Have there been times you’ve contemplated a major change in your practice and didn’t know if it was financially feasible? Perhaps you wanted a better work-life balance and wanted to scale back a day, hire an associate or take an extended vacation. You may want to start a practice from scratch, move to a new location or invest in new dental technology. These situations can be stressful if you don’t understand the potential financial outcome of the decision. Developing an annual plan or multi-year plan can put your mind at ease as you see the bottom-line impact of the changes you are contemplating along with the cash flow the plan generates to cover your long-term debt and personal financial needs.
Developing a plan focuses on three key areas: (1) the revenues of the practice, (2) the direct and indirect expenses of the practice and (3) upcoming capital expenditures.
When developing revenue or production goals, establish production goals for each provider, starting with a daily goal. The daily production goal considers anticipated fee increases and productivity improvements that can be accomplished through improved utilization or offering a new service. Discounts and adjustments also impact revenue, so a ratio is calculated for discounts based on insurance participation, membership plans and other factors in the practice.
Next, evaluate the practice expenses by focusing on the largest expense, staff wages and benefits. During the planning process, review your compensation and benefits package. Perhaps you are contemplating adding health insurance to become more competitive when looking for and retaining staff. Pay rates are rapidly rising, so it’s important to review staff compensation and adjust appropriately. In addition to an hourly or salary increase, a bonus program may benefit your team but tie compensation to specific and measurable goals.
Review all other expenses to determine if the expense will go up or down. Perhaps you would like to place implants or expand into sleep dentistry. What CE courses will you need to become proficient in those areas? Identify the course costs along with any travel expenses you will incur. Perhaps you want to let your community know about your new service offering so you will invest in more advertising. What are your advertising plans and budget to incorporate into the plan? Lastly, identify any capital expenditures you will incur, such as purchasing a digital scanner or cone beam. Determine if you pay for that purchase immediately or finance the purchase.
After all the revenues and expenses are defined, the plan will show you the income available to pay your salary and benefits, the cash generated to cover long-term debt payments, and excess cash available for personal needs such as paying off student loan debt.
Dental Practice Advisors can assist you in developing an annual plan or multi-year plan to help you make informed decisions based on financial outcomes. To learn more, please contact Paula Meehl at [email protected].
