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Everything Dental Blog – March 2013

Cash Flow

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Many small businesses find themselves concerned about cash flow. It is far too common a worry and far too often a reality for dentists. Virtually every business can improve their cash flow and their monetary behavior if they identify bottlenecks and opportunities. There are a few simple account payable adjustments that can make a difference. Answer the questions below and be sure to discuss your business challenges and strategies with your C.P.A.

Do you know when your bills are due? (Mid month or end of month)

  • Your lab statement/CadCam?
  • Your Dental Dealer supply bill?
  • Your rent/mortgage?
  • Estimated taxes?
  • What about your 401K, Insurance, Pension, staff bonuses and other large payments/contributions?
  • Are you processing benefits with snail mail or e-claims? (E-claims get reimbursed faster!)

When you analyze your accounts payable, you’ll identify patterns and bottle necks. This is where you begin your assessment and identify opportunities. Let’s say eight of your ten bills are due at the end of each month, why not call three vendors and request a mid-month due date? Then go one step further. Evaluate what bills you pay by check and what bills you pay with credit card.

Analyze this behavior and determine if your payment methods are in alignment with your monetary policy and financial goals. Be mindful of Credit Card rebates and loyalty benefits as these small business perks can add up. Free flights, cash back, free hotel nights and gifts are a nice benefit. Now that you know what bills you are paying by credit card, let’s investigate the payment policy and due date for your credit cards. If you had two cards and one due date was mid-month and the other was at the end of month, you could bring additional relief to your cash flow.

Spend some valuable time with your accountant and discuss strategies and financial planning. Work on things like cash flow and develop a three year technology acquisition plan. Work with your wealth advisor and establish a plan for you, your spouse and your children. Too many professional relationships are transactional and not meaningful. The relationship with your accountant and dental dealer rep must yield fruit or it should be reconsidered. Good cash flow allows you to plan and reduce the stress of business ownership. If your cash flow is challenged by lease and loan payments, call me to discuss re-financing and consolidation options.

A Budget for Today

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There are going to be many well respected professionals who challenge my proposed budgetary numbers. While I respect everyone’s opinion, many concepts in dental accounting, clinical care, operations and customer service are predicated on a fee for service business model that fails to acknowledge the usual and customary realities of today. When only 18% of the public has indemnity insurance and 80% of the employers are offering PPO insurance, we need to develop new standards.

The proposed budget percentiles below, consider moderate operational and capital equipment debt, governmental licensing and business fees.

This is How I See a 65% Dental Overhead

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This data is not authorized or endorsed by any company I represent, work or consult with.  It is the result of hundreds of discovery meetings with long term clients dating back almost ten years.

 Salaries 28%– Staffing is your biggest cost and can contribute to your profitability. A progressive dentist understands this and creates an environment where auxiliaries are part of the profitability solution. Most practice owners see salaries as a boat anchor because they don’t measure performance and hourly profitability.

The administrator needs to know the practice management software in and out! The data mining, accounting, scheduling and insurance benefit modules are pretty advanced these days. In the future, Dentrix’s open architecture will allow other software products to pull and push data from your database. This game changing strategy will boost productivity but requires a certain degree of competency. Expect insurance coordination/reimbursement and third party patient financing to be integrated in your practice management system in the future.

Auxiliaries with expanded duties (certification) will have many more responsibilities than their predecessors. All team members, whether in the front office or in the clinical area need to be proficient in their job and must be trained to handle other fundamental tasks. A dental assistant must be able to appoint patients, navigate the practice management software and help out with the phones. Office personnel with some clinical dental experience (ex- assistant/hygienist) should assist with radiographs or other activities to keep the office running on time and efficiently. We have to stop the madness of re-hiring Dr. Smith’s assistant Donna who was taught by Betty (the assistant that was asked to leave her previous place of employment because she was always late, always on her cell phone and always taking smoking breaks). When you do have the pleasure of adding/upgrading talent, please consider bi or multi-lingual personnel.

The clinical auxiliary must know dental procedures in detail. They must be able to communicate them professionally to patients, parents and family members. They are critical team members who are proficient in the usage and maintenance of today’s diagnostic tools and equipment. Just like a physician assistant, they will have a great deal of patient (one on one) contact in the future. A qualified dental assistant will prepare temps, design crowns, operate your lab (CadCam milling system), and will discuss treatment plans and payment options with patients.

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Utilities 11%– My utility budget suggests an 11% target. Utility costs may be variable, fixed or mixed. For instance, when a business pays for Internet service, it is usually a flat monthly rate. However, a better rate may be negotiated or you can bundle services (phone, internet provider and cable T.V.) and get a discount! Additionally, many offices still use a fax machine and have a dedicated fax line. This can be eliminated with e-fax. The only requirement is a flatbed scanner. This can save you one to two hundred dollars a year!

Another focus should be the credit card swipe machine and processing fees. These firms are loosely regulated and you can save on fees if you are proactive. Here’s a good tip – do not pay a service fee for the cc processing equipment. Many offices have been paying $9.99 or more, every month, for 10 years to rent that swipe machine. That machine has cost them (over time) almost $1200 dollars but it sells for $200 – $300!

Electricity rates may also be considered fixed costs, however, electrical companies have lost their monopoly in some areas and there can be other vendors with better rates. There are also government tax incentives for alternative power options like solar, if you owned the building. The next utility to investigate is water. If you pay your municipality for water usage/consumption or use well water, then you should consider a dry vacuum unit. It can save you many thousands of dollars over time.

Services/Outsourcing – 4% and growing– This is a dynamic shift for dentistry and I can see the look on most accountants’ faces as they read this. I believe outsourcing (marketing and other services) should be a line item on your budget.

Dentists need to market their practice whether they take insurance or not. Almost everyone takes or processes insurance these days so the battle for the new patient requires marketing.

For those already immersed in PPO dentistry, you have been paying for new patients with your reduced fee schedule. Unfortunately, as more dentists participate in PPO’s, the competition will require insurance practices to market as well.

I recommend between 2 and 4% of the prior year’s collection allocated to marketing. For those fee for service practices, new startups and offices beginning a complex marketing initiative, that percentage may need to be higher the first year. New patients are vital to a healthy practice and marketing is vital to attracting new patients!

Douglas Sligting – C.E.O. of Dental Branding has created a formula for marketing based on need and he does a thorough competitive analysis so that your practice will be distinct. Call him at (801) 285-5688.

Another great marketing resource is Abe Kasbo. Abe’s firm, Verasoni is a full service advertising firm with several hospitals, health centers and independent dental practices on their client list. You can call Abe directly at (973) 287-6868.

Outsourcing is not a new concept to dentistry but no one is talking about it except me. Your lab work is outsourced. Your bookkeeping and accounting is outsourced. Your payroll (human resource services) is outsourced with Pay Checks or ADP and your web hosting is outsourced. When you process your e-claims with Dentrix, you are outsourcing. Your cleaning service is outsourced and your patient financing is outsourced and before you know it, you will probably outsource your insurance eligibility and insurance billing. Check out this website – http://dentalpracticepro.com/    this company is releasing a new module in May or June that offers eligibility outsourcing services in addition to the software product it markets.

The top three outsourcing categories that dentists will embrace are; Human Resources, Operations/management and Marketing. Many dentists have whispered these words to me over the years; “I just want to do dentistry, I wish I didn’t have to deal with the business stuff and insurance”. Hence, expect more outsourcing!

Lab Fees 7%– this is an area that is very fluid right now. Restorations from foreign laboratories and the emergence of CadCam have changed the lab fabrication business forever. Offer your patients choices. You will grow your higher end dentistry with all ceramics and indirect restorations! Same day dentistry is here and your patients want it. No one wants to return to your office two or three times for a crown procedure. By the way, that crown that was just delivered from your favorite lab was milled on a cad cam machine and stained according to your direction.

Differentiate your practice and develop a collaborative relationship with your lab on those complicated cases that you’ll still outsource to them. Remember, you will be sending them a digital scan that will never require redo’s, or re-pouring of models and the digital impression is now a digital patient record.

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Clinical Supplies6% This has been the average for decades. Some industry experts think this number is inaccurate because of the diverse mix of products that the dental dealer supplies today. The full service dealer sells more than clinical and pharmacology products today. They sell janitorial supplies, disposables, infection control products, office supplies, computers, operatory equipment, technology and consulting services. *Pay your dealer bill with a credit card that has a decent loyalty program. Get rebates and free goods for ordering what you need every month! Between the dealer costs and lab costs and utilities it will add up. When determining your dealer supply costs (percentage), be sure that you and your accountant segment the product mix in the correct budgetary buckets!

Rent 4%– This overhead expense has remained consistent for decades. Today, dentists appreciate the advantages of visibility and easy access for their prospective and existing patients. We are seeing more dentists open up in retail spaces and strip malls because convenience matters! The movement to offer more services, under one roof, can also require a larger footprint – hence higher costs! Beware of high profile locations that may attract corporate dentistry competitors (two lanes in either direction on a busy thoroughfare). 

If you opened your practice in a growing community 10-20 years ago and your rent has gone up every year, you should investigate moving your facility into a building you can own. With real estate and interest rates at historical lows, you can buy a building and pay the same amount for your mortgage as you do for your rent. Furthermore, you may have a rental which will lead to an additional revenue stream and a much improved exit strategy! I have the resources to help you if you are interested in investigating this.

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Fortunately or unfortunately – (depending on how you see the world) you are practicing during a technological revolution. All dental equipment is evolving, miniaturizing and becoming digitized! Our devices that served us so well for decades are being replaced by smaller, faster, quieter and better devices. These advancements will make dentistry better, faster, more efficient and more profitable. It is in alignment with the way things are in the public sector. The downside is that these devices come with a price tag and it is indeed a burden to keep up. The take-away – these devices will make you more efficient and profitable but acquisition must be planned. You must have a leasing or an equipment fund as a part of your annual budget.

If you allocate 3% of your gross towards updating older equipment and acquiring new technology, you will be able to manage this incredible revolution. If you do $600,000.00 in gross collections and allocate 3% for technology and equipment, you will have $18,000.00 a year to update waiting room furnishings, replace an old dental chair or buy a second digital sensor. Each year you can allocate money towards the advancement of your clinical offering or the beautification of your facility. This needs to be a formal plan not a whim decision because you attended a seminar or dental meeting.

You can have your cake and eat it too. Leases allow you to get all the things you want and stay in budget. The 3% budget allocation would more than cover your lease obligation. Ex) If you bought a $20,000.00 piece of equipment, your monthly lease payment would be about $435.00 a month or $5,220 a year! That’s less than 1% of your gross! A well-equipped/modern practice is more desirable and can be considered part of your exit strategy!  I would be committing professional malpractice if I didn’t mention the amazing section 179 deduction and the accelerated bonus depreciation of 50% when you buy the capital equipment you need and want!

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Office/Computer supplies 2%– Your computers and software will age and will need to be upgraded or replaced over time. Allocate the 2% as a line item in your budget to stay on top of these matters. Every office will have a server to upgrade or a monitor to replace or a network to repair. It’s just the way it is.

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Cloud computing is here and it will be in your future. This too will require an investment. *How long do you hold onto your smart phone? Technology is a beautiful thing but it comes with a price tag!

In closing, I urge all dentists to expand the scope of their relationship with their dental accountant. This relationship must go beyond estimated taxes and tax returns. Your accountant should know the dental arena very well. They must understand the implications of adding technology (the pros and cons), if they are to offer advice. They need to know how these acquisitions have impacted other clients so they can help you identify technologies that will yield big dividends like CadCam. If you are not using an accountant that works with at least, fifteen to twenty dental offices, than you are losing out. You are not getting the insight that comes from working with several dental practices. There are tax avoidance strategies and capital equipment stimulus opportunities that can seriously impact your tax liability and profitability. If you are interested in talking to a qualified dental C.P.A. check out this web site – http://www.adcpa.org/

Dave Pierson has been a mentor of mine for over a decade. He has built and sold several companies during his successful career. He has introduced many products and services that are common to all of us in dental distribution today. Dave is a visionary, a dental icon and a great friend.

Dave says; “Plan for change and budget for success”.

 

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