Funding your retirement
You`ve done the hard part - decided on the retirement plan that`s right for you. Now you`ve got to fund it each year. Where do you start? Look to your dental practice.
You`ve done the hard part - decided on the retirement plan that`s right for you. Now you`ve got to fund it each year. Where do you start? Look to your dental practice.
James R. Pride, DDS
The statistics are staggering ... only 6 percent of the dentists in America are fully funding their pensions. "Fully funding" means funding to the maximum allowed by law - generally, $30,000 a year or more - not just a simple IRA contribution. This means that, if you`re like most dentists in this country, you either won`t retire or you`ll experience a huge lifestyle change when you do. In two previous Dental Economics articles by Brian Hufford, a CPA and CFP, you read about strategies for freeing up cash flow by restructuring debt (January 1998) and selecting the right retirement plan (March 1998). The question now becomes, where is the money going to come from, year to year, to ensure that you can fully fund your retirement to the tune of $30,000 or more annually? The answer is: From your dental practice.
Let`s start with determining the amount of money you`ll need to put away. For the sake of discussion, let`s assume you are 39 years old. Depending on the ages of your staff members and the type of plan you have, you`ll typically need to contribute $30,000 for yourself and between $5,000 and $6,000 for the staff, per year. With a 13 percent return on your investment, this will give you retirement savings of $5,305,503 by age 65. The younger you start saving, due to the power of compound interest, the more you will acquire.
If you are 45 years old, or older, the situation is dramatically different. To maintain the lifestyle that most dentists have become accustomed to during their working years, their pensions need to accumulate between $1.5 and $2.5 million dollars before retirement. If you have 15 to 20 years until you retire, $30,000 contributed per year with compounding interest will get you there. If you have less than 15 years, you`ll need to be putting away $40,000 to $70,000 a year for yourself and the appropriate amount for staff members in a defined-benefit plan.
Not feasible, you say? It is entirely feasible. How does a dentist find an extra $30,000-plus per year without experiencing a dramatic reduction in lifestyle or elevated stress trying to increase production? The key lies in specific planning and knowing how to improve the existing systems within your practice. Let`s look at a step-by-step strategy for putting the cash you need within your grasp.
After identifying the type of retirement plan that is best for you, have some of your retirement funded by IRS-sanctioned rules that currently allow you to deduct your pension contribution from the amount of taxes you pay. This is accomplished by restructuring debt to free up the total dollars needed for the pension contribution. This approach assumes there will be no increase in income to make up the difference.
In other words, if you are in the 40-percent tax bracket, 40 percent of your pension contribution can be made with money that would have gone to Uncle Sam. For example, dentists needing to fund $30,000 to their pension can assume that 40 percent of this amount, or $12,000, will come out of what they were going to pay in taxes. That means that the balance needed to fully fund the retirement plan is only $18,000, not $30,000.
A debt restructure involves consolidating loans, extending the mortgage on your home and then paying off the home mortgage from the proceeds of the pension at a later date.
Upon retirement, the dentist has a fully funded pension and part of the money can be used to pay off the home loan. Not "conventional wisdom" perhaps, but running the numbers on this model more than proves its validity and is nothing short of amazing (See Dental Economics, January 1998).
Before you object, consider the fact that approximately 50 percent of dentists haven`t increased their fees in the last two to five years and that appropriate fee increases can be anywhere from 2 to 10 percent, depending on the procedures in question. Feeling trapped by third-party insurance plans that dictate what you can charge? Some dentists are choosing to reduce their involvement with such plans. Again, let`s consider our 39-year-old dentist. If the dentist has very little debt, or is reluctant to refinance a major portion of debt, then he needs to increase productivity and the net cash flow of the practice to fund the pension.
This is not nearly as difficult as some people might think. If the dentist needs to contribute $30,000 for himself and has five staff members requiring contributions of $5,800, the dentist needs to come up with $35,800 in net cash from the practice.
This $35,800 will need to come from increased cash flow within the practice. Considering variable expenses (laboratory and dental supplies) and about 1 percent of additional costs, which will be used to generate the extra dentistry, let`s assume about 17.5 percent of the extra production will go toward paying expenses related to doing the increased production. One hundred percent of the production minus 17.5 percent equals 82.5 percent. Dividing .825 into the $35,800 the dentist needs for his pension contribution gives us a dollar goal of $43,394 in total production needed to net out the $35,800.
Because this dentist is collecting 98 percent of production, he needs $44,280 to net the $35,800 for his pension, after variable expenses and factoring for uncollected fees. Let`s assume that this particular dentist works 1,692 hours per year (8 hours a day, 4.5 days per week for 47 weeks) and produces $695,000.
If the dentist were to increase fees by 6.4 percent, this would result in $44,480 more a year (6.4 percent of $695,000) or $26 per hour and $210 per day. This is within the range of a reasonable fee increase if it has been several years since the last one.
But what if the dentist is older, say 51, and needs to fund the retirement plan at a higher annual amount - $66,525 for herself and $14,175 for her five staff members for a total of $80,700 per year? Considering the 17.5 percent in variable expenses needed to increase production by this net amount, and the fact that this dentist is collecting 98 percent of production, the dentist needs to do a total of $99,814 more in production to capture the $80,700. Let`s assume, as before, that the dentist works 1,692 hours per year and produces $695,000.
The $99,814 additional dollars needed is 14.4 percent of production. A 5 percent fee increase provides $34,750, leaving additional production of $65,064 needed. Therefore, the dentist will have to increase production by $59 per hour or $474 per day (of which $21 per hour or $164 per day will come from the fee increase).
Of course, this increased production assumes that the dentist`s patient base can support the dentistry. The dentist and team are going to have to sharpen all of their management skills to produce the needed dentistry.
This dentist needs to ask herself if she truly is diagnosing quadrant dentistry. Everyone on the team must have the verbal skills to educate their patients on the need for sound dental care and, more importantly, overcome patient mindsets to have only the dentistry allowed by their insurance plans each year.
If your practice cannot ethically support a fee increase or you are like our older dentist who needs more than a simple fee increase to make up the difference, you must rely on improving the systems in your practice.
Four essential systems will bring you the increased cash flow you need to fund your retirement year after year, even without a fee increase:
New-patient examination and consultation
You do them all the time ... no need to improve on what you can do with your eyes closed, right? Only 5 percent of American dentists do comprehensive, optimal-care dentistry. Such dentistry is best served with one to two-hour, new-patient appointments and high-quality, comprehensive examinations.
In most cases, such dentistry requires a separate consultation a few days later in which the dentist uses careful verbal skills and the patient`s own motivators and concerns to present the dentistry needed by the patient. This is not about over-diagnosing. It is about giving the patient a total picture of his or her current oral health. Too many dentists minimize the disease states when verbalizing them to the patient - "You have a little periodontal disease" or "There are a couple of things we can look at. You might need a crown or two, but there`s no hurry," etc.
To get the patient`s full attention, speak factually using benefit statements before describing the problem. "You said keeping all of your teeth was important to you. With that goal in mind, it`s important for you to understand that you have the following immediate areas of concern in your mouth...." Of course, this requires trust on the part of the patient. And trust is built, from the patient`s perspective, based on how he or she relates to the new-patient examination. Dissect your new-patient examination process and compare your practice with the following criteria:
* When a patient calls the office, the telephone is answered in two to three rings by a caring, friendly staff member who never sounds rushed or indifferent.
* Anyone answering the telephone is trained to ask appropriate questions to help identify the most appropriate type of appointment, building value for that appointment (educating new patients briefly on what they can expect) and listening to the patients` concerns and desires.
* A Telephone Information Slip is completed to ensure that everyone in the office is briefed on specifics about the new patient so that when the patient arrives, he or she has a feeling of being among friends. Call your office (or have a qualified person do it) and find out just what is the routine for welcoming, educating and understanding your new patients` wants and needs when they make that pivotal first telephone call to your practice.
* Patients are sent a quality welcome packet with coordinated forms, information and a map to the office.
* Lack of parking is never a reason why patients are late for appointments.
* When patients open the front door to the office, they see and smell a pleasant environment that reflects a high level of quality and customer service. Video tape your office through the eyes of your patient. Start with the parking lot and scan through the office. Show the tape at a staff meeting and discuss inexpensive upgrades (i.e., weeding and picking up trash in the parking lot, new paint, etc.).
* A new-patient examination is one to two hours in length.
* The first 20 minutes of the examination is spent interviewing the patient and listening to the patient`s wants and needs regarding his or her oral health.
* The charting system is comprehensive and allows for the documentation of patients` current clinical findings, as well as their motivators and concerns. The latter will be important information during the consultations to help patients understand and accept the recommended treatment.
* The dental team is fully trained on specific communication skills, such as active listening and overcoming patient objections. The team practices these skills in weekly training sessions.
* Time is spent during the new-patient examination to educate the patient about the purpose of his or her dental benefits (these benefits aid in attaining treatment, but should neither dictate the type of treatment nor when the treatment is best delivered.) The patient participates in co-diagnosis activities to help understand the need for the dentistry. Finally, the patient is debriefed (using specific verbal skills) about what occurred during the appointment and the importance of keeping the next appointment.
* Consultations never are delivered during the same appointment as the examination unless the diagnosis is minor. Instead, careful thought is given to the words used to present the needed treatment to the patient, using the patient`s own words whenever possible, so that the patient will be motivated to accept the care.
* Status Exams are conducted (a new-patient-styled examination for patients of record, especially those who have had no significant restorative care for five years or more and have been seen only by the hygiene department) to assure high-quality, timely diagnoses. Audio tape or video tape your next new-patient exam (ask the patient for permission first). Review the tape and put yourself in the patient`s position. Decide what can be improved.
(2) Appointment book control
Over 70 percent of the offices in which we have consulted since 1976 have been able to substantially increase production by properly arranging patients in the appointment book. If a dentist has openings on the current day and is not able to consistently fill even one day, the issue is one of marketing for patients. However, if a dentist is booked two or more days ahead, it is possible to take control of the appointment book and dramatically increase revenues as well as reduce stress on the team.
Specific guidelines and training exist for issues such as ensuring the majority of the production occurs in the morning, overlapping doctor and assistant time and properly handling emergencies and last-minute cancellations. Look at your appointment book (or computerized version) and compare it with these criteria:
* Each page contains just one day`s appointments (not weekly).
* Each treatment room is assigned a specific column on the appointment page.
* A daily production goal has been identified and is coded on each page.
* Production has been preblocked with the correct number of "significant dentistry" appointments to assure the daily goal is met.
* The appointment coordinator knows the correct verbal skills for motivating patients to accept pre-blocked appointment times.
* Patients scheduled for appointments days or weeks away are called when earlier openings occur so that there are never gaps in a day.
* Appointments are overlapped (not double-booked) and codes are used to indicate the whereabouts of the dentist and chairside assistant to make overlapping possible. This technique also allows scheduling of emergencies without eating into the team`s lunch hour or after-hours` time.
* Procedures and the amount of chair time required are noted to assure an efficiently scheduled day.
* The patient`s telephone number never is written on the appointment page. Instead, the chart is pulled whenever there is communication about an appointment. This way, the appointment coordinator can have ready access to information about the nature of the appointment and notes about the patient`s motivators.
Gather the five best and five worst schedules you`ve had in the last quarter. Use the best days as examples of "ideal days" and conduct training for your entire team to ensure the worst days are behind you.
(3) Make care affordable
Today, dentistry must be made affordable. This does not mean "inexpensive," but something patients can manage out of monthly budgets. Why bother to diagnose and present excellent dentistry if your patients perceive they can`t afford it?
A sound financial-arrangements system means eliminating surprises for patients. After all, poorly handled financial arrangements continue to be the number one reason why patients leave a dental practice.
Consider the patient for whom no specific financial arrangement was made and who is still paying off the crown that he had earlier in the year. Maybe the patient hasn`t sent in a payment or two and is afraid you are going to talk to him about his outstanding balance. This same patient also is delaying his next hygiene appointment because he feels embarrassed about the payment situation.
Think about all of the patients who are lost because their insurance changes and they are unaware that you work with your patients to make their dentistry affordable.
How about the patients who get downright angry because they didn`t understand the interest charged to their accounts after 90 days? As a result, they now are ending a nine-year relationship because of a $3 charge on their last statement.
Compare your financial system with these criteria:
* All financial arrangements are in writing and signed by the financial coordinator and the patient.
* A specific, written set of financial guidelines is followed.
* Your financial administrator is a skilled negotiator.
* A specific time is set aside weekly to follow up on overdue accounts.
* Statements are sent out on a timely schedule, with a due date and a place for a credit-card number.
Create financial guidelines for your office. Be sure to include items such as minimum monthly payment amounts, down-payment criteria and payment options. Pull five accounts that are 90 days past due. Check for written financial arrangements and collection notes on each. Train appropriate staff members to negotiate and follow up with patients to assure win/win financial arrangements.
(4) Have fun and celebrate small wins
Somewhere back during their serious absorption with dental school, or because of the intensity of day-to-day work, many dentists have neglected to grasp one of the most basic business principles - having fun! If we want to fund our retirement out of profits from our dental practice, we have to start having fun at work.
Think about the difference between driving to work and driving to a favorite recreational activity. Driving to work may produce feelings of anxiety, boredom, stress.... Driving to a favorite recreational activity may produce feelings of anticipation and enthusiasm. The skill lies in being able to transfer the positive feelings into situations where they may be lacking. Here`s how:
* Have written goals. If goals are not written, usually they are forgotten by the people who have to help accomplish them.
* Employees should be involved in the establishment of the goals. Otherwise, they may not have a sense of "owning the responsibility" for successfully attaining them.
* Goals should be measurable and specific so that they can be tracked.
* Track your results. The most successful offices have standards, guidelines and goals for everything. Some examples: treatment acceptance for new patients (85 percent of dentistry diagnosed), treatment acceptance for patients of record (90 percent of dentistry diagnosed), number of new patients per month (90 percent from internal referrals and 10 percent from other marketing activities and reduced-fee insurance plans combined) and production per hour for the dentist (for the general dentist: $200 to $400-plus per hour).
* Celebrate your successes! Plan daily, monthly, and yearly celebrations with your team. A daily celebration might be verbal praise given in the Morning Huddle. A monthly celebration might be a team lunch in honor of reaching the goal for new patients. An annual celebration might be in honor of achieving your annual plan goals for production. This special cause for celebration could be a nice dinner and an evening at the theater, a day at an amusement park or a half-day at the local shopping mall with cash thank-you gifts for team members.
There is so much you can do to fully fund your pension plan. Do quality dentistry, listen to your patients and help them afford treatment, monitor your results and, most importantly, start having fun! Then, watch as your pension contributions begin to grow.
The top 10 things your team can do to help fund retirement
(1) Possess a positive mental attitude. It`s contagious!
(2) Improve specific verbal skills for building value for the needed dentistry and the treatment delivered, for managing the appointment book and for negotiating good financial arrangements.
(3) Educate patients about the purpose of their dental benefits (benefits are an aid to receiving treatment; they should not dictate treatment).
(4) Look for solutions and actively participate in problem solving without blame.
(5) Accept personal responsibility for all duties performed, help other team members and be a continual learner.
(6) Help develop and monitor goals and statistics. Understand the personal effect you have on assuring that specific goals are met.
- Follow scheduling guidelines to keep production balanced throughout the day, week, month and year.
- Understand and help update office job descriptions, training charts and procedural manuals.
" Take risks and applaud others when they try something new. Be positive about every learning opportunity.
" Be the most professional health-care provider you can be and have fun in the process.