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Ranzco National Congress 2018
KPI’s and Key Financial Matters for Ophthalmology Practices
RANZCO
� 60+ years of services to Medical Professionals
� Preferred partner of the AMA (NSW)
� Trainers to GP & Specialist networks
� Dedicated Specialised Medical Services Division
� National Partner AAPM
� 2 Offices + over 100 staff
� 7 Divisions
- Medical Accounting 400+
- SMSF Specialists > 500 Funds
- Investment Services $500m
About Cutcher & Neale
� Structuring & Group Practices
� Taxation & Cashflow matters
� Equipment purchasing and financing
� Owning your building
� Buying in or Selling your Practice
Key Financial Matters for Ophthalmology Practices
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How’s your practice Structured?
Structuring
Which Business Structures?
ISSUESOLE
TRADERPARTNERSHIP COMPANY
UNIT
TRUSTTRUST
Complexity Simple Simple Complex Complex Complex
Tax Rate (Max)
47% 47% 30% *47% or Beneficiary
Marginal Rate
Who Controls Individual PartnersDirector /
ShareholderTrustee /
Unit HolderTrustee / Appointor
Limited Liability
NoNo – Joint &
SeveralYes Yes if Company Trustee
Asset Protection
Low Low Medium High High
Costs Low Medium High High High
LegislationNo Specific
ActPartnership Act
CorporationsAct
Trustee Act
� Structures – which one is right for your practice?
� What purpose?
• Asset Protection
• Legal minimisation of Taxation
• Carrying on Business (i.e. Private Practice)
• Owning Assets e.g. Investments
• To create a financially sustainable practice
� Not all structures are equal
� There is often a compromise on objectives
Structuring Basics
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� Payroll Tax
� Grouping
� Employees vs Contractors – RECENT CASES
� Asset Protection (Owner Doctors)
� Joint and Several Liability
� Tax Efficiency (Owner Doctors)
� Personal Services Income vs carrying on a business
Poor Structuring - Key issues
Devil is in the Detail: Getting it wrong is costly
� Do you have key documents?
� Do you have agreements?
� Is your service fee commercial?
� Is the service fee supported by evidence?
� Does your banking reflect the arrangements?
� Does your invoicing reflect the arrangements?
� Do service fee payments match documents?
Service Entity Arrangements
� What’s the Confusion?
1. Are they Employees?
2. Are they Contractors?
� Employees – Contract OF Service
� Contractors – Contract FOR Service
� Documentation is key
Doctor Arrangements
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� Incorrect classification concerns
- Superannuation
- Employee Entitlements
- PAYGW
- Work Cover & Payroll Tax
� What to watch
- Principally / wholly for labour
- Principally for a result and labour ancillary
Doctor Arrangements
� “Service Fee” agreement Doctors were held to be employees for Payroll Tax
� Contrary to the agreement, practitioners were obliged to provide locum cover if they were unable to attend
� Winday ensured that the amount payable to the radiologists would be no less than $2,000 for each day
� Winday referred to Doctors as “our staff” on their website
� Winday’s actions and procedures differed from the terms of the agreements
Winday International Pty Ltd vs Chief
Commissioner of State Revenue
� A second marriage
� Breakups are costly & messy
� Agreements are key
� Outlines rights & obligations
� Profit Share v Remuneration
� Reward for effort/labour
� Reward for investment risk
� Understand the arrangements
Group Practices
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Taxation and Cashflow
TAX – the biggest cost in Practice
Income Tax (PAYGI & PAYGW) – 47*%
Fringe Benefits Tax – 45%
GST – 10%
Payroll Tax – different rates, different states
Workers Compensation – c.1%
Land Tax?
Superannuation ?* 2% Budget Deficit Levy
Understanding your Practice Taxes
Medical Practices with turnover < $10m
Immediate Deduction:
Equipment• < $20,000 if purchased up to 30 June 2019
Pooled Assets • Year 1 - 15%, Year 2 onwards - 30%• 2017 - Immediate deduction of pool balances if opening
balance less than $20,000
• Prepayments
Current Depreciation GuidelinesSmall Business Entity
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Equipment Purchases &
Financing considerations
• Type of Finance/Borrowing
• Outright purchase?
• Hire Purchase or Chattel Mortgage – you own the equipment. Escrow into Chattel
• Rental / Lease – you don’t own the equipment
• Residuals/Balloons?
Equipment Purchases & Financing
• Cashflow Impact
• Monthly finance repayment
• Additional cash outflow
• What cash inflow is generated?
Equipment Purchases & Financing
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• Financial (Statement) Impact
• Deduction for rent Or depreciation & interest
• Rental obligation Or asset with accompanying debt
• Revenue – Doctor income (service fee) or Practice income
Equipment Purchases & Financing
1. Increase the __________ of patients (right type)
2. Increase the number of _________ they come back
3. Increase the ___________ value of each consult
4. Increase the ____________ of practice processes
Four ways to grow your practice
Case Study 1 New Laser
Four ways to grow your practice
1. Quantity – the # of patients it could apply to
2. Repetition – will they need recurring
treatment or continual new patients
3. Price – Private fee vs bulk billed
4. Efficiency – Staff & Leveraged Doctor time
Equipment Purchase considerations
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Case Study 1 Laser
� Income
- Potential Patients
- Private Procedure
- Bulk Billed Procedure
- Number of Potential Patients
- Competition in the Area
- Efficiency Gains
Equipment Purchase considerations
Case Study 1 Laser
� Expenses- Doctor Remuneration
- Costs of Fitout
- Maintenance Costs
- Rent vs Buy
- Cash Flow
- Expert Staff Member
Equipment Purchase considerations
Case Study 1 Break Even Point (BEP)
BEP = Fixed Costs/(Income – Variable Costs)
Equipment Purchase considerations
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Case Study 1 – New Equipment
Financial Management of Projects
(122,547)
(21,297)
79,953
181,203
25% 50% 75% 100%
(150,000)
(100,000)
(50,000)
-
50,000
100,000
150,000
200,000
Break Even Point
Profit Utilisation
Owning your Building/Rooms
• Financial Considerations
• Rent or Purchase?
• True costs of purchase – stamp duty, legals, fitout …….
• Ability to purchase - finances
• Who should own the premises?
Acquisition of New Premises
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• Cashflow Impact• Monthly repayments versus current premises
costs (i.e. rent)
• Additional income earning capacity (i.e. from additional rooms)
• Financial (Statement) Impact• Breakeven analysis – what’s the costs to open
the doors?
• Potential Income – sublease, additional service fees
• Building depreciation deduction (non-cash)
Acquisition of New Premises
Buying into or Selling a
Practice - considerations
What the Financial Information doesn’t say:
Due Diligence
Work Environment,
Cultural & Clinical People & Culture
People & Culture
Systems & ProcessesSystems & Processes
Capital Requirement
Capital Requirement
Marketplace &
Competition
Marketplace &
Competition
Future Growth
Opportunities
Future Growth
Opportunities
DUEDILIGENCE
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Valuation Methods
� Earnings Valuations
- Capitalisation of Future Maintainable Earnings (FME)
� Asset Valuations
- Balance Sheet
� Cost to Create / Start-Up
� Industry Rules of Thumb?
� In application – primary, secondary and even third method (cross reference)
Value – How Much?
� Proper Due Diligence
- Financial & Qualitative Factors
- Ask the right questions
� Understand what your buying
� Clearly document agreements/arrangements
� Key Agreements
� Unit/Shareholder Agreements
� Exit & Entry arrangements
� Dispute resolution/mechanisms
� Requirements for Financial Contribution
Tips for Success
KPI’s for Ophthalmology
Practices
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� What are KPIs?
� Balanced scorecard approach to KPI’s
� How to design KPIs
Objectives
Key Performance Indicators are
quantifiable financial and non financial
measurements that reflect the critical
success factors of an organisation
What are KPIs?
� Important performance information
� Review to business plan
� Reduce complex information
� Small number of key indicators
� KPI’s make something complex into simple
measures
What are KPIs?
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Over measurement:
Identify everything measureable
Collect & report on everything
End up lost
Problems with KPIs
What are our Strategic Objectives?
Utilisation of a Balanced Scorecard – 4 key areas
KPI Starting Point
Balanced Scorecard – KPI’s
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1. Increase the NUMBER of patients (right type)
2. Increase the number of TIMES they come back
3. Increase the AVERAGE value of each consult
4. Increase the EFFECTIVENESS of practice
processes
Four ways to grow your practice
What your practice is about
� World class standards in Ophthalmology
� Employer of choice
� Excellent patient care
Balanced Scorecard – KPI’s
� Improve reputation
�Gain market share in specific areas egcataract surgery, oculoplastics etc
� Increased patient services
�Patient satisfaction
Balanced Scorecard – KPI’s
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PATIENT PERSPECTIVE
Reputation
Market Share
Patient Services
Satisfaction
Revenue/Patient
Fee Issues
� Improve productivity
�Patient waiting time
� Theatre utilisation
�Surgery hygiene
Balanced Scorecard – KPI’s
INTERNAL PROCESS
Productivity - Doctor
Productivity -Employee
Waiting Time
Capacity utilisation
Hygiene
Billing
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� Employees
� Business Software
� Training
� Culture
� Leadership
Balanced Scorecard – KPI’s
LEARNING & GROWTH
Employees
Software
Training
Culture
Leadership
Equipment
� Grow Revenue
� Improve productivity
� Capacity
� Profit
Balanced Scorecard – KPI’s
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FINANCIAL
Budget Analysis
Gross Profit
Net Profit
Average Fee
Working Capital
Financial KPI reporting
Financial KPI reporting
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Key Performance Questions
Link strategy to KPI
What is the best data available
Look forward
Open questions
Putting it together
Attributes of financially successful Ophthalmology practices
�Higher average fee / consult / procedure
�Less spend on non wage overheads / Doctor
�Leveraged Doctor time - effective practice & support staff
�Good business systems & processes - effective use of technology
�Multiple Doctors in one surgery - leverage
�Understand Practice Capacity – helps maximise income & improve
The material contained in this seminar is in the nature of general comment
only, and neither purports, nor is intended to be advice on any particular
matter. Persons should not act or rely upon any information contained in or
implied by this seminar without seeking appropriate professional advice
which relates specifically to his/her particular circumstances. Cutcher &
Neale expressly disclaim all and any liability to any person, whether a client
of Cutcher & Neale or not, who acts or fails to act as a consequence of
reliance upon the whole or any part of this presentation.
Disclaimer