2.16.18 Issue #832 info@mckenziemgmt.com 1-877-777-6151 Forward This Newsletter

Nancy Caudill
Senior Consultant
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Plan for Practice Growth
By Nancy Caudill, Senior Consultant

Dentist Case Study #281

The doctor’s concerns: “I recently expanded my practice, and while this has always been my dream, it’s turning into a bit of a nightmare. My overhead costs are out of control, and I don’t know how to reign them in. I struggle to meet payroll each month and I’m worried about the practice’s future.”

This is a stressful and costly situation, which is why the doctor turned to McKenzie Management for help.

The practice facts:
The new office has six fully equipped operatories, two hygienists, two business team members and two assistants
The doctor averages $3,000 per day
Hygienists average $950 per day
The practice sees 22 new comprehensive exam/hygiene patients per month
Collections are 98% of net production
Accounts receivable is 0.87 of net production
Staff gross wages have reached 18% of net collections each month and a total overhead of 55%

To get this doctor’s costs down, we first identified the main issues contributing to his overhead woes. We quickly learned that he didn’t spend hardly any money or time marketing his practice, had no consideration of facility overhead to income, hadn’t worked out criteria for his practice’s employment needs, and he didn’t spend much (if any) time planning for practice growth.

So what should this doctor have done before investing in new equipment, a new space for his practice and new employees? He should have made sure he understood key industry benchmarks. This would have helped him pre-plan his move and would have made the transition much more successful.

Here’s a breakdown of some of the key industry standards:
Facility overhead should be around 5% of collections. In this doctor’s case, his space costs $5,000 a month. Let’s do the math to figure out where he should be:

$5,000 / 5% = $100,000 a month in collections. Before the big move, he was collecting about $77,000. Hitting his new target would have required a 30% increase. While this certainly is possible, it requires an updated business plan and having the right tools in place. Unfortunately, this doctor had neither. 

That takes us to the staff salary overhead budget, which in this case should be $100,000 x 20%, or $20,000 a month.

Here is where his salary numbers actually fell: 
Two hygienists at $350/day x 16 days = $12,200
Two assistants at $144/day x 16 days = $5,760
Two front desk coordinators at $144/day x 16 days = $5,760
That comes to $23,720, which puts the practice at 23.7%: nearly 4% over budget

When we first told our doctor about this, he didn’t seem that concerned – until he realized that small percentage amounted to almost $45,000 a year.

So how can this be fixed? We discussed a few options. First, he asked about working a few more days to increase collections. The problem? That doesn’t necessarily translate into more production. You need patients in the chair to do that, and he didn’t have enough at the time to justify extra days. 

Increasing fees is another option, but this can’t be done willy-nilly. Dentists should set up a solid schedule and evaluate and consider raising fees twice a year; 2% the first time and 3% the second, for a total of 5%. McKenzie Management worked with him to put the proper structure in place, but more needed to be done.

The doctor also asked about leasing out two of his operatories to a specialist. Sure, this could help with overhead costs, but it also brings its own set of headaches, including legal agreements and logistical issues that would need to be worked out.

What McKenzie Management recommended
It was pretty clear this doctor needed to increase production numbers, but how? One of the best ways is to focus on recall – a system he’d been ignoring. To do this, he tasked a team member with calling past due patients. This team member reached out to hygiene patients as well as patients who hadn’t gone forward with treatment plans. Armed with all the necessary patient information, including perceived barriers to treatment, the calls were used to educate patients and get them back on the schedule.

Next, we encouraged the dentist to step up his marketing game. He had put together a few one-off promotions, but what he really needed was a continuous, targeted strategy to keep a steady flow of new patients coming in. It was also important that he didn’t forget about current patients. He began sending out monthly e-newsletters to educate them about services the practice provided, and placed brochures and posters promoting services in the practice.

It was clear that he had too many staff members. With proper scheduling, he was able to go from two assistants to one. We did, however, recommended that he keep his business staff in place to help with promoting the practice and anticipated growth.

With these changes, the doctor was able to boost practice production and revenues, and finally get his overhead under control. The lesson? When expanding, plan for growth before making the leap. This will help ensure you never struggle to meet payroll, and that your new, bigger practice is also more profitable.

If you would like more information on how McKenzie's Consulting Coaching Programs can help you implement proven strategies, email info@mckenziemgmt.com

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