By Gulzar Ahmed, Client Advisor & Chicago Office Director
Recently we talked about how cash is king and why it’s important for your dental practice to maintain a positive cash flow. The flip side of that conversation is about spending because overspending at your dental practice can lead to real problems in your cash flow. Given the direct correlation, let’s look at how you can identify and stop overspending at your dental.
When You Feel the Financial Pinch
Often dental practice owners become aware of a problem because they feel it in their wallet. I’ve been in plenty of meetings with clients who tell me “I’m working so hard, but I don’t know where the money is going.” These dentists recognize the disconnect between being busy, but not seeing their bank accounts grow. Something’s not right, but they’re not sure what it is or what to do about it.
Look at Your Data to Evaluate Overhead
While feeling pinched financially may tip you off to a problem, you need a clear picture of what’s actually happening if you want to improve the situation. To get answers, pull out your latest your Profit & Loss (P&L) report and look at your fixed overhead, which represents all the expenses related to running your practice every month.
Use Best Practice Benchmarks
Based on best practices, we know what expenses for a financially healthy practice should be for payroll, dental supplies and lab fees, facilities, as well as general administration costs for things like office supplies, marketing, and professional services. If your P&L reports shows that you’re exceeding target benchmarks, you have a problem. The next step is to drill down so you can understand what the numbers are actually telling you.
Spending vs. Collections
Once you know which KPIs are exceeding best practice benchmarks, you should investigate the causes, but here’s something to keep in mind. The formula used in the P&L report divides expenses (the numerator) by net collections (the denominator). Your percentages could be high because your costs have increased, or because collections have decreased. Your job is to peel back the layers of data so you can understand what’s behind it.
The Usual Suspects – Common Problems and Solutions
- Payroll – Due to the ongoing labor shortage, payroll costs are high across the board, and reducing costs is probably not an option. When it comes to staff expenses, it’s better to find ways to justify your employees’ pay. Here are a few ideas.
- Hygiene – Whether it’s one person or a team, your hygiene department should produce 3X their payroll costs. If they’re not meeting that target, consider offering them training or coaching to help them improve. If your hygiene team is motivated to increase the case acceptance rate, that can make a huge impact on your bottom line.
- Front office/administration – Review how they’re handling billing, following up with insurance, and managing appointments. Consider ways you can use technology to help increase productivity by streamlining clerical services and lowering the cost to perform routine administrative tasks.
- Supplies –Look at your list of suppliers and consider if it makes sense to consolidate. By becoming a more important customer to one supplier, you may get a better deal. Another option to consider is leveraging your buying power by joining a group. A growing number of dentists in private practice have found they can maximize their purchasing power by working as a collective.
- Professional Contracts & Subscriptions – If you are paying monthly fees for professional services or subscriptions, it’s a good idea to review them periodically to confirm it’s something you continue to get value from. If you decide to discontinue a service or subscription that was set up as a monthly autopay, make sure those payments don’t continue after you’ve cancelled.
- Lab Expenses – Most dentists don’t like to think about switching labs and risk getting subpar work to save a little money, which makes sense. The good news here is that technology has lowered the costs of producing high quality final products. If you’ve been with the same lab for a while, you owe it to yourself to look at your options – you might be surprised.
Conduct Quarterly Reviews
To avoid discovering a problem after you feel the pinch, take a proactive approach by reviewing your P&L report quarterly. That would allow you to identify any trends and head off potential problems early. Don’t try to do monthly reviews since a smaller sample size can lead to skewed data.
Change doesn’t happen overnight, but by being proactive and taking the time to understand what your data is telling you about your practice, you can identify overspending in your office, drill down to the true cause and address the problem strategically. If you have questions about how to improve performance and profitability at your dental practice, schedule a call with our team at Engage Advisors. We combine industry expertise with business knowledge to help your practice achieve the success you deserve.