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Everything Dental Blog – March 2012

March is a wonderful month. It’s the time of year when we transition from the cold winter months to warmer days and longer nights. It is also when college basketball comes alive with March Madness! March is also the month when the acclaimed, Big Apple Dental Meeting takes place.
On March 20th, we welcomed in the season of Spring. This time of year represents the beginning of a renewal that takes place in nature. The animals end their hibernation, the plants start to bloom and many of us begin our laborious spring cleaning. This is also the time when businesses take note of their trajectory and evaluate their performance. Most businesses measure their data from the first quarter and make adjustments that will lead to a successful year.
In an effort to address one of dentistry’s greatest challenges (Overhead Management), I have asked Kerry Straine, CEO and President of Straine Consulting to share his thoughts about overhead management.
Overhead Management
Cast An Accurate Financial Vision
From Today Until Your Retirement
Kerry K Straine, CEO & President, Straine Consulting

Face it, owning a dental practice today is challenging.  Those who fail to plan, plan to fail.  In this economy, more than ever, business owners are faced with the important task of understanding their business comprehensively.  Unlike the thirty years prior to 2008, we could comfortably predict return on investments at minimum rates of return, in the 5% plus range.  Now economists say we are facing an economic future where rates of returns on investments will remain low, and in time, expenses we incur on a daily basis will rise significantly.  What does that mean, the key to living the life you desire rests in the planning you do today.
Planning that will cause you to define your goals, develop strategies to achieve them, execute your plan, monitor your results, and stay committed, even when the winds of change and choices appear to be more expedient that the plan you are on, don’t waiver, stay committed.
As we begin to look into the concept of financial budgeting and overhead management, let’s begin by reviewing the first three habits that Stephen Covey wrote about in his book, The 7 Habits of Highly Effective People. The first three habits surround moving from dependence to independence (i.e., self-mastery):
Habit 1: Be Proactive
•    Synopsis:  Take initiative in life by realizing that your decisions (and how they align with life’s principles) are the primary determining factor for effectiveness in your life. Take responsibility for your choices and the subsequent consequences that follow.
•    Kerry’s Strategy:  Develop an extended leadership team of subject matter experts to help you develop the right decisions for your life.
Habit 2: Begin with the End in Mind
•    Synopsis: Self-discover and clarify your deeply important character values and life goals.  Envision the ideal characteristics for each of your various roles and relationships in life.
•    Kerry’s Strategy: Plan for a balanced life that includes time for yourself, family, friends, travel, health, education, spiritual pursuits, and financial wealth.

Habit 3: Put First Things First
•    Synopsis:  Plan, prioritize, and execute your week’s tasks based on importance rather than urgency. Evaluate whether your efforts exemplify your desired character values, propel you toward goals, and enrich the roles and relationships that were elaborated in Habit 2.
•    Kerry’s Strategy:  schedule time to plan, do, and review every part of the journey in your life that supports your values and goals.  At Straine Consulting, our job is to help our clients reach their potential in their practice, based on their values, in support of their life dreams.  Remember, you can’t borrow someone else’s dreams, therefore, you must invest in this area of your life, working with subject matter experts, insuring that  you give and get the most out of every minute of your day.  You deserve the best!

As we look into financial budgeting, let’s begin with the area that is the least variable in your budget, your expenses.  Most people think they can “cut expenses” significantly, but having prepared over 5,000 sets of financial statements, and having reviewed over 20,000 sets of financial statements in my 34 year career in public accounting and dental practice management consulting, at best, you’ll be able to shave off a few percentage points in your expenses, they are far more fixed than you could ever imagine.
Overhead:  These expenses are either fixed or variable, and should be compared to your production, not collections:

•    Fixed expenses. No matter what your dental production is, fixed costs must be met every month.  Fixed expenses include rent, depreciation on fixed assets (such as cars and dental equipment equipment), wages and associated payroll costs, malpractice and other insurance, utilities, membership dues and subscriptions, telephone, advertising, postage, consulting, and legal and accounting costs.  These expenses don’t change, regardless of whether a practice’s revenue goes up or down.
•    Variable expenses.  Most so-called variable expenses fluctuate from month to month in relation to production.  Fitting into this category are expenses for dental supplies, lab, office supplies, and merchant fees.
Revenue:  Revenue refers to the fees you have performed that expect to be paid for by your patients.   In a typical general practice, the revenue is earned from the services performed by dentists and hygienists.  The question is, how do you set reasonable production goals?  We base the hygiene department revenue goals on the total number of patients you will have in continuing care and the percentage of them you anticipate in your perio program.  For planning purposes, your percentage of patients in perio should be consistent with the surveys performed by the ADA.  For the doctor’s production goal, it should be at least $3,000 per 8 hour day.  In a majority of the practice’s we work with the daily production goals of the dentists range from $4,000 to $6,000 per day, and in some cases the average daily goal of the dentist exceeds $8,000 per day plus.  The key to increasing the dentist’s production lies within the knowledge of the dentist, their communication effectiveness, and the demographic profile for the community they serve.  The fact is, the more revenue you generate, the lower your expenses.
Collections:  Collections must be budgeted too.  Ideally, the amount of production that is collected is 98% – 100% of production.  In many cases, due to the participation with lower paying insurance plans, practices are committing to services for which they agree to receive less than if they were paid at their normal fee schedule.  Participating in lower fee plans is a great way to increase your patient base, growing to the volume of patients you need in your practice to work at full potential.  Once you have achieved your patient base ceiling, you have the option to work on strategies to increase your rate of reimbursement from your patients, with reduced risk to your financial plan.

The budgeting question you must answer is, does the revenue generated, result in a sufficient amount of collections, to fund the expenses of the practice, and leave enough money to fund your life goals?

The life goals expenditure list includes: monthly lifestyle budget, debt repayment, retirement planning, insurance expenses for life, disability, and long-term care, cash reserves, and taxes, at the very least!  So, begin with the end in mind concept first, know what you want and work backwards in your budget.

Everyone has a choice.  Working in your practice must represent the highest and best use of your time and money or it will never be perceived as the best use of time and money for you.

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