|The secret to a lucrative dental practice
And 5 things every dentist should know.
Posted on 5/23/2019 by Joelle Jump
|You run a busy dental practice and have a great group of employees. But is your practice as financially successful as it can be? Could you be taking home more pay? Which areas of your practice are profitable, and which are not? Is money disappearing without your knowledge?
If you’re like most dentists, much of the financial information about your practice is coming from your practice management software. But while this is a great tool for bookkeeping, it typically leaves you in the dark on some of the most significant aspects of your practice. Quite simply, it leaves you lacking the #1 most important thing for financial success: knowledge. Without the knowledge of many critical numbers, you aren’t able to make good business decisions or reap the biggest rewards. Here are just five of the financial questions every knowledgeable dentist should be able to answer.
1. What are your hygiene collections? Some dental practices consider the hygiene department a loss leader. But it should be one of the most profitable aspects of your dental practice. Your hygienist should be providing at least 30% of your total revenues in order to create enough production for you as the dentist. If your ratio is less than that, it could be a key indicator of a bigger problem.
It could be that your patients aren’t returning, or you’re not attracting enough new patients. It could be that your hygienist is not properly trained in sales, doesn’t understand the department goals (perhaps you’ve never set any) or doesn’t have the necessary tools. A revenue stream of any less than 30% means it’s time to dig into the facts – the department’s finances, total production, total collections, collection/production ratio, and more. Understanding these statistics helps you to identify ways to maximize the department`s productivity and bring home more money.
2. Is your trusted employee an embezzler? According to the National Health Care Anti-Fraud Association, U.S. dentists lose an estimated $12.5 billion each year to fraud and abuse. And quite often, the culprit is a longtime, trusted employee. How can that happen? It’s really quite simple, and just as easy for you to miss. One scenario takes place with credit card charges. An employee charges personal items every month to the practice credit card, and then codes the charges as let’s say, lab fees. Unless you’re tracking each of your expense categories and having them benchmarked against the norm, you will never know that your lab fees are higher than they should be. Some dentists have lost as much as $250,000 over the course of time from one longtime employee – and they didn’t know it was happening.
Another way that embezzlement occurs is through the bookkeeping process. Many dental practices have an office manager handling the collections and bookkeeping. The office manager can simply receive the patient’s money and enters it into your practice management software, but the funds never make it to the bank or to QuickBooks™. If QuickBooks™ and your practice management software are reconciled monthly, this scenario can easily be avoided, and thousands of dollars saved.
3. What is your break-even point? This is a very valuable number, and you won’t find in QuickBooks™. Without knowing your break-even, it’s nearly impossible to run a healthy practice. Once you know what your collections must be to break even, You’ll know how much you need to collect every day to pay your bills on time and take home your slice of the pie.
Having knowledge of your break-even provides the direction for how to proceed. If you’re coming up short, you know you need to drum up more business, increase your collections, or lower your spending. With good financial tracking and knowledge of all of your numbers, you’ll not only have your break-even point, but you’ll be armed with the information to address it. For instance, if you’re overspending, good reporting will show you where and how much vs. the norm. The overhead in a typical healthy dental office will spend about 65% to 70% of its revenue. Broken down, that means around 25% for the fixed-step costs, 30% for fixed costs and 15% for variable costs. You should be able to keep or reinvest 30% of your overall revenues. If your numbers are dramatically different, it’s time to take another look. And if your profits are less, it’s time to re-evaluate your practice from the ground up.
4. Is your associate profitable? When their practice gets busy, many dentists decide to take on an associate. But it’s often difficult to know how much to pay him/her. If you’ve taken on an associate, do you actually know whether he/she is generating profits or draining your pockets? And if you’re considering taking on an associate, do you know how much to pay for the position to be profitable?
When you have clear knowledge of all your financials, decisions like these become easy. You’ll know what to pay in order to retain your associate and put more money in your pocket.
5. How good are your receivables really? You might think your office is doing a good job at collections, but how sure are you? After all, most practice management software only displays the percent collected of the last month’s revenues. If you simply pay attention to your software, you think you’re receiving 98% of what you’re owed, but in actuality, there could be uncollected money being ignored from older invoices. How many invoices went unpaid from the month before? Are you tracking invoices that are 30+ days old, or 60?
Accurate detailed reporting of your account receivables is critical. Every month, you should be reviewing not only how much you’re collecting, but the amount owed over 30 days, 60 days and more. Accounts that go beyond 90 days typically only have a 4-7% collection rate, so you want to be sure these invoices are dealt with early on, or you’re leaving a lot of money uncollected.
If your current process doesn’t provide you the financial knowledge to answer all of these questions and more, find one that does. We serve hundreds of dentists all over the country, providing easy-to-read, easy-to-monitor monthly reports that have saved them thousands of dollars and helped them exceed their goals. If you’d like to find out how you can easily and affordably increase your profitability through financial intelligence, contact us today or schedule a free consultation.