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10.31.08 Issue #347 Forward This Newsletter To A Colleague
Pay Raise Economics
Dental Demographics
Consultant Case Study

Pay Raise: Practice Economics 101
by Sally McKenzie CEO
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Perceptions are a funny thing. The divide that can occur between what is real and what people perceive is often remarkable. Take staff compensation as an issue rife with misperceptions in many offices.

For example, it is not uncommon for dental practice employees to be utterly convinced that the doctor is swimming in cash. The business employee, for instance, knows her salary and how much the practice brings in. “The doctor is making so much money, he’s probably papering his walls with it. But come time for a pay raise, I’m sure he’ll say the practice is hurting for money.” That little detail known as overhead doesn’t necessarily factor into her mathematical equation. Then there are the dental assistants; as far as they’re concerned, the practice is darn lucky they’ve stuck around. “We have been with the doctor for TWO YEARS. That’s practically a lifetime! Surely we deserve a pay raise for that kind of drive.” Longevity equals more money in their minds.

And let us not forget the hygienist. In her view, she’s the one who built the relationships with the patients. Like the assistants and the business employee, she doesn’t feel that she is compensated fairly for her role in the practice because she perceives other staff are not as important as she is. “The patients are coming to see me. They know me and they like me. That has to be worthmore than I’m getting.”

Clearly, misperceptions and a strong sense of entitlement among the staff are rampant in this hypothetical practice. Each employee is out for him/herself. But don’t be too quick to point a condemning finger at the staff. The doctor, it appears, is not exactly forthcoming with information. And in the absence of clear information and leadership, teams simply fill in the gaps with what they perceive to be reality. The result is mistrust, resentment and discontent—all of which are common indicators of salary system shortfalls.

Money matters can definitely make for messy business in any workplace that is dependent upon teamwork and trust (which would be virtually every dental practice). But with clear leadership and specific salary guidelines, the issue doesn’t have to be a sore subject.

Start with Practice Economics 101. Spell out the status of overhead and practice expenses to employees routinely during regularly scheduled monthly meetings. They’re your team, so treat them as such. They need to know each month how the practice is doing. No employee should learn at her/his annual salary review meeting that practice revenues are down 5%, 7% or 10% and that the office cannot afford to give raises. If revenues are down, it’s the responsibility of entire dental team to evaluate and actively address what is causing the decrease. During this upside down economy, some practices are hurting more than others.  It might be necessary to announce a raise freeze for 6 months to 1 year or if raises can still be given, many businesses are giving modest increases such as 2% rather than 5% historically taking a conservative approach for the moment.

Design the monthly meetings to enable doctor and team to discuss all areas that impact the profitability/success of the practice. For example: numbers of new patients, recall patients, collections, treatment acceptance, production, accounts receivables, unscheduled time units for doctor and hygiene, uncollected insurance revenues over 60 days, overhead, etc.

But this isn’t solely the doctor’s responsibility. Each staff member should be prepared to report on the area for which he/she is accountable. For example, the scheduling coordinator would report on the actual monthly production as compared to the goal, the number of unscheduled time units for the doctor and the doctor’s daily average production.

The meetings also should be opportunities to collectively address areas of concern. For instance, if the doctor has a higher number of unscheduled time units than desired, the team can discuss contacting patients with unscheduled treatment, encouraging hygiene patients with unscheduled treatment to move forward on recommended care, identifying patients with unused insurance benefits, evaluating the practice’s treatment financing options, etc.

Salaries, including benefits, bonuses and special perks, account for the largest percentage of practice overhead. Where real information is lacking, misperception and gossip prevail, as do resentment and discontent. If the employees do not understand the big picture of practice revenues and expenses they will not only resent you, they will also never believe you when you tell them that the practice cannot afford to increase salaries, or give bonuses or pay for special perks. Unless employees are watching the profits and the losses with you, they will never feel you are paying them what they believe they deserve.

Next week: They deserve a pay raise, but can you afford it?

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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Team Building Event of the Year!


Scott McDonald
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The Doubt Machine

When I train my demographic analysts (Community Overview Report), I tell them that we are not in the business of hope. We deal in numbers and their interpretations. It is never a good idea for us to get too much into the process of encouraging or discouraging our clients about their decisions. Does an area look promising for practice or not, based upon the numbers? That is our business.

So, what do the numbers say that dentists should do given the current markets in real estate and finance?

You should do what the smart money on Wall Street is planning to do: buy, build and develop. That is what the numbers are telling us. Granted, we are not high finance analysts. We deal with putting practices in places where there is need. Here is the basis for our recommendation to continue to develop practices:

1. Real estate is significantly undervalued in many markets. Specifically, those locations near where people live (such as suburbs) are in limbo because lending institutions are nervous about lending to developers and private individuals. Borrowers are even MORE nervous about borrowing for fear that everything will tank. The truth is, we see that the hard values (ultimate value or worth) of properties are ripe for a smart professional. Real estate does not evaporate and its value tends to remain as long as there is a use for it (such as a practice or office building).

2. Putting money into yourself and your practice will be money well spent. We can think of no investment that will have a better return than an investment in your profession. All other investments are dependent upon the wisdom and experience of someone else. In dentistry, YOU are the expert. That is why we have told our clients that NOW is the time to consider an external marketing program, a practice expansion or new skills. When other people are scared to walk out of their doors, NOW is the time to step up.

3. No one wants to risk anything. But if you are willing to get good research done and if you have a little self-confidence, you are not risking foolishly. You are risking wisely. This is how the great fortunes were made during the Great Depression (and in every other down-market).

At this current moment, the stock market is as low as it has been for a decade. Every smart trader knows that this won’t last. The companies that produce goods and services will CONTINUE to produce goods and services if they are in demand. Will people change their spending habits due to fear of the future? Certainly! But Christmas is still going to come and the little ones will still want something under the tree. (Actually, so will the big ones.)

I am so lucky to have lived through the Jimmy Carter years, when I graduated with my undergraduate degree and had to start looking for work. It provided me with some terrific perspective on how bad things can be. Yes, I remember the fear of running out of gas and the frustration of having to drive between Western States at 55 miles per hour. Sure, I remember people being absolutely convinced that there was no work out there. With unemployment at 8% and home interest rates hovering near 15%, I thought I would never own a home or a car.

The numbers say that unemployment is still near 6%, but interest rates are close to 5.5% and are likely to be cut by the Federal Reserve shortly. We have still had several quarters of growth in the Gross National Product. Home prices in the counties in the U.S. that were most hurt by the sub-prime mortgage mess have seen RECORD sales. This includes Riverside, Clark and Maricopa Counties. The dollar has held its value relative to the other currencies (including the euro) very well during this mess and, if anything, the U.S. position continues to be relatively strong compared to every other world economy. That is not hope. That is fact.

But even if everything in the economy goes south and we enter a “Mad Max” world of bartering, I would certainly want to be in a position where I owned my own chair and equipment to treat people who will always need my services, even if it is not in the short term.

There is a force at work out there that I have dubbed the Doubt Machine. It actually makes its living by selling fear. “We need a good assassination; we need an earthquake or a war!” That was the cry of those who sold newspapers in the movie, Newsies. Doubt sells. Fear sells.

I think I’ll stick to the numbers.

Scott McDonald is the largest provider of dental marketing research to dental practices. For more information, email demographics@mckenziemgmt.com.

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Nancy Caudill
Senior Consultant
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Running Your Practice As A “Lean, Mean, Dental Machine”

Dr. Jill Sartin—Case Study #424

Dr. Sartin was experiencing high levels of anxiety during the past few weeks. Production in the practice had leveled off, old money that was being collected had now run dry and the practice did not appear to be busy. "We need to be working!” she exclaimed.

Dr. Sartin’s Current Practice Statistics:

  • 2 doctors and 4 assistants
  • 2 hygienists
  • 4 business assistants
  • Net production had been averaging $95,414/month during the past 6 months.
  • Net production had been averaging $71,652/month during the past 2 months—a decline of 25% in net production.
  • 19% decline in new patients during the past 6 months
  • Net collections had been averaging $83,671/month during the past 6 months, but had been averaging $100,608/month during the 6 months previous to that—a 17% reduction in practice income.

Observations:

  • Collections had remained high because of the active pursuit by the Financial Coordinator to collect outstanding debt in overdue A/R. The A/R was reduced by 0.48 x the net production and accounts over 90 days were reduced to 6%.
  • Initially, this practice had "accelerated" hygiene, with one hygienist working between two rooms with an assistant. Therefore, the doctors were not conducting their exams with the hygienist in the room, causing a breakdown in communication between the hygienist and the doctor, and the patients always felt rushed through their appointments.
  • On average, 10 patients a day were being seen by each doctor for operative treatment.
  • Employees were seen trying to either look busy or busied themselves with unproductive and unnecessary tasks.
  • Gross staff wages were 28% of collections, not including the associate dentists. Standard in the industry is 19 to 22% (not including benefits).

The two dentists were associate dentists. The doctor owner, Dr. Sartin, was on site most of the day performing non-dental related work. She would see a patient from time to time. The associates were paid 30% of their production collections. It was determined that the associates were unaware of how low production affected total overhead. The practice overhead was never discussed with the associates. As far as they knew, the only people that were being affected by their poor production were themselves, because they were making less money than before.

It was pointed out to Dr. Sartin that not only were the low-producing associates affecting the production, but the staff overhead was not being supported by the production figures. This practice was providing employment for too many employees!

After analyzing the Profit and Loss Statement for the past nine months, the scheduling and the potential of the existing employees, the following recommendations were made and implemented:

Recommendations:
1. Reducing staff overhead kept the practice viable and profitable. Otherwise, no one would have had a job. After much consideration, Dr. Sartin decided to dismiss 1 business assistant and reduce the salary dramatically for another. 2 chairside assistants were dismissed; the two that had been with the practice the longest and were the most skilled were maintained.

2. In order to run "lean and mean," the Schedule Coordinator was taught how to schedule in order to allow two dentists to work with 1 assistant each. Previously, these doctors were not fully scheduled more than one day in advance and the patients were scheduled incorrectly, causing staffing inefficiencies and poor patient service.

3. Specific job descriptions were clearly defined and given to the Financial/Hygiene Coordinator and the Schedule Coordinator so that there would be no question regarding who would perform what tasks daily, weekly and monthly. A check and balance system for accountability was put in place to monitor results.

4. The schedule included times when the doctors would work alone in the operatory.

5. The Financial/Hygiene Coordinator learned the importance of keeping the hygienists scheduled to their goal, because the hygiene department was very productive and was actually keeping the practice alive.

Conclusions:
It was difficult for Dr. Sartin to dismiss three of her employees but it was a necessary business decision based on the practice production and collection numbers.

The practice most likely will bounce back after these economic issues are resolved, but from now on Dr. Sartin will always run a lean dental machine. If you are “running on empty,” take a hard look at your team, scheduling systems and your performance indicators to determine what decisions you may need to make. Need help? Give us a call.

If you would like more information on how McKenzie's Practice Enrichment Programs can help you IMPLEMENT proven strategies, email info@mckenziemgmt.com.

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