Should your staff understand your dental practice's financials?

September 30, 2016

Article

Should your staff understand your practice’s financials? The short answer is yes. How can your team appreciate the effects of their actions unless they do?

Good staff members want to make positive contributions to your practice. They also want to be recognized for their contributions. When staff members have a vested interest in your practice, they perform better. A vested interest in your practice, by definition, means that the staff has some knowledge of the practice’s objectives and finances.

Let’s address the elephant in the room: “If the staff knows the practice’s finances, everyone will know how much I make.” Perhaps, but with the average income of solo practitioners dropping, it is very likely that the staff assumes that you make more than you really do. Even if that is not the case, there is no question that you spent a great deal of time, effort and expense obtaining your education. You provide valuable services that warrant an excellent income. The additional financial investment that you’ve made in your practice, facilities and staff justifies an additional return on your investment.

Your staff also needs to understand that there is a difference in the practice’s net profit and your income. For example, profits need to be placed in reserve for acquiring ever-emerging new, and sometimes expensive, technology. If you’re renting, you may be placing funds into reserve for a down payment on your future practice location. And let’s not forget your professional student debt.

Now that you’ve made the decision to share the financial status of the practice with the office, what do you focus on? Production (both gross and net), collection and expenses are the financial focuses of every practice. Virtually all consultants will look at production per hour and, in some cases, per minute. You need to feel comfortable with each facet of your practice’s finances in order to explain them to your staff.

In order to look at real number examples, let’s make a few key assumptions:

Production: $750,000

Practice overhead: 65% (80% fixed; 20% variable)

Supply cost: 7%

Lab fees: 7%

Hygiene/hour: $125.00

Dentist/hour: $300.00

How does a change in production affect your net income? A five-percent increase or decrease in production results in a 12-percent change in net income. Remember that 80 percent of your expenses are fixed. They won’t go up with an increase in production. Much of the increase in production will, therefore, be pure profit. Now you have the basis to sit and talk to your scheduler, treatment plan coordinator, hygienist and assistant and explain their part in the plan.

If your practice is producing $750,000, a five-percent increase in production equals a $32,625 increase in net profit. Remember, this increase requires additional work. So, if you have excess capacity, your staff can be directed to focus on increasing production based upon either scheduling more patients or scheduling more procedures per patient. The entire staff can be involved in “selling more dentistry.” The increase in production should be more than adequate to offer your staff incentives for helping you achieve your vision.

Another way to look at production is production per hour. If your hygienist has three hours open per week, you’ve lost $375 per week in production. Over the course of 48 weeks, that is $12,480 in lost profit. Additionally, if you have three open hours per week, you’ve lost $34,560 in profit. Three open hours for one hygienist and one dentist can result in a combined $47,040 in lost profit. Doesn’t it make sense to be sure that your staff understands these numbers, is empowered to help you achieve them and get rewarded for doing so?

Continue to the next page to see how changing your fees can affect profitability...

How does changing your fees affect your profitability? Clearly this is a function of the percentage of your practice that is dedicated to PPOs and/or state and federal programs. Assuming a 100-percent fee for service practice, a five-percent increase in fees will result in a 14-percent increase in net profitability. Since the increase in revenue did not require any additional effort or supplies, an increase in fees will result in a larger increase in profitability than an increase in production.

If 50 percent of your practice is not fee for service, then a five-percent increase in fees will result in a seven-percent increase in net profit. For our $750,000 practice, that is $23,520.

Seeing the dramatic potential effect of increasing fees and increasing production, you’re still wondering, “What about those really big expenses, like our supplies and lab fees?” While these are the first things that everyone thinks about when looking at profitability, focusing on them is, by far, the least effective means of increasing profitability. A five-percent decrease in supply or lab costs will result in a one-percent change in profitability. In our $750,000 practice, that translates to $2,625.00 in profit.

There is no doubt that controlling lab fees and expenses is important. However, when you look at the effect of increased production and increased fees versus decreased supply costs and/or lab fees, where is your team’s time best spent?

Giving your team insight into your practice’s finances shouldn’t be viewed as a threat. It is one important piece of the management puzzle that helps empower your staff to help you achieve your professional vision and personal dreams.

Sikka Software has tools to help you track performance and manage your finances. To get started click here or download the free app for android and apple devices.