The following are just a few of the many questions asked by our readers for Hearing Review’s Expert Insight. Every month, Michele Fusco shares these and other hearing practice insights at www.hearingreview.com/expertinsight.
Q. What is the cost of a franchise in Florida? Any advice on how to approach doctors to offer hearing services in their practice?
A. Part I of Question:
The cost to start up a franchise is somewhat similar to establishing a private audiology/dispensary practice with the exception that franchises have business management and development services already established and available. This not only provides a significant savings in costs to the franchisee, it also provides a savings of time.
A franchise additionally provides the tools needed to establish and run the business more efficiently, effectively, and profitably with a shorter learning curve. It allows the owner to be independent but not alone in the back office functions.
Of course, the actual start-up costs will be dependent on a variety of determining factors. The key determinant of cost is whether an existing practice is converted or a new practice is being built from scratch. Other costs that factor into beginning a franchise practice (this is a shortened list):
- Human capital salaries and benefits
- Human capital management and training
- Inventory of products
- Professional equipment and supplies
- Office location, demographics, lease negotiations, and build-out expenses
- Computer hardware, software, and licenses
- Working capital needed for general and administrative services until your office has positive cash flow
Established franchises, such as Sonus, have well-developed back-end business services to offer. Franchise organizations will be able to demographically examine the targeted location area and determine where the best location for an office should be. The franchisor can help to find an ideal location, negotiate a fair lease, plan, and build the office to exact specifications that will complement and enhance your professional image. All services, with few exceptions, are provided as a benefit of being part of a franchise organization. For example, the Sonus Franchise Organization even has the financial resources available to provide assistance with the build-out, working capital, and other funds to launch the practice.
Part II of Question:
Physician marketing begins by building trust with the medical community; the fostering of this relationship helps bring referrals to your business. Research has shown that 58% of Americans would see a family or ENT physician to evaluate options prior to purchasing hearing aids. This statistic makes it clear how important relationships with physicians and referrals from physicians are to a practice’s success.
To get started, a physician marketing plan is essential. Research is key to any successful physician marketing plan.
Learn about the practice, Google the practice, find out about the physicians and their staff, and identify what practices your current patient population utilizes.
After doing your due diligence, make an appointment with the physician. You will receive only a small amount of time so make sure your presentation is short and concise. Start with these three simple questions:
- Have you heard of my office?
- Can you tell me a bit about your office? Several of my patients visit your practice and have told me the following…
- What can I do to gain your trust and gain your referrals? (Make sure throughout that you are telling the physician or office manager specifically why your practice is unique from the others in your area. Differentiate yourself from the competition.)
Take a packet of information about you and your practice, your hours, and the tests you perform, and include several business cards. Some other items to include are: a written article on hearing loss and the benefits of amplification, testimonials from other physicians you serve, information on how the physician will benefit from your services and what sets you apart from other service providers in the area, a sample report, and a list of the insurances with which you contract.
Remember, first impressions are lasting. It is imperative that you deliver this information in person: Do not mail it.
The key to physician marketing is consistency. In my experience, I have found one visit is often not enough. It may take three or four attempts before you get your first referral.
When the first referral comes in, make great efforts to do thorough testing and reporting with follow-up to the physician within 24 to 48 hours. Once you have established these relationships, setting up servicing contracts will be much easier.
You prove yourself to be prompt, professional, and reliable. The physician may now be more open to a solid business relationship, a relationship that can and should prove to be a win-win for both of you.
A business relationship such as this will require you to be very versed on several billing compliance laws, for example, the Federal Anti-Kickback Statute (AKS) (42 USC § 1320a-7b) is just one you should review.
I hope this gets you started.
Q. How do you establish a selling price for a hearing dispensing business? Also, what financing options are available in today’s troubled economy?
A. In general, the value of any business is related to its capability of generating free cash flow that can repay the purchaser for their initial investment. The value the purchaser is acquiring should be the cash flow that the practice is generating at the time of purchase; a good representation would be to look at the cash flow for the last 2 to 3 years of the practice.
There is not one set formula that companies have adopted as an industry standard to determine the selling price for an audiology practice. Many that purchase practices utilize some percentage or multiple of gross sales revenue, net sales revenue, or adjusted net profit.
Besides revenue, factors that also influence practice sales price and buyer interest are:
Sales History. Generally, one would like to see the history of sales for the practice over the preceding 3 years. This information will show if the office is on an upward or downward trend and give some predictability as to the future.
Key Performance Indicators (KPI). There are many, but three key areas to evaluate are Close Rate, Binaural Rate, and Average Sale Price. These three indicators provide information as to the capability of the support and professional staff.
Marketing. Types of marketing that have been used in the past and what is the Return on Investment (ROI) of the marketing campaigns.
General Administrative Costs. What are the costs to run the business: office lease, payroll, benefits, cost of goods, and all other costs to maintain the day to day activities of the office?
Patient Database. The depth of the database, when was the last time it was scrubbed, and how often do you market to the database.
These are just a few of a number of items that should be taken into account when determining the sales price of a practice. Each buyer will have their specific requirements, and it is the seller’s responsibility to provide the requested information. It is always advisable to request any buyer sign a confidentiality agreement prior to sharing any practice specifics.
Today, there are a number of financing options available for the purchase or the start-up of an audiology practice. Here are a few options that are available today, even during these tough economic times:
Commercial Bank Loan. Loans given by a bank at a prescribed interest rate. These loans are secured generally by the business and/or by personal guarantee.
Small Business Administration Loan (SBA). A loan that is secured by the SBA to your bank or credit union. So when a business applies for an SBA loan, it is actually applying for a commercial loan, structured according to SBA requirements with an SBA guaranty.
Manufacturer Loan. This loan is offered by a hearing aid manufacturer and typically requires that you purchase 90% to 100% of their products to secure the loan.
Veteran Organizations. People who have served our country may have loan opportunities that should be researched.
Vocational Rehabilitation. I have been made aware that individuals with disabilities (ie, hearing loss) can secure partial funding that could be used to start up a practice. Further investigation would be needed.
Dispensing Networks. Financing opportunities at low interest rates are also offered by some dispensing networks and franchises, like Sonus.
I hope this brief answer sheds some light on the complexities and solutions of selling or starting a business. It is difficult in the limited space of this section to go into specific details and directives.
Q. Do you think I should give free service to hearing aid sales as long as the patient is using the hearing aid? I have started telling patients I am going to charge for service when the hearing aid is 7 years old, which is well over the norm for how long a hearing aid should last. You could say why not sell the patient a new one? Well, not everyone will go for that. Or you could say, the patient will keep coming back possibly when it is time to buy a new one. Okay, I can go along with that to a point. So, how long should I provide this free service?
A. Establishing a quality long-term relationship with all of your patients is one of the most important aspects in growing a successful audiology or dispensing practice. Although not always the case, most patients are provided with aftercare service for their hearing instruments for a period of time, which commonly includes the term of their product warranty. Following the term of the original warranty, additional service agreements are often offered or a fee-for-service arrangement is in place to cover the costs of maintaining, repairing, or servicing their hearing instruments.
It is not uncommon in our profession to offer some services as a courtesy to our patients “free” as a way of building a better relationship, but it is my experience that consumers generally are not opposed to paying for your time and service, especially after the expiration of their warranty or service contract.
Correspondence can be addressed through HR at [email protected]