2.12.10 Issue #414 Forward This Newsletter To A Colleague

Nancy Caudill
Senior Consultant
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Have A Plan Before You Relocate

Dr. Stan Marks – Case Study #411

Does this sound familiar to you? “I only have to sell one more crown to pay for this widget.” Then a couple of months later, you want to purchase something else so you say to yourself, “I only have to sell one more crown to pay for this widget”.  However, you forgot that this crown was already allocated to the first widget and that because your overhead is 61%, you only have 39 cents on the dollar to go towards the “new widget.”

This is the trap that Dr. Marks found himself in.  He was experiencing the stress of too much month and not enough money and was expecting his practice to “pick up the slack” to cover his indebtedness when he relocated his practice. I am not an accountant and do not offer accounting advice. However, it is my job to help dentists understand what their practice expectations should be and see if I can uncover lost revenue to assist them with meeting their financial obligations.  Sometimes the findings are not good.

Dr. Marks’ practice statistics:

  • 1 doctor, 2 assistants, 2 full-time hygienists and 2 business employees
  • 10-year old practice working 4 days a week, 8 hours a day
  • 13 new patients a month
  • $76,000 a month in net collections in 2009
  • Collecting 98% of net production

Standards in the Industry
When Dr. Marks decided to relocate his practice to a new facility, he was very credit-worthy and easily obtained a loan from a local bank. His monthly obligations for his lease, utilities and other facility costs were $5,320.  $5,320 divided by his monthly collections average of $76,000 = 7%. Standard in the industry for facility overhead is 5%. In order to realize a 5% healthy facility overhead, he needs to be collecting $106,400 a month… that’s a 40% increase!

When he relocated, he added an additional treatment room so he hired another hygienist to put in the room. By adding her gross wages to his existing employee overhead, his gross wages is now 27% of his overhead. Standard in the industry is less than 23%.

No Game Plan – Reality Hit Home Hard
In reviewing Dr. Mark’s decision to relocate his practice, he admitted that he had no game plan for covering the increased overhead. His answer to managing the additional expense was to add an additional half-day to his four-day workweek. His business team was sure that they could keep the additional hygienist busy because they had patients that were on the “on-call” list that they knew would want to come sooner.

Then reality set in to his “make-shift” business plan. When he added a Friday morning to his Monday – Thursday schedule, he discovered that instead of increasing his monthly production, all that was happening was a reduction in his daily production – his monthly production never increased!  His new hygienist was doing very well for the first two months until she was “caught up” with all the patients that were waiting to be seen sooner. Now she was idle.

Solutions for Dr. Marks
There was a glimmer of hope for Dr. Marks. His overall practice overhead was 61%.  A healthy general practice such as Dr. Marks’ practice should be experiencing an overhead of around 55-60%. Even though his facility overhead was high, his Miscellaneous Category was less than 10%, his Team Benefits were less than 2% and his Dental Supply Category was 3%.

Dr. Marks needed to increase the number of new patients that he was seeing in order to step-up his daily production and potentially be able to profitably work an additional half-day. Unfortunately, it was necessary to terminate his new hygienist. The formula used to determine the # of hygiene days needed revealed that, until he reactivates the past due recall patients and improves his patient retention, he will not need additional hygiene days. When he does, he will add the days as needed by the calculations.

With the help of McKenzie Management, Dr. Marks increased his profitability over the next 12 months, reducing his overhead percentages and allowing him the opportunity to start paying off the credit lines he had at the bank and funding his retirement.

Learn from his experience if you are considering relocation. Understand how much your monthly expenses are going to be so you will know how much you need to produce and collect to keep your overhead in line and affordable.

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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