Last updated on December 16th, 2021 at 02:15 pm
Or are you hesitant to push for big growth and expansion because you feel like a smaller, leaner practice is the only way to stay highly profitable?
Well, a bigger practice doesn’t need to be a low-profit practice.
In this blog post, I want to shed some light on why money can seem to disappear when you’re growing and how to keep it under control so that your profit goes up as your collections go up.
Don’t treat your practice like your personal bank account
If you started out small—for instance with just you, your spouse, and one or two employees that you pay—it can be easy to get your finances all mixed up together.
But it’s extremely important to completely separate your personal finances from your business’s finances.
I have definitely seen it happen where a dentist sees their revenues going up, so they increase their personal expenses over time—a bigger house, nicer car, more vacations, higher debts—but since it’s not clearly distinguished, this makes them think the practice isn’t making any profit. No, the practice is making profit, you’re just spending it. If you have questions about this, I recommend getting with your accountant so they can go over everything with you and give you advice and guidance.
Another issue I often see is that the owner will pay all the employees, pay the bills, buy supplies, pay other expenses—and after everything else has been paid for, they’ll just take whatever profit is left as their own salary.
This isn’t fair to yourself, and it doesn’t really benefit the business either. You are the provider for the practice, and you should be paid for the work you do!
If an associate did the same work you did, you would pay them for that work. You wouldn’t just see how much money was left in the account for them at the end of the month.
So, do the same for yourself. Pay yourself for the work you produced. And when there’s profit leftover at the end of the month too, great! You made extra money.
Now, this doesn’t mean that you can act irresponsibly and not pay your bills, etc. so that you can give yourself a big salary. But by including your basic pay as a normal business expense, it becomes a more organized way to run the finances and properly budget for everything else. Now, if paying yourself would put your practice in a financial bind…well, that’s a whole other issue! You’re underproducing and/or spending too much and need to get this handled! If you need help with this, we offer free consultations — schedule yours here.
Don’t rely on an accountant for managing your finances and/or giving business advice
Most accountants are trained to help save money on taxes and tell you where your money was spent.
They usually are not experts on how to intelligently allocate money to increase productivity or create a successful and profitable business. That part is up to you.
There is no substitute for YOU knowing how to manage your business financially.
This doesn’t mean you need to do the accountant’s job or micromanage every transaction, but you need to know how to look at your finances, create a budget, and have some checks and balances in place to ensure it all runs smoothly in your practice.
And of course, if you need some help learning these things, we’re here for you! Request a free consultation here.
Discover how much potential income you’re leaving on the table
Before cutting expenses, I always look to see if a practice is underproducing. The average dentist that attends the MGE Communication & Sales Seminars increases their collections by 36%. I don’t say this just to plug our seminars, but to make a point that by improving their case acceptance (and often dropping reduced-fee plans), they add hundreds of thousands of dollars in revenue without increasing their expenses.
It’s because they were already seeing patients that were not completing all the treatment they needed. That production was being left on the table, and both the patient and the practice were losing out because of it.
That increases profit by more than they could ever have had by trying to cut expenses.
And beyond case acceptance, there are other ways a practice can be leaving production on the table, such as poor recall, patient attrition, cancellations, etc. Request a free practice assessment here to analyze all these factors and see how much potential income you may be missing out on.
Take a realistic look at return-on-investment before adding or subtracting expenses
This is another thing I consider before cutting expenses. Does this product/service I’m paying for give me return-on-investment.
Consider possible unintended consequences before cutting an expense.
Here are some examples:
The dentist decides to do his own hygiene because paying a hygienist is too expensive. This is a BAD decision because it hinders your potential production significantly. The doctor either spends so much time on hygiene that they can’t produce enough valuable dental procedures or they don’t spent enough time on hygiene and begin to lose patients out of recall.
The dentist only has one or two people in the front office to save on payroll. This is a BAD decision because those front office staff are the ones who get patients into the practice and collect the money. Don’t be surprised when the providers are twiddling their thumbs in the back because there’s nobody up front to create the production.
And on the flip side of that, before you add a new expense, take a look at whether or not it will actually provide enough return-on-investment to justify it.
Here are some examples:
The dentist needs to increase production, so they buy a new laser, high-tech imaging equipment, etc., only to find that they can’t get patients to accept any of the high-dollar procedures the machines are supposed to be used for. While I like having top-of-the-line equipment to improve patient care—if you can afford it—this is a BAD decision for the purposes of raising practice production.
The dentist decides to build out more operatories or break their lease and move into a larger building. Again, I like the idea of having the beautiful, spacious facilities you want, but if you’re expecting it to raise your production, it may be a BAD decision. (See our blog post, If You Build It, They May Not Come if you’re considering adding chairs.)
Keep your financial oversight. Don’t get careless
When there’s lots of money around, we have a natural tendency to stop sweating the small things.
It’s nice to not have to worry about money or think about every nickel and dime.
But if you’re not careful, it can add up.
I’ve seen it happen many times where the practice is flush with cash because revenues are increasing, so they buy three months of supplies upfront, double up their loan payment to pay debts down faster, approving any and every little expense the staff comes to them with.
There’s nothing wrong with stocking up on supplies or paying down your debts faster. Those are good things. But there is something wrong with it if it means you unexpectedly can’t make payroll the next month.
So if you’re growing, enjoy the extra money and less financial stress, but remember the things you did that got you here. Don’t completely change the way you spend your money because you’ve got deeper pockets now.
I hope this helps! And I highly suggest looking into the MGE Power Program to learn more on this topic. We have a whole three-day seminar on how to set up financial systems in your office and maintain excellent profitability. Learn more here.
And, of course, you can always request a free consultation here if you have any questions or need help with anything. We can do a thorough practice assessment with you to find out where exactly your profitability problems are stemming from.
Chris Menkhaus provides this general dental practice management advice to furnish you with suggestions of actions that have been shown to have potential to help you improve your practice. Neither MGE nor Mr. Menkhaus may be held liable for adverse actions resulting from your implementation of these suggestions, which are provided only as examples of topics covered by the MGE program.