Defined Benefit Plan Questions for an Optometry Practice

An optometry practice evaluating a defined benefit plan should first separate the economics of professional eye care from the cash demands of its optical business. Reconcile clinical revenue, optical sales, inventory, supplier balances, and employee records before asking an actuary to model a commitment. Strong combined revenue does not show how much cash the practice can sustain after replacing frames, paying labs, and supporting its workforce.

This guide is for an established owner whose practice provides professional services and sells eyewear. It adds an optical inventory and supplier-payment bridge to the broader business-owner defined benefit plan checklist. A practice without retail optical operations can omit that schedule, while retaining the compensation and workforce review.

What does each side of the practice actually earn?

Ask the bookkeeper for a management report separating professional-service revenue from optical sales, returns, and related product costs. Reconcile the combined report to the general ledger. Use the practice's documented revenue policy consistently; a signed eyewear order, a deposit, a delivered product, and a bank receipt are different events.

For optical sales, show frames and lenses sold, lab charges, remakes, discounts, and returns in the appropriate accounts. Keep unsold inventory separate from the cost assigned to completed sales in an accrual management view. Allocate shared rent and front-desk labor transparently so an arbitrary allocation does not disguise the underlying product margin.

The SEC's financial-statement guide distinguishes income-statement profit from cash movements. That distinction matters when optical stock has been purchased but remains unsold. This management worksheet does not prescribe the practice's tax inventory method.

How much profit is tied up in stock and receivables?

Hypothetical annual example: All figures are invented management inputs for one practice, not client results or plan contribution estimates. Assume an accrual operating report with owner payroll, interest, and ordinary employee costs already included. No defined benefit plan funding or associated administration costs are included.

Operating report	Amount
Professional-service revenue	$900,000
Optical sales after returns and discounts	$500,000
Cost assigned to optical goods sold	($210,000)
Other operating expenses, including depreciation	($840,000)
Book profit before income taxes	$350,000

The operating calculation is $900,000 plus $500,000 less $210,000 less $840,000, leaving $350,000. Optical sales less product cost leave $290,000 before labor and shared operating expenses. Neither number is an available contribution.

Now reconcile the balance-sheet changes and planned cash uses:

Profit-to-cash bridge	Amount
Book profit	$350,000
Add depreciation already expensed	$25,000
Subtract increase in optical inventory	($35,000)
Subtract increase in receivables	($20,000)
Add increase in supplier payables	$10,000
Subtract equipment cash purchases	($30,000)
Subtract debt principal	($20,000)
Subtract additional tax cash earmark	($80,000)
Subtract owner distributions	($75,000)
Subtract reserve replenishment	($15,000)
Remaining cash screen	$110,000

The bridge assumes no other working-capital changes. The tax earmark excludes taxes already counted in operating expenses. Increasing supplier payables temporarily preserves cash, but those invoices still need payment; bring their actual due dates into the forecast. Do not subtract inventory purchases again after accounting for product cost and inventory/payables changes.

What happens if optical cash turns more slowly?

Suppose additional stock absorbs another $20,000 and suppliers require the $10,000 increase in payables to be paid sooner than forecast. With other assumptions unchanged, the $110,000 screen becomes $80,000. This isolates inventory and payment timing without assuming a change in clinical revenue.

Have the optical manager identify aging frames, open lab orders, customer balances, pending returns, and disputed supplier credits. Count usable stock and reconcile the inventory schedule to the books. A clearance plan may change both cash receipts and margins; do not treat unsold stock at its recorded cost as immediately spendable cash.

Which employees and entities belong in the illustration?

Provide records for opticians, technicians, reception staff, associates, owners, and other workers for professional review. Include dates of birth, hire and termination dates, service hours, compensation, ownership, and existing retirement arrangements. Describe any separate optical entity, shared employees, or related ownership. Ask the administrator to determine the coverage implications from the full facts.

The IRS eligibility and participation guidance explains that retirement-plan participation depends on plan requirements and applicable rules. Job titles and the internal clinical-versus-optical split do not themselves decide who participates. Ask for a written explanation of the employee assumptions behind each illustration.

Who turns the operating packet into a funding decision?

The IRS defined benefit plan overview describes a benefit based on a fixed formula and an enrolled actuary's role in determining funding levels. IRS Publication 560's minimum funding discussion explains that these plans generally must meet a minimum funding standard each year. Confirm the applicable section and requirements with the actuary; the operating cash screen does not calculate them.

Assign the optical manager the order and stock schedule, the bookkeeper the ledger reconciliation, payroll the census, and the CPA the compensation and tax reconciliation. Send one dated packet to the actuary and administrator. Ask for funding scenarios, administration costs, payment timing, and the effect of planned hiring or reduced owner clinical days. Return those figures to the cash forecast before deciding.

TaxBowl's CFO services can organize the optical-to-cash bridge. Bring that analysis to TaxBowl's tax team for coordination with plan professionals. For payment timing after an illustration is available, use our practice collections and funding guide.

Video: cash forecasting and scenarios

The Financial Tech Lab by Clara CFO Group tutorial demonstrates general cash forecasting, cash floors, and scenarios. Use it to map the business cash assumptions above. It does not determine defined benefit plan funding, benefits, eligibility, tax treatment, or termination requirements.