Money matters

Except for the exceptionally altruistic, no one works for free, and that includes dentists.

Wise money management, not surprisingly, encompasses a wide number of varied facets, both personally and professionally. The practice can make - or lose - money based on the decisions made. Those choices include such things as equipment, capital expenditures and even the relationship with one’s lab.

We talked with dental and healthcare finance leaders for their advice on making wise investments in technology, property and even the dentist.

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Industry concerns

A national survey from Bankers Healthcare Group, a leading provider of financial solutions for healthcare professionals, revealed that the most widespread concern among dentists is patients being able to pay for procedures and treatment. Of 413 licensed dentists who either own a dental practice or are independent practitioners and were surveyed in 2018 by BHG, 88 percent cited patients’ ability to pay as a top concern.

When asked to indicate other concerns within their practice, 86 percent of dentists said practice revenue, while 80 percent swept three categories:  managing practice finances, patient acquisition and keeping up with technology advancements.

“It’s clear that dentists want to have better control of their finances in all aspects of the business, whether it’s ensuring patients can pay for treatment or having the means to facilitate the growth of their practice and services by attracting new patients and making smart equipment investments,” says Al Crawford, chairman and CEO of BHG.
BHG’s survey also revealed that dentists are actively addressing their concerns or have plans to by the end of 2019.

For example, nearly half (48 percent) already transitioned to electronic medical records; 31 percent are currently expanding their marketing efforts; 30 percent have purchased new equipment; and 29 percent are upgrading office technology.

Within the next year, nearly a quarter (24 percent) of respondents said they plan to upgrade technology and purchase new equipment, while 23 percent plan to invest in marketing. When asked what pieces of equipment they plan to purchase, more than half (52 percent) said X-ray machines, while 30 percent said operatory chairs and 24 percent scanners. It’s interesting to note that general dentists are most likely to be looking to purchase a new X-ray machine, while intent to purchase chairs is more common among specialists like orthodontists, pediatric dentists and oral surgeons.

The data indicated that practice expansion wasn’t an immediate priority for the majority of dentists, but for those who it was, plans include: expand the number of operatories, add new specialties, bring lab work in-house, or expand the number of locations.

BHG’s National Survey of Dentists examines financial concerns, business outlook and social media use across dental specialties in the United States.

While most get into the field of dentistry because they want to help people, dentists are forced to become business people. Too often, however, that side of their profession gets overlooked.

“Dentists just need to be a little bit better educated on the expenses of running a practice, including how they allocate capital expenditures, the percentage of their production that needs to go toward rent, or the facility expense, or their lab expense,” says Dr. Phillip J. Fijal, DDS, FAGD, FICD. “They just need to be a little bit better educated, instead of just relying on their accountant’s profit and loss statement, which is really just a tax document to tell us how much we have to pay in taxes.

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“The education piece is probably the most important for all of us,” he continues. “A very wise man told me one time that ‘The numbers will set you free.’ If you know the numbers of your practice, you will be more confident in running it. As a past president of the Chicago Dental Society, one of the greatest educational opportunities is what they provide through their Midwinter Meeting. It’s open to all numbers of dentistry. Members of CDS get in the Midwinter Meeting for free. There’s a variety of courses that are available for people to learn these things - learn their numbers, learn what their staff costs should be, learn some leadership skills, learn how to present better dentistry - all that comes from the education side of it.”

Donning their business hat can be a challenge for some.

“That’s probably a hard thing for most dentists to transfer that mindset or change that hat that they would wear,” Dr. Fijal says. “Worst case scenario is that dentists make some decisions and find themselves financially in bad shape. That’s one thing that would, I guess, make them put the hat on of a business person. I think the other is they have to change their own mindset through some relationship with someone, either good or bad, in a financial situation to understand the impact of what good financial planning can do for them.”

Buying versus leasing equipment

A major trend in dentistry has been in the prevalence of digital dentistry, including intraoral scanning and chairside milling. While it’s true that those technologies are changing the face of dentistry, it’s also true that they come with hefty price tags. Dentists interested in adopting those technologies have to decide whether to buy or lease that equipment.

“Pros and cons of the equipment are, more or less, going to be dependent on the technical equipment, service provided and the term provided,” says Zach Raus, president of BHG’s lending division. “Overall, what is the acquiring cost to secure that piece of equipment? A couple of things to take into consideration: A smaller business looking at purchasing a relatively lower cost of equipment might consider a lease. When leasing equipment, there are greater tax benefits come year end, meaning a hundred percent of the leasing cost fees associated are tax-deductible, so there’s a substantial benefit on the tax side. Along with obviously lesser upfront costs, you don’t have to worry about the maintenance side of it. Most manufacturing companies or leasing equipment companies do have servicers in the surrounding area that can come out to help maintain that piece of equipment. There’s less of a responsibility at the practice to maintain the equipment and more time spent in other areas, like servicing patients.”

For those considering buying equipment, there are specific considerations to keep in mind.

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“Buying the asset, it’s an asset - increasing your net worth to the practice. That’s a huge, huge value add,” Raus says. “There’s also the freedom and flexibility to make particular updates to the machinery with no limitations. If I’m renting a property, I can’t go in and just update the appliances or change the flooring without first consenting from my landlord. And ironically enough, in my experience and conversations, there are a lot of healthcare practitioners that enjoy having the freedom and flexibility to make updates to the pieces of equipment that, maybe, allow them to run the equipment more efficiently. Maybe it makes them more self-sufficient, or maybe it will allow them to service patients in different areas that they couldn’t before.”

Making that decision requires thoughtful consideration, but the decision is based largely on how much money the practice has at its disposal.

“What it boils down to is: What is the cost of the piece of equipment and how much liquidity do I have at my disposal to buy the piece of equipment?” Raus says. “I’m buying a piece of equipment that’s anywhere between $50,000 and $100,000. That’s a big chunk of change and I am depleting my cash flow. So, can I afford it? And does it make sense to afford it?

“On the leasing side, if I’m looking to acquire a piece of equipment and I see that updates are being made out there, over a three- to six-year period, that allows the piece of equipment to run more efficiently and I don’t have to service it as much,” he continues. “But, again, can it increase my revenue? Is it more efficient? Then, heck yeah, I want to turn it in.”

When to buy new technology?

When the doctor decides to invest in new technology depends largely on what he or she wants to offer.

“What I love about the dental industry is that, at the end of the day, the work really comes down to the hands and the mind of the doctor,” says Gavin Shea, senior vice president, national director, healthcare for Wells Fargo Practice Finance. “Their clinical skills are really the most important driver about adoption. If they’re not comfortable with the technology from the skillset standpoint, then they’re not going to have the best patient experience just because they adopt the technology. I think it’s really, first and foremost, to improve the clinical skills that are required. The case presentation skills for the procedures that you’re already comfortable with, and then do a self-assessment before taking that leap.

“The second is to try and identify what you hope that technology will do for you,” Shea continues. “In the case of CEREC, for example, it has the ability to improve revenue and also bring some of that lab work in-house. It’s almost like in-sourcing - it’s an in-sourcing decision - and when you in-source certain technology, it’s because you have the right amount of patient demand to support the cost-benefit analysis. In that case, you kind of have to pencil it out and work with your financial adviser, your accountant, who can model that technology for you and show you what effect it would have on your financial statement by bringing it in-house and help you do a return on investment analysis.”

Lab expenses

The business relationship with the laboratory is a key consideration in the practice’s financial success.

“Dental laboratory expenses are one of the biggest expenses that the dental practice has,” says Dr. Neil Park, DMD, director of clinical affairs at Glidewell Laboratories. “It’s incumbent upon the dentist to manage those expenses wisely. It’s an expense that’s variable, based on your production. The more restorative cases you do, the more complex cases you do, the bigger your bill is. But that’s why it’s important to control it.”

Labs that keep up with technology and trends can deliver quality restorations.

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“There are a lot of new materials and new technologies and new processes,” Dr. Park says. “For example, 20 years ago, if you wanted to create a really beautiful crown that was strong and would hold up, it was a porcelain-to-metal crown. Well, metal is inherently not esthetic, and when you put porcelain on it, it gets a whole lot better, but it still doesn’t capture the true lifelike qualities that an all-ceramic crown would have. And now we have the ability to make strong, all-ceramic crowns.”

And it’s not that the practice is spending a lot of money for that quality. Because of various technologies’ maturation, prices are more palatable.

“Concomitant with that are lower prices,” Dr. Park says. “Twenty years ago, if you wanted to do a really nice, esthetic crown, you would probably pay around $250 for a nice layered porcelain-to-metal crown. Now you can get a beautiful BruxZir^® esthetic crown - it’s a monolithic crown, it’s zirconia, it’s much, much stronger. We’ve gotten to the point where you have beautiful, lifelike esthetics in an all-ceramic crown that’s like that original PFM was and far less expensive.”

Commercial real estate

Should the practice rent or own its own property? Shea observes that there’s not one blanket statement to cover that consideration. Rather, it really depends on the practice.

“On the commercial real estate property side, there’s never a way in which to make a generalized statement,” Shea says. “The first step that I would have any doctor take, as a current business owner, is really take an examination of the prior year and assess where their practice, in terms of overall expenses and management, was and compare that against information that they may get out of some peer network. There’s lots of great resources that are available for a doctor, a business owner, to compare their various expenses in certain categories to the general population and see where they may be sitting, over versus under.”

He does observe a trend in which practices are giving up their leased spaces in favor of their own properties.

“We’re seeing more and more of what’s called a ‘rent replacement,’” Shea says. “What it’s defined to mean is if somebody that’s operating a practice today has built up a pretty good business and is paying a certain amount of rent and has an opportunity to acquire real estate and develop a mortgage payment that’s less than the rent that they were paying, that is a great way to improve cash flow.

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“A second way is to stabilize cashflow,” Shea continues. “Because, depending on the term and the structure that we provide with your real estate loan, you can walk yourself into a fixed payment for the duration of that loan as opposed to having a lease renewal process that may subject you to increased cost and rent and market demand.”

But before the practice closes its current doors in favor of a different location, Shea advises doctors to make sure they know whether the new location can be successful.

“The one thing that I would make sure that any doctor knows with that type of scenario is really get an understanding of the demographics within that market, particularly if they’re moving,” he says. “You want to make sure that you don’t put yourself in a position where you might have found a great deal on a property to relocate your practice, but you’ve introduced some geographic or psychological obstacles that prevent some of your existing patients from getting to your new practice. Or, perhaps, if you’re hoping to attract new patients, maybe the community there is already well-served and that growth doesn’t really show up. It’s really important to make sure that you have a good study of the area to do that, but that rent replacement is certainly one trend that we’re seeing that doctors can take a look at.”

Patient financing

Dentistry isn’t free, and there’s only so much that insurance will cover. As such, patients may have to pay sizable bills.

“You have no revenue if you can’t service patients,” Raus observes. “We did a recent study where we surveyed and found that almost 30 percent of patients would be motivated to change providers if the provider offered a very affordable, alternative financing option at their practice.”

Depending on the dentist’s level of initiative and entrepreneurial spirit, he or she may elect to do patient financing himself or herself or outsource to a service that can handle the details on his or her behalf.

“The entrepreneurial spirit of mine tells me ‘1,000 percent create your own platform at your practice and account for the potential loss,’” Raus says. “Say, it could be anywhere between 20 to 30 percent, get 100 percent of your costs upfront and set aside 35 to 40 percent of that cost to account for any potential defaults.

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"But the fact of the matter is, and I don’t want this to be construed in a bad way, dentists are very good at being dentists, and some are not as skilled at being business owners, or financial savvy,” he continues. “It’s to the point where they could sit down and take a strategic approach where they are evaluating the mechanics of their program, what the default percentages are, all the different statistics, to determine how profitable they’re becoming with this.”

Making money is, of course, important, but so is maintaining relationships with your patients.

“If you offer your own financing option at your practice, you want to make sure that you can still take care of the patients and are servicing patients while making sure that you have a very strong finger on the pulse of the mechanics of your program,” Raus says. “It can be more profitable, but it can be more time-consuming. And that’s where I would, personally, probably look to an outside service and contract with them and offer their financial program at my practice. It’s less time spent. It reduces my risk as a practice owner, and I get at least a very high percentage of my income upfront, guaranteed.”

Manage costs

Dr. Park advises considering the lab’s business practices when choosing a partner. Since it’s such a large portion of the practice’s expenses, a variable that goes into this decision-making process has to be customer service.

“It’s important that they manage that laboratory cost because it’s variable, and as your practice grows, it’ll take a bigger and bigger portion of your revenue,” Dr. Park observes. “What you want to do is understand what your costs are before you begin any case, especially in the world of dental implants. We’ve seen people who quote a patient a certain price for a restoration, and then by the time they get finished working with a laboratory, they didn’t make very much profit because the laboratory cost was higher than they had anticipated. So, you want to work with the laboratory that gives you a case price that, even if you need two set-ups, or something needs to be redone, or if a shade needs to be changed, or something doesn’t fit, that you’re not going to be charged all over again. That this laboratory isn’t going to nickel-and-dime you and charge you a fortune for parts and all these other costs. You want to have a case price upfront.

“A good laboratory, like Glidewell, doesn’t charge for remakes because the remakes are typically not something that the doctor can control, and if he got charged for a remake, it would take away a significant part of the profit of the case,” he adds. “We don’t charge for remakes. We don’t get into that whole battle.”

Continuing education

Education may not, at first blush, sound like a way to make money. However, when one considers the new opportunities it creates, the benefits become obvious.

“Even though we were all well-trained in school, there are always new things coming out,” Dr. Park says. “There’s always people that have best practices they can share with you, and to really go out, take the best continuing education you can and continue to upgrade your skills all the time. I’ve been a dentist for almost 40 years now, and I learn stuff every single day.”

There are benefits to learning both new skills and brushing up on existing ones.

“You want to take things that will push your envelope a little bit, push you to the reaches of your skills, enable you to adopt new technology to put into your practice,” Dr. Park says. “And the other part is, it’s always time to look at the basics. For example, something as basic as taking a vertical and a bite for a full denture, if it’s been a few years, take a take a refresher course on that because we all develop our ways in practice and there’s always ways to improve that.”

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Learning new technologies keeps the practice current with modern dentistry. And, as a result, it can be more attractive to patients, which can equate to more production.

“The adoption of new technology is really important,” Dr. Park says. “For example, it looks like less than 20 percent of dentists in current practice are using intraoral scanners, and it’s a tremendous benefit. Most doctors who use them can’t imagine how they would get along without them, but it’s a big expense. It’s a disruption to your practice day. So, it’s an investment of time and money, but it’s where the future is, and your costs will go down after the initial buy-in period. Your costs will go down by using this new technology.

“Within the new technology, I would talk about newer materials,” he adds. “Something like PFM crowns, that’s still the most common restoration in dentistry, but the monolithics - like monolithic zirconia or lithium silicate products - are really a great way to go forward. They have better fit because of the milling process that’s used in manufacturing them. They’re extremely strong - they’re much stronger than a PFM - and it’s a better service for your patient. Once you make that change, you’ll never go back.”

Business education

In addition to their clinical skills, Dr. Fijal encourages doctors to brush up on their business education.

“Doctors, because of their nature, are very interested in learning about clinical skills,” Dr. Fijal says. “We love to see the preparation of the teeth before and after, but I think what they really need to focus on equally is the business side of it. They need to understand when an employee comes to them and says, ‘I want a raise,’ how do you know you can afford to give them a raise? We’ve never been taught the business side of it. Just because of our analytical nature, we love to learn about the analytical stuff; that’s where we’re comfortable. But the business side of it, the leadership side, we’re not comfortable with because it’s harder for us. It’s not really in our genetic makeup.”

A good source for those skills is from other more experienced doctors.

“There are mentor programs, even within our own organization,” Dr. Fijal says. “We have a mentorship program where older dentists meet with younger dentists and kind of get paired up.

“A young associate working for an older doctor is also a great resource, if the older doctor has been educated himself,” he continues. “Any doctor will get into a situation where they might buy a piece of equipment and not know whether they’re going to get the return on investment for that piece of equipment. We can get sold it by the vendors and manufacturers, but we’re not really sure if it’s going to produce for us what we need it to produce, based on the cost of buying the equipment versus what it can do for us and selling dentistry or helping us to do better dentistry.”

Debt consolidation

Dentistry is like any other business, and debt must be managed. Over time, dentists may find themselves with a number of individual financial liabilities. That burden can be somewhat ameliorated by consolidating multiple debts into one.

“What this boils down to is making sure you have a finger on the pulse of your debt outstanding,” Raus says. “As much as you are so focused on your dentistry work, if you own a business, you have to be very good at being a dentist and have to be very good at being a business owner. A big component of that business is the amount of debt that you have outstanding. And you have to know, at all times, what you have going out and what you have coming in.”

Understanding your financial responsibilities, along with the current financial landscape, is an important place to start.

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“Take a look at your debts, pay attention to the market research in determining what lending institutions are currently offering, and see if there’s an opportunity to wrap up your debt into either one or two loans outstanding,” Raus says. “It’s more organized. You’re more efficient in making your payments and, obviously, saving money on interest and having the flexibility to be rid of the debt in a shorter period. I want to have a very low monthly payment, and what’s important to me when I secure a loan is how soon I can pay it off. I want to be in a position to either accelerate my payments or pay it off in full.”

False economies

The idea of a false economy is one where you seem to save money in one area, but it winds up costing more money in the long run. The proverb “You get what you pay for” certainly applies to dental labs, and when choosing a partner, beware of a company that seems to offer too good of a deal.

“There’s a chance for false economies,” Dr. Park says. “You’re a dentist in your office and you get a mailer for a $39 or $49 crown. Well, chances are it’s off-shored. So, if it’s made in the Philippines or it was made in China, it could be fine, but you’re obviously going to have less control because it’s going to take longer, it’s going to leave the country, it’s going to go into in a container, and it’s going to be shipped via whatever transport method. And then there is no true control over the quality of material when it’s off-shored.”

One of the places where off-shoring saves money, materials, can result in poor quality restorations.

“For example, take zirconia,” Dr. Park says. “There are a lot of companies that make really high-quality zirconia. They use powder from Tosoh, which is a Japanese company, that very carefully monitors the quality of their zirconia powder. And then there’s many, many other suppliers who don’t use a high-quality power, and then you don’t know what kind of impurities are in there. There’s all kinds of things that have been detected in these other brands of zirconia, so you just don’t know, when you off-shore it, what’s in a generic brand of zirconia. You’re really talking about a false economy because to save $20 on a crown that’s got a fee of more than $1,000 is kind of a false economy.”

Practices don’t need to chase a cheap crown just to save a few dollars. Current trends in technology and materials can give high-quality restorations at affordable prices.

“We have the opportunity, with the newer materials and the trend toward automation, where things don’t have to be off-shored to be done at a reasonable price. That’s a big benefit. Because of these two trends, there’s really less pressure to go off shore in order to lower the price.”

Another source of false economies is trying to take shortcuts. Skipping a step or two can result in a badly produced restoration.

“Don’t cut corners in your work,” Dr. Park advises. “For example, doctors will often take a triple tray impression, and they’ll do that for something like a four-unit bridge. That type of impression is okay for single crowns, where there’s a more posterior tooth, but it really will result in more remakes if you do it on a short-span bridge, or again, a four-unit, three-unit bridge. You see doctors sometimes on a big implant case and they’ll skip the verification of the master model because sometimes it’s an extra appointment and they don’t want to put the patient through that or take that much chair time. But in dentistry, every step in a prosthetic process is built upon the previous steps, and if there’s an error in those previous steps, that error is compounded going through. Skipping steps is a false economy, and it’s a good way to get in trouble.”

Incremental improvements

Practice improvements don’t have to be huge endeavors. Several small improvements - made over time - can be more palatable and produce positive results.

“One of the things that I saw in the early part of my career was that business lending used to be done one time, upfront and for all time,” Shea says. “The doctor would generally equip their practice in a way that would meet their needs for the duration of their practice and borrow and invest in their practice that one time. What I’ve seen over the last several years, I would probably say over the last decade, is a much more frequent reinvestment in technology and equipment to help improve the patient care and even attract more patients to the office.

“What we’re seeing are doctors that are making more frequent investments to upgrade their equipment, adopt new technology and offer services for their clients as a way to grow revenue,” he continues. “As such, we’re seeing clients come back to us and borrow more - albeit in smaller amounts than the initial set up - and becoming more frequent users of capital to invest in equipment and grow their revenue.”

That trend, Shea says, is because patients expect more.

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“I think a lot of that is in response to the increase in consumerism that we’re seeing with patients,” he says. “They’re looking at different services and evaluating their dentists just a little bit differently, and they’re attracted to some of those enhanced services and the conveniences associated with that equipment and the technology that’s brought.”

Plan for retirement ASAP

While doctors strive to make the practice successful, in the here and now, they mustn’t forget to look ahead to their own future.

“Younger dentists need to start looking at their own retirement,” Dr. Fijal says. “They can’t rely on just the sale of their practice to support their retirement. My father was a dentist and he told me, right from the get go, to start putting money away for my kids’ education and my retirement. It can be a little bit early on, but doing it on a regular basis, from the minute you get out into practice, is the only way we can retire with comfort, somewhere near what we’re making in income when we are in practice. My father didn’t do that, and he gave me the advice from someone who hadn’t done it, knowing that it was more difficult for him in retirement.”

Dentists have enough to worry about just keeping up with the actual demands of dentistry. The added responsibility of being a businessperson is a whole separate challenge. But by being cognizant of financial trends and their own money matters, doctors can help their practices to thrive and put themselves in a position for a comfortable retirement.