A pro forma and a business plan are documents that are necessary to secure financing (unless you are funded outside the traditional banking/loan system). In addition the exercise of creating this documents will provide you with a detailed roadmap of what is necessary to start and operate your practice. Even if there is no financial reason to create a pro forma and business plan, I highly recommend it.
Business Plan
A business plan is a document that details the structure and function of your business. It explains why your business needs to exist and what it takes to make your dream a reality. The Small Business Administration has an excellent guide to writing either a traditional (longer and much more detailed) or lean business plan. Bplans.com also has a guide and templates for writing a business plan.
I recommend going through the traditional business plan example and adapting it to your ophthalmology practice. If you are intimidated by the length and complexity of the traditional plan, start with the lean plan. The lean plan provides a quick, high-level explanation of your business and is not difficult to create. I found that going through the lean plan made me excited to dive into the details and make an in-depth traditional business plan.
Both templates linked above are very easy to use, but I found that bplans.com had a little more detail in each section which made my job a little simpler. In either case, the financial section of your business plan goes hand-in-hand with your pro forma. You will use data from your pro forma to inform your business plan.
Pro Forma
A pro forma is essentially a financial forecast for your business. You will project your income, expenses, profits, and losses (I recommend doing this for at least the first 5 years of your practice). There are numerous templates available online (one of which I used to create mine) that will display your data in an easy-to-follow format. For more information about what goes into a pro forma, I would recommend starting here.
Insurance companies contract their reimbursement rates with individual practices, which makes projecting your practice income challenging. You are unlikely to discover how much a payer will reimburse you for your efforts before you start negotiating your insurance contracts. Interestingly commercial insurance is almost always a multiple of Medicare reimbursement. In order to make conservative projections and adjust my expectations accordingly, I used only Medicare reimbursement data for my pro forma.
First, I found the CMS physician fee schedule lookup tool and ran the most common CPT codes that I use through it. I then calculated the $/patient encounter, which turned out to be $186. My analysis was confirmed by finding some consulting materials online. Then estimate the number of patient encounters per month and do some simple math to find out your gross revenue per month. Next subtract your calculated overhead and you have your profit. As the business owner, you get to decide if that money is paid directly to you or reinvested in your practice. Note: plan for a very slow start (1-2 patients per day on average for the first few weeks or so) and increase your projected clinical volume at a reasonable rate. The “reasonable rate” is determined by where you decide to start your practice.
Some of the highlights of my pro forma are the surprisingly low startup costs for good equipment. When I was discussing going solo with friends and mentors, I was repeatedly told that the startup costs would be prohibitive. I did not find this to be the case. I was able to purchase all my equipment and decorate my office for about $250,000 though you can get away with spending much less (depending on your equipment requirements). See the post on equipment for the full breakdown of what I bought and how much everything cost.
Download a sample (partial) pro forma with only recurring expenses here.
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