Dental Tribune India

Ten effective ways to manage your money at the dental practice: An insight

By Kiran Bindu Mcom ICWA
August 20, 2016

Every dental practitioner in the world desires a profitable practice. Interestingly, the corner stone of a profitable dental practice is controlling initial capital expenditure and managing monthly routine expenses and the pricing decisions, maintenance of capital expenditure, funding expansion, recovering patient dues from Insurance companies or the patient and finally selling the practice before retiring. Here is an insight into how to manage your money and make the correct financial decisions in your dental practice. The author, Kiran Bindu has domain expertise in Finance. His areas of Interest are Financial Derivatives and Risk ManagementHe has over 14 years of Teaching Experience in some of the Best schools in Bangalore and France. He has Presented Papers in conferences at the International Week at ESC Clermont (an AACSB accredited French Graduate School of Management) in 2009 and published articles for Journals. His training on Financial Spreadsheet Modeling has enhanced the learning experience of thousands of his students over the past 14 years He is involved is training executives in IFRS. He is a Partner in an Investment Advisory Firm called Mentes Capital where he provides both Investment and trading calls to interested subscribers for various Investment packages.In his spare time Kiran is an avid fitness enthusiast. He likes reading anything on Finance and follows global financial markets keenly.  

Step up Cost Decisions:-
Location impacts not just the rentals but also the pricing of your services. A strong micro economy allows for charging a premium for your services. Competition is also a factor you may have to consider if you want to set up your practice in an upscale area or move to an area that is upcoming. Location has a strong impact on the kind of clientele you attract and also the quality of workforce that are employable.
It is a head start if one can own the property where the practice is being set up as this diminishes the load on monthly fixed expenses.

Penny wise Pound Foolish This thought should be born in mind when investing in equipments and infrastructure. It does not pay to buy cheap machinery and instruments and compromise on the effective quality of care delivery. This not only hampers patient experience but your repair costs will be very high and cheap equipments are cheap for a reason: they have smaller life and no resale value.
Purchasing software to streamline your patient data and online presence together with your website is to be taken seriously. Filling up your website with before and after pictures of procedures gives patients’ confidence and results are your ability to pitch adequate rate for your services.

Managing Routine Expenses:-
A new practice will take at least 6 months to establish. Watch the patient flow. A filled up appointment book is a leading indicator of the revenues you will earn and the resources you need and the man power you need to hire. Its prudent to know the fixed cost of the practice- This includes Rent, electricity, water, telephone, internet, salaries including your salary, transportation expenses reimbursed to employees, pension contribution, expected repairs and maintenance and replacement cost. This is indicative of the bare minimum a practice has to generate every month to function smoothly.

It’s a good idea to have adequate buffer for three months when the practice is new. Get familiar with the expenses you incur. Each expense will have a pattern to it and in two three months you can have a simple inventory management schedule in place based on this input. A vital tip for successful practice management is to stash away a small amount every month to cater for repairs and replacement of equipment. Else you are in for a rude shock when there is a breakdown requiring a huge expense for repair.

Do not drain your bank account in the hope of running the place on future cash flows. Remember the cash comes in after the procedure and for doing the procedure expenses are incurred and often it has to be paid for in advance in cash. Negotiate with your dealers for a payoff time which may extend up to 90 days. Large equipment and expensive materials must be bought with an option of monthly pay-off and/or on a sharing basis with like-minded practitioners.

Next routine expense decision is how much to pay your employees. This depends upon the minimum wages required to be given in your state and the nature of talent you want to attract and nurture. More hands you employ more the patients they can see and many develop loyal clientele of their own. This is an entrepreneurial decision. Training your staff well costs money but will pay for itself in higher patient retention. Employees with diverse interests may be able to take on responsibilities like writing online blogs which is a good promotional strategy, sending out mailers if you are having a cosmetic dentistry practice. Promotions and offers can be designed to reward loyal patients and repeat customers.

Pricing Decisions:-
In India Doctors and practice of healthcare is treated like a philanthropic activity but there is an element of profit we have to earn to just survive and one need not feel guilty about it. The simplest method of pricing followed is to collect the rates from the practice in the neighborhood. A critical mistake most practitioners do is to not increase the cost of their services annually in line with inflation. Expenses increase in line with inflation or more than inflation leaving a practice with a negative cash flow by the end of the month. Patients don’t take kindly to sudden increase in prices. A slow and study increase in prices annually is easier for patients to accept.

Watch Cash Flow. The daily billing you do and the month on month numbers are critical to know the financial well being of your practice. Procedures that take too much time or consume too many resources or patients who need too much counseling are to be billed more. It is called Activity based costing. Tabulate and record for every procedure performed – the cost of material, time spent cost, and equipment used cost. This tabulation will yield results over a period of time and help you arrive at the right cost for each procedure. This also helps you position yourself in the locality as the dentist with the most competitive pricing or the dentist that delivers the best quality of care. You can also do the balancing act of keeping the prices competitive till you build a loyal clientele and then transform into an up market practice.

There are essentially two choices you can make
a) Provide your services at the lowest possible price and hope to see a lot of patients and make it up with high volumes. The advantage is you are always busy and you are seeing a lot of patients and making a small amount of money from each patient.
b) Provide your services at the highest possible price the market is willing to pay. You will have very few patients and you will hardly see any patients but you develop a clientele of exclusive patients who are willing to pay you the premium you charge.
c) You can also have two separate practices catering to both end of the spectrum at two different locations.

Maintenance Capital Expenditure: -
Furniture have limited life, so do the curtains and equipments. The diminution in the value of the assets you have is technically called Depreciation. It is an invisible yet very real loss in value of your assets. You need to recognize this non cash loss and cater for the day these new assets may have to be replaced. Annually setting aside the amount you have depreciated into a separate account is a disciplined way to build up a corpus for asset replacement.

Funding Expansion:-
Expanding at the same location or moving into newer location in a bigger way or opening another similar practice in a different location are the choices to make. If real estate costs are reasonable and the commute is manageable then having clinics in multiple location is an advantage. Another viable option is to partner with another specialist to share common facilities provided you do not eat into each other’s business. For e.g.: An Endodontist can partner with an Oral Surgeon to start microscopic endodontic practice thus raising the standard of care delivery. A practice located in multiple locations helps build a brand and earns higher re-sale value rather than any swap arrangement.

If the eventual aim is to sell the practice and retire there must be something worth selling. A large patient base, an organizational structure, fixed assets base in multiple locations, a patented technique or a software system that enables managing the flow of patients and consultants within the system.

Working Capital Management:-
Managing receivables and ensuring you get paid for without fail ensures survival. There will be a 5% loss in any practice and one should not browbeat oneself over it. There will be a patient here or there who will receive treatment but won’t pay. It goes with the territory .

Sensible Strategies to grow your patient base:-
Patient retention strategy involves a name recall for the patient so that he recommends you the next time some member of his family or his friend or colleague requires a dental treatment. This can be achieved by a simple mailer which is a surrogate marketing tool to get his to see your name again. This necessarily requires keeping in constant touch with your existing patients.

The most experienced doctor of the practice must welcome a new patient and talk them through the practice and assay any fears they may have about dental care. This may be followed by the treating doctor talking over to explain in detail the procedure he/she has to undergo for the day.

Thinking on your feet and hard sell. Here a dentist is pushing the limits by promising something farfetched. E.g.: Red bull gives you wings! Or Become fair in 14 days! we know it won’t happen but it feels good and people buy the product for it. Sparkling pearly white teeth falls under the same category. It’s a bit of a stretch but has to be done in some cases.

Small gifts with the brand name can be given to children. Kid friendly clinics are always a good idea and it brings in parents and grandparents too.

Organizational Structure:-
After running a practice for say 35 years a senior dentist wanted to retire and all he had to show for his effort was one location practice with depreciated assets. A patient base, that came to him. Such practices won’t sell for pennies on the dollar. He has no organization but for one assistant who doubles up as his secretary. No committed employees who the patents would know. If the Senior left the practice came to an end. This is not an organization. This is a one man show and many dentists operate in this manner. To begin with the end in mind is good strategy. A dentist who practices for a long time must learn to separate his practice from himself enough so that it runs without his day to day presence. He must build a second and third line. Full time employees with assigned role and who reports to whom must be documented. Procedures done historically must be documented. Certification, accreditations, government recognition all add to the Organizational Value. There must be something worth buying for the eventual buyer. Handing over your practice to your children to run should they pass dentistry exam is not an exit strategy. They may not have your skills, both clinical or managerial to ensure the organization grows beyond you.

Accounting Records:-
Five years accounting records and financial statements duly audited is necessary for the potential buyer to do a due diligence to ensure all the claims made by the seller are indeed genuine. The said senior dentist was not even prepared to share the monthly collections of his practice but had one number for which he wanted to sell his practice. Needless to say he found no buyers. A robust accounting system not only helps you tract your assets, your bank balance and your obligations and receivables but is also useful at the time to annual tax filing. Having a financial analyst go through the financial statements once every year allows you to have deep insights that are lost in the routine of preparation of financial statements. At the time of sale a financial model is built projecting your business cash flows for the next five years based on your performance and this allows a potential buyer to make a bid.

Selling your practice before retiring:-
Do not wait till your health fails and the income of your practice begins to fall before making the sell decision. Its way easier to sell a robust healthy practice than a declining practice. You may have to sell 5 years earlier than you may want to because the buyer will insist that you be available for the next two years to transition your patients to the new practice.

Therefore don’t book that Bahamas holiday just yet. If you have to build a practice quickly the easiest way is to buy a practice.

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