03.06.09 Issue #365 Forward This Newsletter To A Colleague

Nancy Caudill
Senior Consultant
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Need Money? Look Here

Dr. Greg Williams—Case Study #531

It is interesting to note that when times are good, a dentist owner can fall short when it comes to being a business owner.

  • A smart business owner knows where dollars are going and what percentage of those dollars is going to specific areas of overhead.
  • A smart business owner carries enough employees to work efficiently and profitably.
  • A smart business owner conducts a yearly strategic planning session to establish goals in order to continue profitability AND tracks the results to determine if the goals are being met. If they are not, a smart business owner involves his team when determining which areas are falling behind in the business so his team feels involved in the decision-making.
  • Most of all, a smart business owner never lets the opportunity to increase cash flow slip away. Every rock is turned over to confirm that all income streams are being tapped into. This business owner never sits back and allows the business to run its own course. A smart business owner directs the business on a specific course.

Dr. Williams now understands what a poor business owner he has been. His practice ran on automatic, but it worked fine for eight years because times were good—even great!

What Dr. Williams Had to Learn:

  • how to read his P&L monthly to properly manage his overhead
  • how to properly evaluate his team for efficiency by incorporating job descriptions
  • how to establish yearly, monthly and daily production goals for his hygienists and himself
  • how to run specific reports from his practice management system in order to make sure that the “rocks were turned over” every month
  • most important—how to empower his team to work with him in order to keep the practice profitable and to enjoy what they do

What Dr. Williams Discovered about His Practice:

His Accounts Receivable Report revealed that the ratio of A/R to Net Production was close to 2x his net production. Industry standards are 1x or less. Interestingly enough, he was given an A/R report each month that revealed his A/R ratio was 1.3 and he was okay with that. The fact was that his true A/R was 1.8 because the A/R report that was being generated by his Financial Coordinator included $35,000 in credit balances. This was reducing his true A/R by $35,000! She didn’t know any different and he didn’t either.

How Dr. Williams “Turned over Rocks”:

1) $20,000 in outstanding insurance claims is an example of cash sitting on a tree ready to be picked. All it takes is someone to pick it. The Financial Coordinator should be making telephone calls to the insurance companies at 15–20 days past due if the claims are submitted electronically and still outstanding.

What should the doctor do? Review the “Outstanding Insurance Claims Aging Report” monthly to confirm that the claims over 60 and 90 days are minimal. No days overdue would be the goal, but at minimum the Financial Coordinator should know exactly what the delay is on each claim that is not paid.

2) Accounts Receivables over 90 days should be addressed in the following manner:

  • Two phone calls should have been placed to the account holder regarding the unpaid balance.

    A letter should be sent to the account holder offering a __% “bookkeeping adjustment” to pay the balance in full by a specified date. The collection agency is going to charge you a fee to collect it so you should consider offering an adjustment as well. It is all about cash flow, and the longer the account is outstanding, the harder it is to collect.
  • If there isn’t a response by the due date, the account should be written off as bad debt and passed on to a collection agency.

What should the doctor do? Ask for a copy of the Accounts Receivable Aging Report each month and take a few minutes to review it with the Financial Coordinator. Discuss where the breakdown was that caused any accounts to become delinquent. Unless the patient gives you a bad check or credit card, the responsibility falls on the Financial Coordinator. About 2% of all net production should be written off as bad debt. Any more than that is a sign of breakdown. Be sure to review your Adjustments Report along with the Aging Report to see how many dollars are indeed being written off to bad debt.

Need extra cash for the practice? Contact McKenzie Management to learn about turning over rocks in your practice.

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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