Implement a growth strategy to sidestep inflation
As the dental industry continues to boom, practices everywhere are experiencing record treatment acceptance rates that are driving high production numbers. On the surface, it would seem 2022 is setting up to be a banner year.
Yet, that is not necessarily the case. This year is marked by inflation that is continuing to rise, quickly turning into higher overhead, which is eating into profits in spite of higher production.
Couple that with overall economic and market uncertainty, it is important that dentists make the most of this profitable window while pent-up demand is high. To do this, CPA and Financial Planner Angie Svitak encourages her clients to adopt a growth strategy that focuses on growing profits more than simply increasing production.
FOCUSING ON GROWING PROFITS OVER PRODUCTION
“It may seem strange to some practice owners but focusing on increasing production it is only one piece of the puzzle,” says Angie. “We need a strategy to get the most profits out of this period of high production, while still somehow leaving time for work-life balance.”
It can be a tall order, but Angie suggests a two-phased approach to maximizing profits without taking up too much of a practice owner’s valuable time:
- Laying the foundation for your profitability strategy
- Executing the tactics that will enable profits to grow
“Look at your practice like you would a patient – diagnose the problem areas first, then treatment plan accordingly. The first step in doing that is to have a deep understanding of where you currently are in your practice,” says Angie. “Some critical decisions will need to be made, and you can’t do it successfully without understanding the factors that play into your business’s profitability.”
Nail Down Your Practice Finances
Of course, you know your practice, but are you truly aware of the key drivers affecting profitability at this moment? Salaries are most likely up. Supplies cost more. You probably raised your fees at least once in the last year.
Your breakeven has most likely changed considerably since before COVID. It’s worth the time to revisit and take a deep dive into your numbers to set a baseline for your current profitability before you move into other areas to evaluate.
“You can’t really make sound decisions on your practice until you truly understand the metrics behind your business,” says Angie. “We need to look at not only what you are doing to build the topline, but also your total overhead and your profitability.”
For a primer on gauging the health of your practice, check out this recent blog.
Evaluate What You Need at Home
Just like your business expenses, costs of goods and services at home are up too. Take a look at your lifestyle and how it fits into your current budget. Are you paying yourself enough? Are there areas you should cut back or increase? This will help you determine if your salary, savings and retirement goals are in a good place.
“Once you have a new budget, salary and distribution schedule in place, you’ll know exactly how much you will cost the company,” added Angie.
Build a Cohesive Team
Probably the single most important factor in maximizing profits is optimizing how your staff operates. A trained, cohesive team working from the same playbook will pay off in spades.
For example, is the front desk following through on scheduling next-step appointments? It’s much easier to schedule a patient while they are standing in the office versus trying to get them back on the books after they’ve walked out the door.
Are you and your hygienists asking the right questions that can lead to other services or procedures, and is the patient getting a consistent message on the treatment plan from both the front and back office?
“It’s all about working smarter, not harder,” says Angie. “And it starts with a team that’s marching in the same direction.”
In a tough labor market, this isn’t always easy, but it’s possible. One option is to cross train your staff for different positions.
Depending on the size of the practice you may have positions that can be combined. If the practice is on the smaller end, it is essential for employees to take on multiple roles. When employees are familiar with the expectations and process for other positions, when you need coverage for an employee due to illness, vacation or turnover, time and money is not lost in the transition period.
Evaluate Your Expenses
Some expenses are hard to change in a short period of time. Others are a bit easier to adjust. Angie suggests practice owners start by looking at the expenses that can be reduced immediately and work out from there. For example, are you paying too much in dental supplies? Telephone and internet? Advertising and promotion? Then move on to staff salaries and rent.
Not sure how to determine if you’re overpaying in these areas? Angie recommends downloading the latest How Does Your Practice Compare? Report to see how you stack up with like-size practices across a myriad of metrics, including direct and fixed expenses.
“CWA’s annual comparison report is a great tool for practices of any specialty to see how your numbers match up to peer-practices,” says Angie. “Look for anomalies in the comparison data, choose two or three areas that will make the biggest impact and start there.”
For example, let’s look at dental supplies and lab costs. For general dentistry practices, Angie likes to see her clients stay in the range of 12-16% of collections for supplies and lab combined. If you are above this range, consider reasons why your practice may be running high.
Ask yourself how often are supplies being ordered and who in the office is making the purchase decisions? Having multiple staff members responsible for ordering different supplies, as needed throughout the day, can very quickly and unknowingly drive costs up. Assigning a single team member the responsibility for ordering the supplies and giving them a monthly budget can get costs back in line. To set a budget, look at your average monthly collections and multiply that by your goal percentage.
Another key to increasing profitability to is to make sure you’re getting the most from your insurance provider partnerships. Are you adjusting off too much? Run reports to find the worst offenders and consider going out of network.
You can also renegotiate with your providers to make sure you’re getting the most reimbursement from every procedure. We recently published a blog on this subject that can help you navigate this process.
Consider Increasing Fees
Finally, take a good hard look at your fees. Are you charging enough to keep up with rising costs? Some doctors have a fear of raising fees, but according to Angie, there’s nothing wrong with making an adjustment to keep up with inflation.
“Even if you’ve raised fees in the last six months, there’s nothing that says you can’t consider doing it again in the very near future, especially if your standard fee is significantly below where it should be for your geographic area. Insurance won’t reimburse you for more than your standard fee, so setting your fees at the appropriate level is critical.” adds Angie.
With a little bit of planning up front and some smart decisions around team building, expenses, insurance and fees, you can turn your practice into a profitability machine and take full advantage of the production spike before things settle back to normal levels.
As always, CWA is here to help. Start with downloading the How Does Your Practice Compare? Report, or for a more hands-on evaluation of your practice, contact the CWA team to schedule a complimentary consultation with a CWA Advisor.