$$$ Woes Holding You Back? Help is Here.
It’s the skeleton in the closet that few doctors want to talk about. They may lament that the schedule has been spotty. They may acknowledge that treatment acceptance isn’t within striking distance of the pre-2008 heyday. Those are areas over which they feel they have had little control. But bring up the issue of “doctor debt” and most want to change the subject to just about anything else. Why? You probably know the answer. Many dentists are carrying between $300,000 and $500,000 in debt, from business credit cards, equipment leases, lines of credit, loans, mortgages, and the list goes on. In some cases, it’s simply been the cost of doing business; in others; it’s poor financial management. But that doesn’t mean that achieving peak performance is a dream never to be realized.
Consider the case of Dr. Tom. He has been in practice for more than 20 years in the upper Midwest. His practice has been pounded by monthly debt obligations that were topping out at nearly $8,000. Dr. Tom said that over the past couple of years, the only thing he could count on in his practice was writing check after check after check on a seemingly endless string of debt obligations. Overhead was pulling him under. He had to make significant changes - not only in his debt obligations but in the way he ran his practice. It’s the latter that often proves to be the greatest challenge for doctors to come to terms with. They are eager to get their financial obligations under control. But the real work of digging into practice systems and improving the daily operations is what will ensure that the doctor doesn’t find him/herself drowning in red ink down the road.
Early on in their careers, many dentists lock into a pattern of running their systems that consistently yields lackluster results. During robust economic times, the inefficiencies are masked. But living and working through the challenges of the last few years has stripped away the veil and revealed serious system shortfalls that practice bottom lines can no longer absorb.
Many dentists will sense that “things just aren’t right,” but it isn’t until they stand toe-to-toe with serious financial struggles that they realize the way they’ve always done things no longer works in the new economy.
More and more dentists are eager to gain control of their finances and thereby regain control of their practices. The key is to address the situation before it gets out of hand. At McKenzie Management, we advise doctors that the first step is to come face-to-face with reality. It begins with conducting a cash flow assessment in the practice. That means logging the numbers for net production and collections over the last 12 months, the percentage of accounts receivables over 90 days, total monthly payments on leases, loans, and business credit cards. In addition, look at average monthly payments to the lab, dental supplies, salaries, taxes, and benefits as well as monthly facilities costs and all those miscellaneous expenses that tend to add up.
From there, it is a matter of evaluating each individual dentist’s situation. Joe Flumian, McKenzie Management’s Practice Financial Expert, may look at consolidating all of the doctor’s loans and refinancing them at a lower rate. In some cases, it is more cost effective for a dentist who is leasing an office to purchase the space. When refinancing, we encourage dentists to look for loans that allow for additional principal payments, which will effectively lower their interest rate over the long term.
The key is to be proactive. Once the stress of the debt obligation is reduced, then the doctor can focus on improving practice systems. For Dr. Tom, who was shelling out close to $8,000 per month, he has reduced his debt obligation payments to just over $5,000 a month and is in the midst of overhauling his management systems, which is expected to increase his profits considerably. When the practice management systems are running at maximum efficiency, the typical practice can expect to increase revenues from 25-35% within 60 days.
Next week, addressing debt is only part of the journey to peak performance and financial freedom.
Want more of me? Click here to visit my blog, The Lighter Side, for more Dental Practice Management info.
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