Profit is the only score that counts. In fact, if you were setting a goal or casting a vision for any business, you should always think profit first. Without profit there will eventually be no practice or business. In a way, profit is the way to keep score if you want to know if you are meeting and exceeding the needs and wants of your clients. Practices with no profit fail to understand that this result is screaming that your systems are poor and patients don’t like what they see. Generally, great systems, great leadership, great teams, and great practices all have very high profit margins.
PV x PEV x CP – O = P
Right now, as we finish our equation for scoring and winning in dentistry, I begin to hear from the “exceptional” dentists (exceptional is bad: they tend to deny results, logic, and common sense). This is the “yea but” group with exceptions and excuses. I find that when you lose those excuses, you will quickly find your results. Benjamin Franklin said it well: “A person good at making excuses is seldom good for anything else.”
Assuming you did your math well, you should now know what the score is in your practice. Last time we spoke about revamping your Profit and Loss Statement. So today I want to give you an easy way to track those important numbers so that you can see how you scored, where you are falling short, and areas that need change. I call this my Income & Expense Summary. To be clear, this short, fill in the blank summary of where you are at any moment in time is the exact document I share with my team and the pivotal yard stick that helps me with financial and practice management decisions every day.
INCOME & EXPENSE SUMMARY
COLLECTIONS__________ PRODUCTION_________ YEAR TO DATE__________
MONTH YEAR TO DATE IDEAL GOAL
EMPLOYEE COSTS: ________ _________ 27%-28%
FACILITY COSTS: ________ _________ 7%-9%
DENTAL SUPPLIES: ________ _________ 5%-6%
MARKETING: ________ _________ 3%-5%
LAB: ________ _________ 8%-10%
OFFICE SUPPLIES: ________ _________ LESS THAN 2%
TOTAL EXPENSES: _________ YEAR TO DATE 52%-60%
COLLECTION %: _______ _________ 100%+
PRODUCTION/EMP./MONTH: _______ _________ $20,000-$25,000
PRODUCTION/OP/MONTH: _______ _________ $25,000-$30,00
NEW PATIENTS: ________ _________ 40-60NP/DOCTOR
DIRECT REFERRALS: ________ _________ 50%+
HYGIENE % /MONTH: ______ _________ 33%+
PRODUCTON/NEW PATIENT: ________ _________ $2,500 PLUS
What is 1% of a year’s collections in your practice: ______________.
Take the time to record and research these numbers and share them with your team. I say team but most of you will at first share them with a group of people that work together. They haven’t actually learned how to function as a team. This document will help promote a “Staff Owned” culture in your practice. If you don’t know what that is, them get your free copy of The Super General Dental Practice at www.supergeneralpractice.com and read Chapter 18 entitled The Purpose Driven, Doctor Led, Staff Owned Dental Practice. This could be the most important step that you will ever take in developing a super culture. You have nothing to lose, and it costs you nothing.
Let me make one more point before we move on. Today, we have seen the common place verbiage of talking about EBITDA when looking at the value or sale price of a dental practice. The term was originally coined by American media billionaire, John Malone, during the ‘70s as a way of analyzing the cash generating capabilities of telecom companies. Even he understood that it was an inaccurate representation of cash flow. Today, it has been used and abused in the sale of a dental practice by people that understand very little of what makes a dental practice have worth and value in a sales transaction. In fact, a few months back I wrote an article about the foolishness of most DSOs and how they determine value in a dental practice. The example spelled out the actual details of five different offers from five different DSOs for the same practice from the same financial data given to each company. None of them ended up with the same EBITDA, practice valuation, multiples, hold back, cash at closing earn up period, and anticipated recapitalization multiple. In fact, they varied over 80% in each of these categories with none of them arriving at the same values. If you think about it, over 70% of all the dental practices in the US have no E, or earning, in the formula for EBITDA. If you are only taking home 20%-30% of what you do, there is not passive income or profit above what you would have had to pay another dentist to do what you got paid for. In fact, many practices couldn’t find another doctor that would work for what the current owner settled for. Just something to think about, while you are tallying your score cards before the next game begins.
Next time I will cover a little more insight into some of the numbers on your score card, and – wait for it – answer the original doctor’s question: “How should I budget”.
Michael Abernathy DDS