08.18.06 - Issue # 232 Forward This Newsletter To A Colleague

The Young and the Cashless – Too Many Toys!

Nancy Caudill
Senior Consultant
McKenzie Management
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Dr. Scott’s, Farris, Johnson’s, etc Stories:

The telephone rings at our home office in La Jolla, California.  We hear the same cries for help from young dentists just starting out.  “Help!  I don’t have enough money to pay my bills.  I need more patients and more production.”

Similar Office Facts:

  • •  1 dentist, 1 hygienist (maybe), 1-2 assistants, 1-2 business staff
  • •  Practice less than 5 years old
  • •  Less than 10 new patients per month
  • •  Leasing office space
  • •  No marketing plans
  • •  No clue about overhead and expenses

In-office Observations:

As I work with these wonderful young dentists, my heart goes out to them.  I remember when I was young and ignorant and thought I knew everything and what I didn’t know I didn’t need to know.  “Ignorance is Bliss” someone told me one time. 

When I arrive at airports and am “claimed” by the dentist in baggage claim, the dentists direct me to their vehicle…sometimes it is a brand new BMW SUV and sometimes it’s an old dirty Explorer. This tells me something! As we ride along, we talk about what is happening in the office and what the dentist perceives as the issues at hand.  Obviously, cash flow is at the top of the list for these dentists in this article.  Granted, there are also those young dentists that I work with that were fortunate enough to “get lucky” and fell into a practice that is serving them well and they are looking for help with their uncontrollable growth.  I must say, however, that these dentists are the exception in my experiences.

As I preview the practice on the first day of my 4-day visit, I observe the following:

  • Cad Cad
  • Digital Radiography
  • Beautiful office with 4-6 operatories
  • TVs in the ceilings for the patients to watch
  • Computers in all the operatories

Now don’t misunderstand me.  I am not saying that all these items aren’t important in a progressive practice.  What I am saying is that there is a time for everything during the course of the life of a practice.

Recommendations to these young dentists and others that may be reading this article:

  • Understand your financial situation.  Keep in mind the following guidelines for overhead percentages relative to your collections and monitor them every month:
      • Dental Supplies – 5%
      • Office Supplies – 1-2%
      • Lab – 9-11%
      • Staff Gross Wages – 19-22%
      • Benefits and Taxes for Staff – 3-5%
      • Facility – 5%
      • Miscellaneous – 10%
  • When making large ticket item purchases…think about the ROI – that is “Return on Investment”.  TVs in the ceiling are nice but how does that make you money?  Instead of entertaining the patient with a television, maybe educating the patient and creating patient rapport would be more beneficial for patient retention. Some things such as digital radiography can give you an immediate return on investment considering the alternative……film.

How do you even know if a Cad Cam is applicable for you unless you already know that you are going to be doing at least 20 units of crowns/onlays/inlays a month and knowing how it is going to make you money?

  • Avoid over-staffing your practice initially.  As you can see from the overhead percentages, staffing is the largest expense that you have in the daily cost of opening your practice doors.  It is difficult to let some go because of a hiring mistake – better to add staff when needed.

  • Allocate a portion of your collections for Marketing your practice.  3-5% is standard in the dental industry.  Don’t make the assumption that your name is so famous that patients will come just because you have hung your shingle out!  This only happens in movies!

Let’s do some math…get your calculator and let me teach you about determining exactly how much money you should allocate to the overhead categories listed above relative to your collections.

Your monthly collections are $25,000 a month so far.
Your facility cost (lease, utilities, repairs, etc. Does not include telephone) is $2,750 a month. $2,750/$25,000 = 11%! Too high!

OK….so what should you have done before signing the lease now that you realize that you are almost 2x above customary facility overhead? When you are considering leasing a space…here is your formula: Lease ($2,750) / 5% = $55,000  Easy enough to do…this means that you need to collect $55,000 a month to keep your facility overhead at 5%.

If you want your overhead to be around 60% for the year, “guesstimate” what your expenses are going to be for the month ($15,000 not including your salary) and divide my 60%.  $15,000 / 60% = $25,000.  This means that you need to collect $25,000 to cover $15,000 in overhead expenses.

Keep in mind that a 60% overhead is NOT covering all your high-ticket items.  These are all items that are depreciated so these expenses are covered above and beyond the 60% overhead that you pay out within the 7 categories.

It is not my intention to confuse you and I am not an accountant, nor am I giving tax advice.  What I am trying to reveal to all dentists is the importance of understanding your business and where you are spending your practice dollars.  It is not enough to say, “My checks aren’t bouncing so I must be making money.”  This is not a way to run your business.

Before you get so deep in debt that it is too late to dig out of your hole, contact McKenzie Management and inquire about how we can help you avoid the need for a “shovel”.  If you are already in the hole – don’t despair.  You might just need a ditch digger instead! 

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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McKenzie Management
A Division of the McKenzie Company, Inc.
3252 Holiday Court Suite 110
La Jolla, CA 92037
Email info@mckenziemgmt.com
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