Four variables make the difference in dental practice: clinical skills, behavioral skills, business skills, and the time dedicated to develop them. Think about the business skills you need to master.
In his best selling book “The E-Myth Revisited,” Michael E. Gerber spins a tale about a woman who makes incredible pies. Her friends, dreams, and aspirations convince her to open a bakery. Well, she spends long, backbreaking hours using her hands to make as many pies as she can, and she never really develops a business. Instead, she is the business - her hands, heart, and long hours.
There is a difference between baking pies well and running a business. The “E-myth” is that having a talent to perform a task (such as dentistry) well usually does not translate into running a business well when it engages in the sale of those goods or services. Gosh, why didn’t we read that book during dental school and take a few business classes as prerequisites?
Understanding the business of dentistry improves your ability to make sound, logical decisions that help you succeed financially and spiritually. I say “spiritually” because it is difficult to be in balance or have peace of mind if you spend nearly every hour making - or worrying about making - enough money.
I met people at the right time in my career. As Dr. L.D. Pankey always said, “When the student is ready, the teacher appears.” While still in school, my good friend Cam was an accountant who helped with our tax returns. He explained to Denice and me that we also would be opening an IRA for $4,000. When I said we didn’t have $4,000, Cam said, “No problem. Just head over to your branch bank and borrow it. Then redeposit it into a CD there.” At the time, a CD was yielding some 18 percent. I thought he was nuts, but we did what he recommended for three years before we were able to fund an IRA with my first-year of income as a dentist on my own. That $12,000 Cam made us borrow and put aside at 22 years of age will be worth nearly $800,000 when I am 61.
I did not understand the Rule of 72 then, but I sure do now. You divide 72 by the rate of return to determine how many years it will take to double your initial investment. Keep that money at work and it doubles and doubles again. My borrowed $12,000 has been invested at an average 11 percent rate of return. At this rate, it will double six times in 39 years from the time I was 22 until I turn 61. For me, that’s $24,000 to $48,000 to $96,000 to $192,000 to $384,000 to $768,000 - all from a measly $12,000 loan.
In 1987, I attended my third continuum at The Pankey Institute. Chris Sager, my friend and mentor who has been the executive director of The Pankey Institute for the past 20-plus years, talked about planning our year in advance. He challenged us to think about how much money we would need to fund our retirements, run our businesses, pay our staffs, live in our houses, and so on. Then, he took us through an exercise that seems sophomoric in 2005, but it is still appropriate. How much would we need to produce to collect the amount necessary to cover the above? And then, how many days of work would produce that amount, and at what hourly rate? How much would we allow for marketing, dental supplies, lab support, payroll, and so on? He was weaving a budget into the fabric of our business lives.
Dake Schwarte, the Institute’s business systems development faculty director, told the story of consulting with his mentor, Dr. Richard Green, when his wife was rebuffed by the term “budget.” Dr. Green recommended Schwarte call it a “spending plan.” They are only words, but they make a huge difference emotionally. Planning your year in advance and achieving financial goals is sound business.
Financial freedom comes when you can live on less than you make. (Invest the rest.) Financial independence occurs when you can live off your investments.
Dr. Pankey always said that a fair fee was one the patient could pay with gratitude and appreciation. Our rewards in dentistry are more than cash. Sager also reminds me that altruism without reward will fail. We must make sound financial decisions because no matter how good our intentions, we help no one when we are bankrupt.
Tools such as return-on-investment calculations help decide plans and purchases. Deciding the monetary portion of a fee that is fair to patients and your practice is good for everyone. Learn fundamental business principles. Find a place where you can be mentored and that will help you prosper clinically, behaviorally, and financially.
Mark T. Murphy, DDS, FAGD, practices restorative dentistry in Rochester Hills, Mich. He is director of continuing education at Dental Technologies Inc. He is on the board and visiting faculty of The Pankey Institute. Dr. Murphy can be reached via e-mail at firstname.lastname@example.org.