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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