Dentists - Are you avoiding your road map to Financial Success?
Every dentist who opens a practice, does so with the expectation of financial success. So how does he or she get there? Does it happen by chance? No, of course not. Most successful dental practices get there with hard work and planning. Without a plan or road map, a dental practice can be chaotic. It will have no framework to make responsible decisions. It also becomes guess work when running the practice. As a result, the financial performance will be inconsistent. There will be peaks and valleys. Lastly, without a plan the practice will be running the dentist, instead of the dentist running the practice.
So what is this road map and why do so many dentists not utilize it? Well, this road map has been around for a long time. A bookkeeper may have even tried to introduce the dentist to it. It is called "budgeting". This word should be used sparingly because may times when the word is mentioned, a dentist can develop the look of boredom on his or her face and suddenly have something more urgent to do. Trying to convince a dentist to develop and implement a budget can often be like "pulling teeth" ( a little dental humor). Some dentists have expressed that they fear a budget would take away choices from them. They might not be able to do any of the fun stuff. Another excuse is that it would be very tedious and time consuming.
So how does budgeting become a road map to financial success and create excitement instead of dread? The best way to change perspective is to be informed how this road map or budget leads to financial success. Often dentists will look at their gross production to determine how well the practice is doing. This, however, will not take into account many things. One being, cash flow. Without it, even the most productive office can be doomed. The better indicator is the net return, which will account for the expenses. Net return should ideally be at 45-55%. However, with rising overhead costs, many practices are netting closer to 22-25%. For the dentist to maximize his or her take home, a plan or road map that is based on current and historical information is required. This will help predict what future expenses and revenue will be, enabling more responsible decisions. With a budget the dentist will monitor the practice based on the overhead percentages. Some expenses are fixed and cannot be easily controlled. The difference can be seen in the following examples. Believe it or not, the total percentage of overhead can be a choice!
Examples of a fixed expenses might be:
RENT: which should be around 5%
LAB EXPENSES: typically 10%
More flexible expenses could include:
DENTAL SUPPLIES: 5-8%
Just a side note on the last example is worth mentioning. Team expenses or wages are usually one of the most costly, but one that the dentist is able to make adjustments to. It can make sense to do some careful planning and have strong leadership to maximize the production/collection with your staff. Some ideas might be:
Implement cross training
Set targets and goals
Have frequent staff meetings and training sessions
Check out salary review sites online, making sure salaries are in line and fair, but will also keep your good performers motivated
Also check for overstaffing. Some situations the dentist might look for are:
More people working in front than producing dentistry
Having staff members that have no contact with patients
Too many office "managers"
So what about the boring and tedious part of budgeting? Today the accounting software can make budget tracking even easier. The Bookkeeper then can take a lot of the boring and tedious work away from the dentist. They will create, implement and monitor the budget. The dentist however, still needs to take responsibility with being involved and having the final say on decisions. Once the dentist has mastered the challenge of the "budget" road map, he or she just might be excited enough for the next level which is "Benchmarking" This should be the next conversation with a great bookkeeper.