11.17.06 - Issue # 245 Forward This Newsletter To A Colleague

Uncover the Practice Profit Killers
by Sally McKenzie CEO
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They say the evidence never lies. Here are the clues: Production fluctuates regularly. Collections are shaky. The schedule is either feast or famine. Hygiene is booked solid yet the hygienist is spending almost as much time sitting and waiting as she/he is scaling and polishing. All these seemingly inconsequential details of the typical dental practice are, in fact, the smoking gun, the fingerprints left behind, the DNA of a crime scene in which practice profits are the victim

You know how the hairs stand up on your neck when you’re staring at those practice financial reports that are telling you something isn’t right? Or that chill that washes over you when you realize that you may not be able to pay yourself this month? Then, seemingly without warning, there is so much red ink, the books look like a crime scene. Time to bring in the investigators.   

The industry ideal for overhead is 55% of your collections for a general practitioner. If you are currently at 60-65%, you probably don’t need to notify the authorities. If yours is higher, you may be looking at doin’ hard time. Some practices report their overhead as high as 80%. They are making a mere 20 cents on the dollar! Now that is criminal. The first step in arresting the profit killers is to lay down a few financial laws.

Establish the following budget targets:

Dental supplies -
5-6%
Facility -
5%
Laboratory -
10%
Payroll -
19-22%
Payroll taxes and benefits -
3-5%
Miscellaneous -
10%

While there are several factors that influence overhead, look first at the most frequent offenders: high expenses, inconsistent production, and low collections.

One of the probable high expense culprits is facility (rent), that is tipping well over 5% of monthly collections. You say you have an alibi, but it’s probably not going to hold up during cross examination. Your story is this: You moved into this gorgeous new space that you were certain the patients would absolutely love. You reasoned that a little boost in production here and there would cover the expense. You ran the numbers, did the math, and it all added up just fine, at least the way you looked at it. You reasoned that you simply had to take the plunge now for fear that the space would be gone in a month. Unfortunately, you fell into the trappings trap.

Many doctors convince themselves that because the space looks good and it’s in a good location, they will be able to improve productivity. They simply disregard the importance of the 5% parameter. For example, let’s say you produce $55,000 per month. You collect $52,000 per month and you want to move into a new facility with a total rent of $4,500 per month, which would be a $1,450 increase over what you are paying now. You justify the increase by telling yourself that a couple more crowns per month will take care of it – nada problem. And, if it could only be that simple. With a $4,500 per month rent bill, you will have to collect a handsome $90,000 each month to stay within the 5% guideline. Therefore, you will have to increase collections by a whopping 38 grand to cover that itty-bitty, little $1,450 per month rent hike. Feel like you’ve been robbed?

Moreover, there is no guarantee that the bigger, better space will bring in more patients, unless … you develop a plan for how you will attract and keep new patients, as well as, improve treatment acceptance among current patients.

Remember…there is a difference between owing and renting.  If your “mortgage” payment equals more than 5% of your monthly collections, then you are simply exchanging equity for profits. If that is okay with you, then it’s okay.

If you’ve already signed your profits away for the next several years, consider renting a portion of the space to another dentist. Consult your attorney for necessary legal guidance, but consider having the renting dentist pay a specified amount each month or a percentage of his/her production or collections. Determine if the renting dentist is to provide his/her own staff and telephone lines, and what hours the incoming doctor will work. But don’t be too quick to take the money and run. Remember, the new dentist now appears to be associated with your practice. Make sure you are renting to someone whose standards will be a reflection of your own.

Next week, crime doesn’t pay, nor do “no-show” patients. 

Interested in speaking to Sally about your practice concerns? Email her at sallymck@mckenziemgmt.com.

Interested in having Sally speak to your dental society or study club? Click Here.

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McKenzie Management
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