Say your contract stated you have a base salary of 100k and that overhead is 50%. And the contract went on to say if you do not generate enough revenue to cover your base salary and overhead at 50% (overhead is specifically fixed at 50% in contract), your base salary will be adjusted downward. So I know this might seem like a really simple (maybe even silly) question, but how much revenue do you have to generate to cover base salary and overhead?
One of the places we are looking at seem to think that in order to cover base salary and overhead, you would need to generate 200k in revenue (2x base salary).
Please weigh in! Thanks!February 8, 2019 at 2:48 pm MST #189347ZaphodParticipantStatus: Physician, Small Business OwnerPosts: 5943Joined: 01/12/2016
Is that overhead that is attributed to you and constant to your collections? I would not be a fan of that language as it is highly unlikely to be true. As you generate more overhead should start to become a smaller percentage. Its also basically fixed at some level and never goes away. I’d want the language to either reflect reality, have some kind of scaling, or really to see how they calculate and attribute the overhead.
Who knows whether or not they care to entertain you, but I think its right to question it.
That is the estimated overhead for practice according to the managing partner. Once I become a partner, I will only pay for actual overhead. Until then, the specified overhead rate for the length of the contract regardless of how much is generated is 50%.February 8, 2019 at 2:59 pm MST #189349
Based on the above scenario/language, how much do you think I need to generate to cover my base salary of 100k and 50% overhead?February 8, 2019 at 3:04 pm MST #189350childayParticipantStatus: PhysicianPosts: 924Joined: 01/09/2016
50% of what? Collections? Or your salary?February 8, 2019 at 3:11 pm MST #189352
It is not specified but I take it to mean salary. But in both scenarios, salary and collections, what would the break-even point be?February 8, 2019 at 3:16 pm MST #189353
Maybe this helps provide some context…the contract also states, once you generate in excess of 2x base salary you get to keep 50%.February 8, 2019 at 3:20 pm MST #189354White.Beard.DocParticipantStatus: PhysicianPosts: 843Joined: 02/06/2016
It is important for the language of the contract to be clear and without ambiguity. It sounds like it might need to be changed for clarification.
I am assuming that this likely means that you would need to generate 200k in revenue with 50% going to overhead and 50% going to your salary, meaning 200k in revenue is allocated 100k to overhead and 100k to salary.
However, in the earlier part of the first year, you won’t generate much revenue because of the normal initial lag of your accounts receivable. Also, insurance credentialing can create an even bigger lag if not handled well in advance (>120 days) with attention to detail.ACNModeratorStatus: PhysicianPosts: 607Joined: 01/08/2016
So my contract (PP Group) is laid out similarly, but the language is clear, there are variable and fixed overhead expenses. Example: Typically fixed overhead is $100k/month divided by 10 partners, so $10k per partner. Variable expenses are typically 40% of collections, thus if you made $10k, $4k would go towards variable. And let’s say your salary is $10k/month. Therefore, your EXPENSES for the month are $24k and you collected $10k. So you are NEGATIVE $14k for that month. Repeat for the entire year.
If my NET for the entire is ++, I get to keep 75%. If my NET is NEGATIVE, the partners eat the cost.
So in your situation, the 50% needs to be clarified in regards to collections, fixed, variable, ect. Furthermore, your bonus structure needs to be clarified.
After a few months into practice and speaking with the youngest partners, I know exactly how much per month I need to BILL to cover Salary + Expenses. The biggest problem in regards to bonusing your first year, is that months 1-3 you are generating full salary and fixed overhead expenses, so you basically dig a giant NEGATIVE hole that’s hard to dig out of. In the example above, you are probably -$20k/month for 3 months with probably $10k-20k collections at most. So probably -$50k. =X
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