Follow these steps to identify and avoid financial issues that could harm your practice.
All successful business owners, dental practice owners included, remain successful by keeping their finger on the pulse of their business. The reliable and quantitative way to measure the health of the business is through the numbers.
If you have a child who’s not feeling well, you probably take her to the doctor. Taking your child’s temperature will be one of the first steps to determine the cause of the problem. By taking the temperature, you now have a number. Does that number by itself identify what’s wrong with your child? No. It’s comparing that number to another number (a goal) that starts the process of identifying what is making your child sick.
We do the same thing in business, and your practice is no exception. It’s a three-part process that, when tended to regularly, will firmly protect your practice from experiencing insufficient collections, delays in your ability to pay your bills, declining patient base and loss of practice value, adjustments that strangle cash flow, and other destructive practice issues.
Here are the steps:
- Collect the Numbers
- Analyze the Numbers
- Take Action
Sounds simple enough, so why is it that the mention of numbers evokes a glazed-over expression on so many faces? My opinion is that the actual “life” in those numbers is not being considered and therefore, the numbers become dull and boring. Instead, remember that each and every one of the numbers you are collecting, analyzing, and taking action on represent your patients’ lives–and yours!
Here’s an example:
Collections. We all know that’s a dollar amount. But what is it, really? Think about the fact that collection represents treatment performed. It’s health, function, and aesthetics being restored. It’s a patient’s sign of trust and confidence in a service performed well. It’s representative of your team practicing in a cohesive manner that allows for money to be collected.
All the numbers have a rich “back story.” They speak to the people you treat, the systems in your practice, the employees that operate those systems, the suppliers and equipment manufacturers that you count on, and so much more.
Step 1: Collecting the Numbers
This is the easiest step because the numbers are available to you in Dentrix. Avoid being overwhelmed by keeping your focus on a core group of numbers or Key Performance Indicators (KPIs). Only look beyond those numbers when you need more data to conclude or support your theory of what the problem may be.
Here are KPIs you’ll want to monitor:
Collect these KPIs on a monthly basis and have them ready for analysis within a week after the end of the month. By analyzing them promptly after the close of the month you are able to take quick action on areas that need attention.
Read Measuring Your Practice’s Financial Health for more information about the Practice Advisor report.
Step 2: Analyze the Numbers
This is where you measure the “actual” against the “goal.” Remember the ill child and taking her temperature? The temperature reading of 101.3 means nothing if not compared to the normal human body temperature of 98.6. The same applies to your numbers.
If you told me that last month your practice produced $180,000, I won’t have a reaction, but I will have a question: “What was your goal?” The goal brings things into perspective and identifies success or an area for improvement. If you told me your goal for last month’s production was $120,000, I’d help you celebrate! If you said last month’s goal was $225,000, I’d roll up my sleeves and help identify why there is such a huge deficit. Determining what caused the deficit and solving it is crucial. If your goals are realistic, that $45,000 deficit represents patients who still have disease in their mouths and went untreated.
For some of your KPIs, you will have goals that are industry norms. For instance, look at accounts receivable and how they are aged. If your accounts aged over 90 days are greater than 15-18 percent of total accounts receivable, why is that? Begin your analysis by looking at your A/R totals aged over 90 days from largest to smallest amounts. Determine if there are outstanding insurance claims that need follow-up. By digging a bit deeper you can narrow down the cause of the problem and then begin to develop a plan of action.
Step 3: Take Action
This is where the rubber meets the road! This is where the plan for change occurs. If you only do steps 1 and 2, you will be guaranteed a déjà vu experience each month as nothing will change–and will probably worsen.
Involve the entire team in seeking solutions. When people are a part of developing a solution, they will engage and support the process. Consider action that is appropriate to the cause of the problem. For instance, first run the Adjustment report and then meet with the financial coordinator to establish a reasonable collection goal.
Remember that there can be numerous solutions to a problem, and make sure you’ve clearly identified the cause of the problem as you evaluate the numbers in step 2. The solution for a car that won’t run is not necessarily filling up the gas tank if the issue is a dead battery!
When you take action, do so with a straightforward approach like this:
Now you have a clear plan to address the accounts receivable problem and a timeline within which you can expect to see results. Behind all those numbers exists the reasons why you have a practice–to provide the best possible dental care to people, to provide a living for you and your team, and to contribute to your community. The “life” in your numbers puts the life in your practice. Know your numbers and you will know and embody the purpose of your practice.
Learn more about managing your business with Dentrix at https://www.dentrix.com/solutions/business-management.
By Virginia Moore, Moore Practice Success
Bringing greater productivity and profitability to general dental and periodontal practices has been the result of Virginia Moore’s consulting practice over the past 25 years. As a speaker, Virginia has presented at the top dental meetings in the U.S. and has spoken at meetings in Canada, the Middle East and Asia. Virginia is a contributor to ADA’s newest publication Expert Business Strategies, is a regular contributor to ADA’s Dental Practice Success, as well as authoring two books and co-authoring eight books on practice management. Her passion is getting results that further the success of dental practices. Virginia is a graduate of the ADA KEMP for dentists. She is a member and past president of the Academy of Dental Management Consultants and also holds membership in the National Speaker’s Association and the Speaking and Consulting Network. She can be reached at firstname.lastname@example.org or 530-527-9457.
Originally published in Dentrix Magazine, Spring 2016