, supplies, electronic and other equipment, inventories, and fixtures. To earn supplemental income during the first year, I have agreed to part-time employment as an associate, and I will sign an agreement to that effect. Financial Status A current financial statement is attached. My most significant liabilities at this time are my educational loans, which amount to $80,000, and an automobile loan, which has $6,000 remaining to be paid. I have an estimated $15,000 in assets, including automobiles, personal property, and the cash value in my life insurance policy. 57 Credit Needs I will require a line of credit of $100,000 to purchase the necessary instruments, equipment, furnishings, computer and electronic equipment, inventories and fixtures, make the necessary alterations to the office, and to provide the initial cash flow. Of this amount, about $20,000 will be unsecured. I plan to obtain this line of credit from Full Service Bank, in Plano, which offers a simple interest loan of 2% over the prime rate. My debt service for this loan should initially be about $1,100 per month. First Year Income and Expenses A list of the major items of personal and business expense for the first year of practice is attached. I estimate the total cost of living expenses and startup of the practice for this year to be $140,000. To offset these expenses, I plan to work part-time in an optometry practice three half-days a week, which will enable me to earn about $1,500 a month. My spouse will be able to work full time at the Plano Hospital, at a salary of $3,500 a month. For the year we should earn about $60,000 from these sources. Income projections for the first year of practice indicate that I need to see approximately 1.5 patients a day at $150 gross per patient (for 250 working days) in order to cover the costs of operations for the office. Insurance Plan I have taken out a term life insurance policy, initially in the face amount of $80,000, to pay off my loan if I should die before the debt is retired. In addition, I have acquired an umbrella liability policy in the amount of $100,000 for personal injuries or casualty loss to personal property in the office, and $1,000,000 worth of professional liability insurance, including “worker’s compensation” coverage for my employee. I have also purchased personal health, automobile, and personal effects (homeowners) insurance coverage. Within the next five years I hope to add disability coverage. Marketing Plan To increase awareness of the opening of my office, I plan to have an “open house”, advertisements for 2 weeks in the local newspaper, and announcements mailed to residents in the local zip code. I also plan to meet with all the health care providers located within reasonable proximity to the office, to join the local civic clubs in Plano to promote optometry, and to perform monthly vision screenings in the community. Contingency Plan If practice revenues are inadequate for overhead costs, I plan to seek additional employment in the Plano area. Options include working on weekends in the practices of practitioners who need coverage, teaching biology (my college major) part time at the Plano Community College (which could be performed largely in the evenings), and volunteering to serve as the eyecare provider at the Big House Correctional Facility, located within an hour of Plano. In addition, my spouse is prepared to work extra hours and weekends if necessary to increase her income from the hospital. 58 Long-Term Plans My immediate goal is to make the practice self-supporting, which should occur within 12 to 15 months. My next goal is to steadily increase the economic viability of the practice and to pay off the loans necessary for its startup (and my educational loans) within 6 years. I also hope to increase the size of the practice so that I can take in additional employees and, eventually, another optometrist. My long-term goal (10 years) is to create a partnership or group practice to reduce working hours and protect my equity. Attachments The following attachments are included with this proposal: 1—Résumé 2—Equipment List 3—Financial Statement 4—Estimated Monthly Income and Expenses for First Year —Projected Income and Expenses for the Term of the Loan 5 Note: You do not need to include the attachments when submitting your plan. 59