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Dentists enter their careers with wide capabilities in oral healthcare, but with relatively little in the way of business know-how. These tips will help ensure the business side of your practice is equally successful.
A goal without a plan is just a wish. That’s a famous quote from French writer Antoine de Saint-Exupery. And even though the quote dates back to the first half of the 20th century, it’s perfectly applicable today to many aspects of life.
One of those aspects is the separation that exists between an average dental practice and one that is more successful financially. It’s about planning—specifically, having a strategic action plan. Unfortunately, that plan is missing from too many dental practices.
“In the dental field, 85-90% of dentists coming out of dental school, within two to four years are either off on their own, or buy into some sort of practice,” says Mark Balog, CPA, principal with Balog & Associate, CPAs, PLLC. “They’re good technicians at the end of the day, but they’re not equipped to run a practice.”
And developing that strategic action plan is key to achieving financial success.
Balog says that financially successful dentists clearly define their one, three, and five-year goals. They recognize that their dental practice is the vehicle that will enable them to achieve their goals. And then they start by working backwards.
For example, a young dentist who recently bought into an existing practice or started one from scratch may have designs on owning a home within the next three years. Doing so may require a down payment of $150,000. By working backwards, the dentist can map out a plan for how much he or she needs to save each year to achieve that $150,000 figure, and how that savings will be accrued.
“How many patients do I need to see on an annual, monthly, weekly, or daily basis to make that happen?” says Balog of the planning strategy. “Each successful dentist breaks out their revenue streams, such as the simple cleanings, implants, cosmetics, and root canals.”
They also dig a little deeper. If they take insurance, which insurers are going to pay them the best fees with respect to the type of procedures they’re going to do.
“If I know that, I’m able to now advertise or hone in my advertising accordingly to attract the right traffic or footprints to generate that extra business,” Balog says.
He also points out that financially successful dentists recognize the difference between the practice of dentistry—applying the technical skills learned during dental school—and the business of dentistry, which is learning how to monetize that technical skill set.
Inside and Out
Balog believes that financially successful dentists know what they know, and know what they don’t know. They realize that they need to surround themselves with the proper team and talent, both internally and externally.
“You’re as good as your team,” he says. “You need to put in policies and procedures to share the wealth. If the dentist is making money, everyone should be making money. As long as you hold everyone accountable and establish certain yardsticks to make measurable, achievable goals for everyone, it’s a mutually beneficial exchange.”
On the external side, Balog advises dentists to obtain the services of a healthcare attorney, a healthcare CPA, and a healthcare financial planner. At the end of the day, he says, there are nuances between servicing a dental practice versus other businesses.
“Unfortunately, sometimes dentists feel like they’re capable of doing payroll, for example,” he says. “It’s a non value-added service. Farm it out. Your time is worth more than you trying to figure out payroll.”
Balog says that as part of having a strategic action plan, dentists need to create a GPS or customized dashboard to monitor and measure their progress. Benchmarks and key performance indicators, he says, are like looking at a car’s fuel tank. They help you know whether you’re half full or running on empty.
“With any successful dental practice it’s all about monitoring the cash flow,” Balog says. “We want to know what the average production/net collections are that the dentist makes per hour, what the hygienist makes per hour, what does that add up to collectively. What does the average patient bring in per year, and what do you consider an active versus an inactive patient?”
Just how important are these key performance indicators? Balog says that if the practice brings in, on average, $120,000 a month of net collections, and one month it goes up to $150,000, you’ll want to know what you did differently that month so that you can replicate it on a monthly basis. Similarly, if net collections dropped by $30,000, you’ll want to make sure you don’t repeat that problem.
“With all these practice management software programs, you’ve got certain key performance reports at your fingertips,” he says. “You have to keep your finger on the pulse. At the end of the day there’s no management without measurement.”