Archive for Dental Office Finance
Last time, I gave you five methods of introducing Open-Book Management into your practice. What is Open-Book Management?
It’s a system of educating your employees on the basics of business income and expenses, like how to read a financial statement, and then applying that knowledge to your practice. That means as the leader of the practice, you must understand these numbers so you can educate your team. It means teaching your employees to think like business owners and giving them a personal financial stake in the profitability of your practice. The results? A more motivated staff, better profitability, happier patients, and less stress.
Take the time to read the rest of these tips and implement these ideas, and you WILL see results.
1. LEARN MORE ABOUT OPEN BOOK MANAGEMENT
2. INSTRUCT AND COACH YOUR EMPLOYEES
Give them the WHY as well as the HOW, then follow up with feedback. Be sure they understand all of the why’s: why the practice is in its current position; why they need to know how the business runs; why you are sharing this information. Then show them how this new Open-Book Management will work for and benefit them. Make sure you provide regular, ongoing coaching and feedback – real-time learning.
3. SHARE YOUR NUMBERS
Every industry (including dentistry) has benchmarks against which companies measure their performance; production, collections, remakes, and patient complaints are among the key statistics we track in dentistry. What gets measured, gets done. When employees begin tracking these critical benchmarks, they begin to see opportunities for improvement. They start to provide solutions and feel ownership over the results.
Your stress is lowered, because you are no longer required to have all the answers.
Share financial information with employees. Teach them how to read the numbers…they send a powerful message.
4. TEACH BUSINESS BASICS
Inc. Magazine suggests that Americans know very little about business. Many believe the word “business” equals success and money. They have little or no idea about routine business expenses, what percentage of profit is healthy, or the distinction between profit and income. Develop a program in-house that teaches business basics, like how to read a financial statement, or even how to balance a checkbook.
Start with employees’ personal finances and apply their new understanding to your business.
Compare personal income statements and balance sheets with those of the business to get them to start speaking the language of business and deepen their understanding of business basics.
5. SHOW EMPLOYEES HOW TO THINK LIKE OWNERS
Profit and loss are strong motivators. Make sure every employee shares directly in the business success and in the risk of failure. When employees trust and understand management, profit and loss will motivate employees to get clear on what they are working for each year. When they have the opportunity to be rewarded like an owner, the will think like owners.
Open-Book Management, according to Mark Miller of Chick-fil-A’s, is a system to create a business of business people. By teaching the business of business, providing tools to measure performance and supporting employee growth, Open Book Management has the potential to reduce employee discontent, improve decisions and increase profits. Business can be fun if everyone understands the game!
Open Book Management is an approach to operating a business (and dentistry is a business) that helps everyone focus on making the business profitable. By promoting a better understanding of the financial side of your practice, you give your employees the tools they need to make more well-rounded, business-savvy decisions during their day-to-day routines.
How well do your employees know your dental business? I mean, really KNOW your business?
Are they educated on the basics of how to make money for the business? Do they know the reasons they are being asked to reduce costs, increase productivity, and serve the customer with excellence?
I can feel some of you cringing, but don’t worry – increasing your focus on the profitibaility of your practice does NOT mean neglecting your patients or exposing your entire financial picture.
On the contrary, it means taking an even closer look at what your patients really want and delivering it in a consistent, efficient, cost-effective manner. You do this by demonstrating to your team the economics of delivering quality care.
1. Be Open To New Ways of Solving Old Problems
If you continue to do what you have always done, you will continue to get what you have always gotten! If your business simply manages to “scrape” by, if your overhead continues to consume a higher and higher percentage of gross income, or if patient satisfaction is declining, you need to rethink your approach to solving these problems. Open-Book Management provides an avenue to better manage costs, which ripples out to many other areas of your practice.
2. There Is No One “Right” Way
Just as there are several solutions to every problem, there are different ways to implement Open-Book Management. The key word however, is open. The attitude of leadership, the characteristics of the employees, and the current practice profitability will help form your open-book style.
3. Let Go
One of our greatest fears is losing control. Another is that once our employees see the financial statements, they will use them against us. They may even figure out how much money we make. You may even fear that your patients or your competition will about your practice operation. Fear is False Evidence Appearing Real. Risk-takers earn their rewards. There is no reason to operate in the dark any longer. Your employees and those you serve WANT you to be successful. Your competitors are too worried about themselves to worry about you.
4. Quit Solving People’s Problems For Them
When an employee approaches you with a complaint about your lousy pay program, you probably either become defensive or set out to solve the problem. Instead, give your employee the information she needs to develop alternatives that serve her interests AND those of the practice. Once she sees the whole financial picture, she will have a better perspective on her salary and more information on which to develop an alternative pay program.
5. Show Employees That They Have A Direct Stake In The Business’s Success
The objective of the business is to make a profit. All employees need to be a part of that process. Teach employees that they are business-people and not just workers. If the practice is profitable, they get a piece of the action. If there is no profit, they don’t.
Stay tuned for Part 2 of this blog series, and five more tips on implementing Open-Book Management, but don’t wait until then to get started! Use what you’ve learned in this article to start making changes now.
I know you’re saying, “But Coach Ron… It’s not even April 15th yet!” Tax management is an integral element of the entire financial picture. By working with a talented accountant – year round – you can take advantage of all the legitimate tax reduction opportunities provided in the Internal Revenue Code, that are appropriate for you. I coach my full contact coaching clients to be cognizant of their financials, just like a CEO of a corporation would do.
- Understand how proper planning can save taxes. You will be more likely to maximize legitimate and appropriate deductions that are provided by law. Proper planning will benefit your practice by minimizing taxes. This needs to occur all year round, so keep it front of mind.
- Schedule your annual tax-planning meeting in September. It’s just around the bend. Request and expect tax savings recommendations from your accountant at this meeting. This enables you adequate time to make and carry out recommendations in a timely fashion, like purchasing new equipment before December 31st.
- Think before you act. Before acquiring equipment, review the tax ramifications and the lease versus purchase considerations. This can help you save money and enhance cash flow.
Picture this: your practice is thriving and you’re investing thousands of dollars into its continued success. It is easy to get caught up in the whirlwind of growth and prosperity.
Here’s the big question: are you safe guarding your assets?
Without controls over your financial and material possessions, your dental practice is subject to losses that may be unrecoverable. It is a thought many Dental CEOs don’t want to think about – how could my loyal employee do that to me? But by thinking with emotion, you aren’t thinking like a business owner.
Follow these 5 tips:
- Create systems: Creating systems and policies around this becomes your first line of defense against any financial loss. This also helps detect problems early and let’s employees know that you’re vigilant about protecting the practice. Talk with your dental coach about how to create simple systems.
- Be kind to the whistleblowers: Have a no-fault policy for so-called whistleblowers and keep your door open. Show your team that you are counting on them to help keep the practice running without disaster.
- Obtain insurance covering employee theft: Talk to your broker, because this relatively low-cost policy will serve as a deterrent and help recover loss.
- Protect cash, which is the asset most susceptible to theft. Record receipts promptly and make bank deposits daily. Assure good controls over all expenditures, including maintaining proper documentation.
- Protect confidential information such as trade secrets. You will maintain your competitive advantage and safeguard your hard-earned assets.
- Let them do it all: Ask questions and “demystify” your dental practice’s financial affairs by listening and learning. Develop a rapport of openness with your accountant so that you can feel comfortable asking just about any question related to the financial operation of your business.
- Make last minute decisions: Ask for ample time to evaluate each major decision that you have to make regarding the financial future of your dental practice. Avoid making last minute decisions with short notice, as that inevitability turns into a costly mistake.
- Play the guessing game: Provide your accountant with financial information from industry journals, for comparison purposes. That data may be more current than other data available to your accountant.
- Forget that he or she is a member of your team: As you conduct annual goal planning with your team, include your accountant. As a contributing member of your “success team”, your accountant will want to be aware of your goals in the upcoming year, so that his/her help can be the most useful. When you have clear goals, your chance of hitting them is 80%.
Implement clear, written financial arrangements for every patient. No dental service should be started without a mutual understanding concerning fees and payment terms. This saves you time, money, stress and broken patient relationships.
Ask your staff to spend as much time as the patient needs explaining the financial arrangements.
Have each patient sign off on of the financial terms, and provide them with their own copy to reference.
Sure, you went into practice for yourself because you care for your patients. But, you must be paid fairly for your work – or burnout will occur faster. Operating your dental practice with a poor cash flow and financial scarcity adds to the already stressful life of a dentist.
Each of these has its own relevance and significance. By managing your finances, you have a greater chance of operating your business out of financial abundance – while still enjoying serving your patients.
- Learn the distinction between profitability and cash flows. For example, understand how depreciation and debt principal affect your profit and cash flow. Ask your accountant to explain the difference in straight forward terms.
- Monitor the relationship between expenditures for marketing and promotion with new patient intake. Spend advertising dollars where you get the best results and give you the “biggest bang for your buck.”
- Integrate your practice finances with your total financial game plan. This will enable you to avoid the stress and trauma of spending more than you make.
- Identify “talking points” with your accountant to discuss line item fluctuations and how they impact your business. This creates a dialogue to develop solutions to weak areas in your business and to acknowledge your practice management successes.
Remember: Both your profitability and peace of mind are important.
Getting your dental practice finances squared away is not as daunting as you perceive. Take action today by doing these 5 quick changes — and watch profitability soar!
- Evaluate your accounts receivable: Work with your Administrative Coordinator to determine the amount of accounts that are 30, 60 and 90 days past due. Cash flow is the “blood” of your business practice; keep it pumping. Have your Administrative Coordinator call make arrangements for prompt payment.
- Assess your current fees: By keeping your fees current you are able to maintain your profitability and safeguard all your stakeholders. As you improve your clinical abilities and attend continuing education courses, you increase your value. As such, your fees should reflect this.
- Review employee compensation: Tie compensation directly into performance and results. Consider incentive compensation for achieving performance goals.
- Evaluate overhead relative to gross income and production: You can determine what you are doing well and where you must tighten the reins.
- Adjust financial arrangements: Patients will buy more of what you have to offer and what they need. Offer simpler financial arrangements for clients, in writing. Make it an easy choice for patients to work with your dental office.
Don’t think that by reading a few business books that you’ve ordered from Amazon’s Best Sellers list will make you the greatest Dental CEO in the world. It won’t. Those books are about someone else’s business.
You need to take a look at your dental practice – your specific needs, your financial information and the goals you want to achieve.
What are the critical line items to focus on in your dental practice?
- Receivables turnover: This is a useful number for determining how efficiently your dental office staff are managing collections. This number indicates how many times the Accounts Receivable has been collected. It determines if you’re having difficulties collecting on past due accounts—and what to do about it.
- Gross Profit Percentage: This number indicates the cost of doing business. By calculating your costs (staff, equipment, office) and your revenue, you determine what percentage of your fees is profit. Adjust your dental fees according to this number to maximize profit and your salary.
- Industry Averages: How do your expenses and revenue measure up to industry averages for practices of your size?
- Your Profit and Loss Statement: To manage your “P&L statements”, look where you can reduce expenses or increase fees according to your increased value.
- Growth and Shrinkage: Analyze what your practice has done this quarter, compared to the last quarter and prior year periods. This will enable you to see if you are growing or shrinking – and then you can make a swift management decision about what to do.
Not if it’s done effectively. Let me coach you how in three simple steps…
- Meet face to face with your accountant at regular intervals – quarterly, for example. This is not the place to be a cheapskate. This saves you the big bucks in the long run. If you want to operate a successful dental practice, this is a must. At these meetings, discuss financial statements, taxes and other concerns you have. Remember to notify your accountant if you’ve done things like expanded staff or purchased new equipment.
- Personalize your statements. Stipulate to your accountant that you want your financial information in an organized format, not alphabetical “generic” account listings. If your accountant is giving you statements that are simply in alphabetical order, RUN, don’t walk as this is an indication of the likelihood you will receive useless information in making solid business decisions.
- Ask that your accountant go the extra mile with your data. You want your accountant to compare your financial data to the previous year, as well as industry averages. With this information, you can make decisions like a real CEO.