11.6.09 Issue #400 Forward This Newsletter To A Colleague

Do You Need the 'Budget Bug'?
by Sally McKenzie CEO
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Weight management - or mismanagement as the case may be - is practically a national pastime with everything from CrossFit routines, to body sculpting, to personal trainers, to over the counter miracle pills. There is no shortage of guides, strategies, and fix-it products in the marketplace all “guaranteed” to help us win our seemingly endless battles with “muffin tops” and “beer bellies.” Of the numerous products out there, I have to admit that I am fascinated by one particular weight loss tool that is becoming increasingly popular. It’s the personal calorie monitor. You strap it to your arm and wear it like a wristwatch or mp3 player. This little device displays the number of calories you burn and consume. It’s fascinating, particularly if you’re one who enjoys sweating - so to speak - the small but important details.

I can’t help but think that such a device would be ideal for the dental office, however, this one would measure dollars burned. You could strap this little wristwatch “budget bug” onto every employee’s arm, and it would monitor the amount of practice revenues individuals are gaining and/or losing daily - production, overhead, collections. It would check your scheduling efficiency. Provide regular reports on patient retention. Sound an alarm when the hygiene department is producing below its specific goal, etc.  

Actually, your computer software system is rather like a “budget bug.” You can’t fasten it to your wrist, but the reports - if you pay attention to them - can show you where you are gaining revenues or burning dollars. They can tell you if you can afford to give raises this year, or if half the team is overpaid. The key is to regularly check your status, and therein lies the challenge. Most practices have access to key reports and data, but don’t use the information to monitor and adjust systems.

For example: accounts receivable. Few dentists really know what their accounts receivables are. Yet the AR report shows how much money is owed the practice from patients, insurance companies, or other third parties - a rather important detail. It should never be more than one month’s production. Meaning, if you typically produce $50,000 per month, patients should never owe you more than that amount, and preferably, they owe you less.  If patients owe you more than one month’s production, you’re burning through practice revenues.

Many dentists interpret AR numbers incorrectly. Before you take those figures at face value, make sure you’re reading them right. Otherwise, you may be thinking you can splurge on special holiday dinners and treats for the team this year, when in fact, you’re in line for a budgetary starvation diet. For an accurate picture of where your practice stands, the report should include every account with an outstanding balance, the date of last payment, and a note indicating if payment was from the patient or the insurance company. To ensure you have complete information, run the Outstanding Insurance Claims report. This lists all insurance claims that haven’t been paid. If a claim has been denied, zero it out, so that it goes off the report. Otherwise, you’re getting faulty information.  Combine the Outstanding Insurance Claims report with the Accounts Receivables report.

The AR report also should “age” the receivables showing the “current” column, which is  revenues produced in the last 29 days that have not been collected, as well as a breakdown of accounts that are 30, 60, and 90 days past due. The goal is to have a minimum of 45% over-the-counter collections for the month, and no more than 55% in the current column awaiting insurance reimbursement.

Be sure to add credit balances back to the total accounts receivable. Finally, add up all monies over 90 days delinquent. The percentage should not be over 15% of your total accounts receivable. If accounts receivables exceeds your monthly production, that’s a red flag indicating that problems need to be addressed promptly in one or more of the following areas:

• Insurance system
• Billing system
• Financial policy
• Presentation of financial arrangements
• Inability of financial coordinator to ask for money

Not only is the information essential for the doctor to monitor cash flow, the Accounts Receivables report provides the financial coordinator with necessary information that enables her or him to customize the messages on patient statements and when making necessary collections phone calls.

Next week: losing money? Maybe it’s time to “read the directions.”  

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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