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Adding a profit center: What's right for you?

May 1, 2003

Not every profit center suits every practice. How do you decide what to add? Follow these steps from Practice Management Editor Mark Opperman, CVPM, president of VMC Inc. in Evergreen Colo., and Indianapolis.

Not every profit center suits every practice. How do you decide what to add? Follow these steps from Practice Management Editor Mark Opperman, CVPM, president of VMC Inc. in Evergreen Colo., and Indianapolis.

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  • Choose profit centers to pursue. "You need to feel comfortable with a service for it to succeed in your practice," says Opperman. "So if you harbor doubts about any service, scratch it off the list."

  • Consider the space available. "If you're building a new hospital, you obviously can allot more space to a new profit center," says Opperman. "But in an existing practice or in an addition, you might not have enough space for certain services. For example, retail takes up much less space than boarding, and that could make your decision for you."

  • Determine your projected cost vs. income. "Some profit centers are relatively inexpensive to set up; others require a hefty initial outlay," Opperman says. For example, a grooming area requires grooming tables, cages, dryers, and equipment as well as staff members. A retail area, however, requires inventory and shelving, but no additional staffing.

"Considering these issues, it's important to determine whether your new profit center will be worth the cost," says Opperman. "Take grooming, for example. To determine your projected revenue, assume you'll do five groomings a day at an average cost of $30, bringing in $150 of revenue. Then compare that to your total expenses. Also consider the additional business the service might bring into your medical practice."

  • Evaluate profit centers' success. "Using a departmentalized profit and loss statement, separate overhead expenses and income for each profit center in your practice to learn how they're faring," Opperman says. If you're not happy with your results within three to six months, you'll know to step up your efforts-or use that space for something more lucrative.

Keep in mind, for some services the season makes a difference. "In slower times of the year, you might need to give your service a bit longer to catch on," he says.

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