by Roger P. Levin, DDS, MBA
I recently reviewed the financial information of a new client. The client's practice, located in a mid-sized city, was producing approximately 15 percent above the average practice and had a 77 percent overhead.
The dentist was seeing patients four days per week. He reported that he was stressed and his office felt slightly "out of control." Practice growth had been a steady 8 percent the past few years.
My number one concern for this practice was overhead and low profit. Additionally, the practice had almost no cash in reserve. The bank account was emptied each month for the practice to pay its bills, with the dentist taking whatever was left. This dentist had significant personal expenses; his oldest child was about to enter college, and another would be college-bound within two years.
We began by setting a goal to increase the practice's cash reserves by lowering overhead and increasing the overall production.
The practice was capable of increasing production once basic systems were rearranged. The doctor was working too hard and producing a less-than-acceptable return by filling up his days with any patient or type of appointment.
We reorganized the schedule to accommodate the current patient flow in three days per week. The practice schedule was also streamlined to be booked no more than two weeks in advance.
This efficient time-management strategy resulted in an extra day per week that could be devoted to more comprehensive and productive cases.
Like many practices, this one had a significant number of hygiene patients with dental needs yet to be addressed. The backlog from the hygiene program alone indicated a potential production increase of 15 percent per year for the next four years — without increasing the number of patients.
The next area to address was overhead. Overhead was extremely high due to poor spending patterns, staff salaries far above the norm for the area, too much investment in technologies that produced little or no return, and no financial plan to address purchases and payables.
The situation called for a radical change; here's what we implemented:
All staff salaries were frozen. A generous bonus system was established instead; however, the system was incumbent upon a 15 percent rise in production within any six-month period. We carefully disclosed to the staff the reasons such a system was necessary. We emphasized to them that opportunities for growth still existed, but only if the practice performed above the 15 percent increased production level. The same 15 percent increase was maintained for twelve months and then increased by another 15 percent.
Spending was capped on everything other than basic supplies and materials for a one-year period.
A number of expenditures were re-evaluated. For example, the CPA previously retained by the practice charged extremely high fees, yet never questioned the overhead and spending or addressed the issue of increasing profitability. Therefore, the practice solicited bids from new contractors for services and supplies, materials, and all types of insurance.
Case presentation, comprehensive treatment-planning, communication skills, and all of the practice systems were also evaluated and changed as needed.
At the 11-month point, the practice realized its potential for profitablity. Production had increased by 37.7 percent; overhead was down to a comforatble 64.3 percent.
This practice had finally realized its potential. The dentist was very happy with the outcome. He summed it up by stating, "It's fantastic to enjoy dentistry again and put away money for myself — and my family!"
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.
