Starting an optical practice of their very own is a dream of most in the optical field. But, what most are unaware is how well-versed and prepared you must be for the business side to your practice! With so many terms and equations to learn, things can get very confusing, often times leading to financial and workflow problems within the practice.
Don’t be intimidated though, as we have compiled some of the most important and basic terms that are critical to the success of any practice’s accounting, marketing, human resources, and information technology. So no matter the size of your practice, big or small, use these 4 categories and their terms to learn, or brush up on, the necessary business jargon required for success in the optical industry.
Stay Updated: Key Optical Practice Business Terms
COGS (Cost of Goods Sold): A practice's cost of goods sold includes the cost of purchasing the goods from the supplier, as well as any additional costs that accrue from its supplier plus any additional costs that are incurred getting the product into inventory and ready for sale to customers. Cost of goods sold does not include selling and administration expenses or financing expenses.
Gross Profit Margin: Gross profit margin is a profitability ratio that measures how much of every dollar of revenues is left over after paying cost of goods sold (COGS). Gross profit margin is calculated by subtracting cost of goods sold (COGS) from total revenue and dividing that number by total revenue. This equation and metric is an indication of the financial success of a practice’s service.
Inventory Turnover: If your practice is not selling its inventory and not generating revenue, then cash flow problems can occur. By establishing how many times your inventory turns over per annum you can get a feel of the cash flow from sales. The equation for inventory turnover is:
Average inventory = Inventory @ Start + Inventory @ End / 2
Inventory Turnover = COGS/Average Inventory
Operating Profit Margin: The gross profit margin doesn’t tell you what it costs to operate your business. It doesn’t take into account the “other” fixed and variable costs of generating sales revenue. Operating expenses are those incurred as a result of normal business operations, (wages, R&D and so on) and together with the cost of goods sold these are subtracted from sales revenue to give an “operating income” number. For your operating profit margin, the higher the margin the better. Formulas are as follows:
Operating Income = Sales Revenue – Operating Expense
Operating Margin = Operating Income (Profit) / Sales Revenue
Accounts Receivable Turnover: Your accounts receivable is an essential and core part to your practice. If you aren’t able to collect the money owed to the practice it can be problematic. The definition is: money owed by customers to a practice in exchange for goods or services that have been delivered or used, but not yet paid for. The formula is:
Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable
SEO (Search Engine Optimization): SEO inserts top search keywords into practice website pages, and their social media, to boost search engine results rankings, and makes sure your site is optimized for navigation, content, keyword-rich meta tags, and quality inbound links. Having a strong search engine ranking should be high on the marketing priority list.
Social Media Marketing: This form of marketing is becoming more and more popular and any small business almost HAS to get onboard with this online trend. This form of marketing increases brand awareness and site traffic by building a community of customers via social media. This is done by posting updates and links that will hopefully spread to your target audience or community. It is also a tool to respond to complaints, requests, and well- deserved praise!
Content Marketing: Produces helpful, interesting and entertaining content like blog posts, ebooks, videos & infographics to attract more attention, build brand authority, and win new business.
Online Public Relations: Influences online media & communities, keeps an eye on what people are saying about your practice online, and looks for new ways to connect with customers. This is a huge tool for smaller practices in smaller towns, and can help differentiate you from competitors.
Accessibility: The extent to which a practice is readily approachable and does not inhibit the mobility of individuals with disabilities, particularly such areas as the personnel office, worksite and public areas.
Accountability: The responsibility placed on an individual or group for their own or others’ actions, conduct, performance, projects, etc. This will help keep practice staff honest.
Forecasting: A business analysis conducted in order to assess what future trends are likely to happen, especially in connection with a particular situation, function, practice or process that is likely to affect the organization’s business operations.
KPI (Key Performance Indicators): Key Performance Indicators are quantifiable, specific measures of an practice’s performance in a certain area of its business. The purpose of KPI’s is to provide the practice with quantifiable measurements of things it has determined are important to their own long-term goals and critical success factors. Once uncovered and properly analyzed, KPI’s can be used to understand and improve organizational performance and overall success. Also referred to as Key Success Indicators.
Religious Accommodation: An accommodation made for an employee, such as time off from work, so that he or she may observe a religious holiday or attend a religious ceremony or their day of Sabbath such as Saturday or Sunday
Employee Wellness Programs: The practice of designing combined educational, organizational, and environmental activities to maintain and improve the health, wellness, and safety of employees and their families. The overriding premise is that such interventions will reduce health risk factors, which will improve a person's overall health status, in turn, also reducing their demand for health care.
HIPAA Compliant: HIPAA (the Health Insurance Portability and Accountability Act) is the standard for protecting sensitive patient data. Any company or business that deals with protected health information must ensure that all the required physical, network, and process security measures are in place, followed, and maintained.
Technical safeguards: These necessary safeguards allow access and control to only the authorized personal who need to see this electronic protected health data. Access control includes using unique user IDs, an emergency access procedure, automatic log off and encryption and decryption.
Cloud-based: Operations that involve a network. The term often refers to the public Internet; however, a cloud may also be a private, internal network. An example of a cloud-based operation is cloud storage, which is storing information on an Internet server for backup as well as synchronization to the user's devices, as well as storing data on a company's internal server for backup.
Health Care Analytics: These software programs analyze practice information at the point of care. These “active knowledge systems, which are constantly learning about your practice, use two or more items of patient data to generate case-specific advice.
The optical and business worlds are constantly evolving, and it is hard for some OD’s and their practice’s to keep up with all of the change. The terms above are just the tip of the iceberg when it comes to the technical, and not so technical, business jargon used in nearly every industry. It’s important to know every facet of your practice and the business side is no exception!
If you have any other questions on running the business side to your practice, subscribe to the Uprise blog to learn more!