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Recession Proof Your Practice

Five things you need to know about a recession

  1. They happen regularly, every 8 to 9 years
  2. During the last 4 recessions over 500,000 businesses failed
  3. Recessions are healthy because unqualified competitors are eliminated. It leaves the stronger ones standing
  4. They reward the nimble, not the slow.
  5. They do come to an end. They usually last a year or two.

 

Basics of weathering a recession:

The best defense is offense. Take action right away!
You don’t have to be the best, you have to be better than your competitors.

Characteristics of recessions

  1. Sales will decline.
  2. Receivable will slow down. Patients will not be able to pay you as timely as in the past.
  3. Credit will tighten.

 

Steps to recession proof your practice:

Gambling is a metaphor for business. Professional gamblers do not play every hand. They would rather lose a little bit than try to play every hand. Here is what you need to do:

  1. Quit extending credit! You can afford to lose patients but you can’t afford to lose money. If patients can’t pay you cash now, they are not paying you later. Let them go. You are taking a 10:1 risk by extending credit.
  2. Expand your financing capacity now! Whatever borrowing ability you have now, expand it. Increase your line of credit with current lenders. It will get harder as we move deeper into the recession to get credit.
  3. Expedite the collection of your receivables. Call your patients in the 90 day category and let them know you have to change policies because of the economy. Tell them you have to quit extending credit and turn all of your AR over to a collections agency. Since you don’t want a bad mark on their name, you will offer them a 5% discount if they can pay off their balance in the next 30 days. If they say no, then you need to turn them over to the collection agency anyway. Collections never get better.
  4. Cut all of your operating costs.
  5. a. Furniture, fixed and equipment. Don’t buy new equipment or furniture. Postpone these purchases. If you need something that is crucial to the business, lease it.
    b. Personnel. “Fire your secretary and hire a salesman”. If the team members in your office are not directly producing revenue, they are expendable. You can save some of the jobs by letting some people go, or save all of the jobs and let the business go. Don’t kid yourself in thinking you can turn non-productive employees into salesmen. Focus all of your efforts “on” 2the practice not “in” the practice. Don’t take on the work of others to try to save money. Replace employees with contract or temps workers.Personnel is your biggest expense.
    c. Cut down on travel expenses. Think about on line courses for accreditation. Rethink everything you do: are they still as productive in the bad times as they were in the good times?
    d. Reduce the volume of inventory. Find a way to hold a smaller volume of dental supplies. Keep “just in time inventory.” Measure, monitor and keep your fingers on the pulse of the patients, so that you know exactly when to order. The money saved can save jobs and give you more money for marketing.

  6. Take the money saved from the first steps and apply it to your marketing. This is the one thing that can differentiate you from your competitors. Most of them will be cutting their marketing budgets. An expanded marketing budget can be a silver bullet.
  7. a. Add more competent marketing team members. Everyone must be able to sell the practice and/or sell dentistry.
    b. Revise your promotions. Make sure they resonate with your patients who are also in a recession. Play to their fears and concerns. Promotions from the good times will not work as well in the down times.
    c. Increase advertising of your products. Look at all of the advertising options that cost little to no money. The Internet is the least expensive form of marketing out there. Have a good website. Step up the Internal Marketing, most of which costs little to nothing. (Look at the We Like These Ideas in the Internal Marketing module.)
    d. There are 3 levels of patients. The top level is all about quality and could care less about price. The lowest level is all about price and could care less about quality. During the good times, it appears that there are a whole lot of patients in the middle. You may come to mistakenly think that these are your patients. When times are bad all of the middle patients join one of the other two groups. You have to now think differently. The patients in the bottom section are extremely price conscious. The patients in the top section don’t care if we are having a recession or not. Know which group you want to serve, and tailor your marketing to reach them.

  8. Opportunities of a recession:
  9. a. Cheap credit follows the constriction of credit. As soon as it does, take advantage of it
    b. Bargains on equipment become available. (10-30% discount) Don’t take advantage of this until you are in a financial position to do it.
    c. Bargains on property become available because there are fewer buyers than sellers. The people who are prepared (they have the cash) will be able to take advantage of it.
    d. You get the chance to bring in some good employees because other companies and practices are laying them off.
    e. Advertising and marketing cost are going to drop. The demand for advertising drops when failing companies stop marketing. To fill up that advertising space, the media companies decrease their prices.
    f. You will get the opportunity to grab market share from your competitors. By cutting cost and applying the money to marketing, you can win some of your weakened competitors’ patients. This weakens your competitor even further. This allows you to make more profits in the good times.

Information for doctor only:

Steps to recession proof your practice:

  1. Cut all of your operating costs:
  2. a. Create a clear policy and procedure that makes it absolutely clear to your employees what has to change during the downturn. Write it down and communicate it to the employees. They are already scared, so they will appreciate that you are being honest with them. They will see that you are trying to protect their jobs.
    b. Go back to insurance companies to negotiate a new premium. They wouldrather decrease your premiums than lose you as a customer.
    c. Outsource as much as you can. (hiring, firing, bookkeeping)
    d. Think about closing some of your offices that are not as profitable as the others. Companies that survive recessions well, shrink part of their operations during the recessions. They live to fight another day.

  3. Opportunities of a recession:
  4. a. Shed unproductive employees and troublesome patients. 80% of revenue comes from 20% of your patients and employees. If you can get rid of 20% of patients/revenue and that reduces your operating cost 30%, then you are up 10%. With fewer patients you can afford to let your less productive employees go.