Roger P. Levin, DDS, MBA
Profitability has never gone out of style, but it certainly seems to be the focus of business in the new millennium. For the past 10 years, American businesses and dental practices have grown at an unprecedented rate.
The reason profitability will become even more important in the new millennium is because it?s inevitable that all business growth will slow down, depending on the degree of change in the economy. Most financial and economic experts agree that the upward business cycle cannot continue, at least not at this pace. When the economy begins to slow down, so will all businesses, including dental practices. Whenever growth slows down, business owners begin to refocus on profitability. When a dental practice is growing rapidly, overhead often is allowed to grow and investment in the practice increases in hope of a long-term return on investment.
To the contrary, when the economy slows down, dental practices will need to focus on increasing the actual profit to the practice ? growth alone will not increase overall profitability!
Profitability techniques
Certain approaches can increase business profitability. Evaluate where you stand in the five areas that follow. You may want to use your evaluation as a checklist and refer back to it every four to six months to gauge your profitability position:
Facility cost ? Building an office that ends up being too large and expensive can be a primary reason for dental bankruptcy. Careful return-on-investment analysis can prevent problems. While a practice will never get into trouble for adding one or two treatment rooms, some practices do create problems by making certain size-increase decisions too soon.
Staff size ? Staff size also influences overall profitability. The Levin Group recommends a start-ratio analysis for practices, as well as a specific labor percentage for each specialty. Exceeding that percentage means that the practice has not maximized staff costs to gain the proper return on investment. Many practices are 5-7 percent too high in regard to staff costs.
New patients ? During the past economic upswing, many dental practices have begun to schedule new patients everywhere and anywhere, with the goal of just getting them scheduled. This obviates the benefit of scheduling by production and profitability. As a result, many new patients requiring highly productive procedures are put off or lost.
Maximizing profitability today is the primary goal. Scheduling should be based on case size and referral source, and a specific number of new patients should be seen daily, weekly, and monthly. New patients are the lifeblood of the practice. Many busy practices do not realize that they are decreasing the production in the new patients they attract. In a slightly slower economy, this could have a significant effect.
Technology ? Success-oriented practices must invest in technologies that provide a return on investment and/or increase speed and efficiency. Many American factories have modernized to reduce costs over a five- to seven-year period, and so must dental practices. Some technologies make absolutely no financial or clinical sense. Other technologies provide outstanding opportunities to make the practice more efficient and successful.
Budgeting ? All Levin Group management clients go through an extensive, yet streamlined, budgeting process. Only after practice expenses are broken down into categories, and expenses and revenues are projected for a 12-month period, does the practice have the opportunity to understand its position (high or low) in relation to revenue, expenditures, and profit.
The budgeting process and purchasing planning can make a tremendous difference in overall profitability. These great economic times have allowed many practices to spend money more freely, which, when the economy slows down, may become a problem.
These are only a few of the areas that are necessary to evaluate profitability. Budgeting alone includes 21 areas that should be evaluated monthly, quarterly, and annually. Taking a micro look at the practice creates tremendous opportunities for return-on-investment and success. Many professionals are less likely to properly evaluate the practice on a regular basis during the Ogood times.O The purpose of this article has been to encourage excellent management to be put in place today so that you will continue to enjoy even more success tomorrow.
Roger P. Levin, DDS, MBA, president and CEO of The Levin Group and the Levin Advanced Learning Institute, provides worldwide leadership in dental management for general dentists and specialists. Contact The Levin Group at (410) 654-1234.
