Financial management is a critical aspect of running your dental practice.
The first thing to focus on is cash flow. Too many dentists simply go to the office, treat patients, pay the bills and see what’s left. Instead, you should give serious thought to cash flow factors, such as when patients pay, how they pay and whether they pay at all.
Design a system to have patients make their payments as early as possible relative to the time of treatment. Then use a Levin Group consulting innovation known as a one day rule to collect 99% of all money due to the practice. The one day rule states that patients will be called the day they are overdue. This is followed by a nine-week follow-up process. Together, these two methodologies enable Levin Group clients to collect 99% of all the money they’ve earned.
Another critical component of managing practice finances is budgeting. Very few dental practices have a budget, and many of those that do pay little attention to it. This is how practices get into financial trouble and doctors end up with lower income.
Most doctors have no idea where their revenues stand for the year and whether they’re on budget. With today’s profit margins being squeezed, we see many new management consulting clients whose income is flat or declining. The solution is to establish a budget, track each line item continually, and make adjustments as needed throughout the year to hit your financial targets.
Interested in improving your financial management skills? Read a free excerpt from Dr. Levin’s essential book, Practice Finance, by clicking here.
There are new forces coming to bear on dentistry, and they’ll have a profound effect on the future for all of us who have dedicated our lives to this profession.
First, according to the Levin Group Data Center, the number of new patients entering dental practices is down significantly. This means that, to avoid decline, practices need to start working with excellent new systems for retaining patients and maximizing revenue opportunities.
Second, I believe that over that next five to eight years profit margins in many dental practices will decline by 5–10%. While this is just beginning to show up, many dentists believe they can simply cut costs to make up the difference. I don’t believe this will work.
Third, circumstances will force many dentists to retire 10 years later than in the past. The average retirement age of a dentist, according to the Levin Group Data Center, currently stands at 70.1. This trend is caused by competitive factors such as the growth of corporate dentistry, the addition of new delivery models and an increase in the number of dentists due to the opening of new dental schools. All of which adds up to one thing—increased competition. Unfortunately, most practices today are not competition-ready. If a dentist wants to work for more years, that’s fine. But many will not have a choice.
Over the last eight years, Levin Group has taken on hundreds of clients whose practices were declining. This was caused by the game changers that have altered the dental market and our profession forever. There are three things dentists can learn if their practice is declining. These are:
Take a breath and make sure you understand why decline is happening… before taking drastic action. Many dentists react far too quickly to declining production and make a move that actually hurts them rather than helping.
Be careful about what you buy. When a practice is declining, dentists become open to buying anything that someone will sell them by claiming it will turn things around. Buyer beware.
Look at your practice systems. The truth is that most practices have inadequate systems in terms of creating growth. When the systems are replaced with proven, documented systems that address the decline, the practice will begin to grow again.
Now, more than ever, dental practices need to take control of their overhead.
Every year, Levin Group’s expert business analysts fly all over North America visiting hundreds of practices to perform our unique Practice Performance Analysis. One finding that’s turning up more and more often is “overhead creep.” Disappointed with the growth of their businesses and concerned about lower insurance reimbursements, many dentists think they need more… more staff, more new technologies, more treatment rooms, even more doctors.
The resulting increase in operating costs doesn’t translate into increased revenues…. but it does cut into income. When dentists become Levin Group clients, our consultants walk them through the overhead reduction process, investigating and finding ways to make cuts in each overhead category based on reliable national and regional averages.
If you’re not yet ready for practice management consulting, at least do this… set a goal of lowering your overhead by 2% or even 4%. Otherwise, you’ll just continue throwing away money.
Collections continue to be a problem for many dental practices.
Too many front desk team members don’t feel comfortable asking for payment from patients. That reticence can cost your practice thousands of dollars every year.
Here are three things you can do to improve collections:
1. Collect at the Time of Service
Make that your standard policy. Your practice should function like other retail businesses, which all collect at the time of purchase. By doing so, you will receive a higher percentage of your fees sooner and reduce the potential for overdue receivables.
2. Train Your Front Desk Team to Ask for Payment
Your practice is a business, and collecting fees in a timely manner is part of running a financially successful business. Fixing your collections system can yield an immediate and profound boost to your bottom line. Train your team using scripting, which will enable them to be comfortable at asking patients for payment.
3. Make Collections Easier by Offering Patient Financing
With dental insurance covering less, patients today have more out-of-pocket costs than ever before. Giving patients the option of financing through a reputable third-party provider can make treatment––elective services and larger cases––more affordable. You also eliminate any potential collections issues by receiving your fee upfront (minus a small financing charge).