The fee-for-service practice: The importance of knowing your practice numbers
This is the third and final article of a series. Read the first two at dentaleconomics.com/practiceyouwant and dentaleconomics.com/truehappiness.
To some, owning a fee-for-service practice is the Holy Grail. To others, it’s a myth or a dinosaur among more modern practice modalities. For me, it’s the only way to practice. It offers total independence and unlimited potential to produce the finest dentistry to grateful patients who appreciate your dedication. You’re also making a very comfortable living.
If you’re lucky enough to own your own FFS practice or be an associate with an FFS practice that exemplifies the highest ideals of comprehensive dentistry—creating relationships and nurturing a stellar staff—then you know the blessings and joy this kind of dentistry can offer. But the number one priority of a successful, profitable FFS office is—you need to know your numbers.
In my first two articles, I talked about the importance of knowing yourself as well as your numbers. Knowing yourself is to know what kind of procedures you want to focus on as well as how many days and hours a week you want to work without leading to burn out.
In the last article, I talked about the nuts and bolts of creating a budget, keeping in mind your practice style and desired hours. If you follow my formula, you’ll have a yearly, monthly, and daily budget goal to drive your daily scheduling, as well as your fee schedule.
Examples to learn with
Let’s create a demo office to illustrate the point. Let’s say that your yearly budget, which includes anticipated office and personal expenses, comes to $900,000. It’s a small FFS practice with three staff (front desk, assistant, and hygienist) that serves 1,100 patients. You want to work seven hours, four days a week, and you anticipate working 170 days this year.
This translates to $75,000 a month or roughly $5,300 per day. Let’s stipulate further that the hygienist sees eight patients a day, producing $2,000. Therefore, you have to produce $3,300 per day to stay on target. Armed with this information, you have the ability to set your fees to a level that enables you to see four to five patients a day to achieve your daily goal. For instance, $3,300 per day for a seven-hour workday translates to nearly $500 per hour. Use this information to set your fees.
To me, the beauty of this system is that it takes all the guesswork and stress out of the equation. Gary DeWood, one of my mentors from Pankey and Spear said, “You need to know how many and how much—how many new patients you need and how much you need to make. If you don’t know how much you need to make, you will never have enough.”
Instead of always being anxious about whether you’re seeing enough patients or being triggered by seeing open spaces on your schedule, you’ll know exactly how many patients is enough. You’ll be able to see open holes in your schedule as opportunities—for emergencies, or better yet, as time with your recall patients to deepen your connection or discuss more comprehensive treatment.
A yearly/monthly/daily budget helps reduce stress on a daily basis and leads to less frenetic scheduling. If your daily goal is $3,300 and you have two patients scheduled who each need a crown (let’s stipulate your crown fee is $1,800, which is all yours since you’re not participating with any insurance company), then you’re done for the day! You do not need to see anyone else unless you want to because your daily target is covered.
Some monthly numbers
Let’s look at the bigger picture. A budget helps on a monthly basis as well. It’s one thing to know that you need to produce and collect $75,000 a month in order to pay your projected expenses. But each month is different when it comes to actual expenses, and it’s important to track them at the end of each month to see how close you came to your projected categorized amounts.
For instance, let’s say in November you collect only $68,000 but you know you need $75,000 to cover all your expenses. If you have a monthly budget derived from your yearly budget calculations, you can track the actual expenses for November and compare them to your projected budget. Knowing that you’re $7,000 short in your collections, you can add up your actual expenses for the month and see what they come to.
If in fact you’re a few thousand dollars short, you can decide where to cut back (or to put it differently, who not to pay). You may decide to put less aside for taxes, your retirement contribution, or to not pay the entire lab bill. The point is that you are in control, and you’re making educated decisions and then carrying that deficit into the next month, where you’ll hopefully make up for it with increased collections.
Another very important concept that I’ll expand on in another article is the idea of a surplus amount of cash in your business and personal accounts that act as a cushion for the lean times. If you come up $7,000 short in the November collections, you can “borrow” from your surplus account to cover your bills. We all have those bad collection months, but hopefully you contributed to that same account in those months that you collected thousands more than you needed.
This is a very consolidated description of the budget process, and it’s meant to give a slight flavor of how to be in charge of your numbers and finances. If this seems overwhelming, hire a good consultant, a knowledgeable mentor, and of course, an excellent accountant.
But make no mistake about it: if you want to create a profitable, healthy, and satisfying FFS practice, you need to be in charge of the practice vision, the staffing and, yes, the numbers. Class dismissed!
Editor's note: This article appeared in the September 2024 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.
