Monday, July 29, 2013

Systems for success: Five ways to manage overheads

Dr Roger P Levin shares his top tips on how to keep expenses and other dental practice costs at a minimum



In a slow economy, sound financial management can be the difference between a profitable dental practice and a struggling one. Uncontrolled overhead, such as expenses and other costs, can devastate a practice’s cashflow. Dentists spend most of their time providing patient care, so it can be difficult for them to know when expenses — salaries, supplies, rent, insurance etc — are exceptionally high. Excessive overhead not only jeopardises the success of the dental practice, but threatens the financial security of the dentist as well.
The proper analytical tools can make dentists aware of correctable deficiencies before they turn into major problems. Levin Group recommends the use of key practice indicators (KPIs) to monitor the health of the practice. Overhead is a critical KPI that should be reviewed weekly to see if the practice is on track to meet its financial goals.
By using KPIs, dentists have the ability to look closely at their practice’s overhead, monitor expenses and make decisions on how to drive profitability. A practice with well-controlled overhead can focus on increasing its cashflow from production. No matter how many times practices cut expenses, overhead always seems to creep back up. Levin Group recommends these five tips for managing overhead.

1. Follow where the money goes
Practices need to track collections, purchases and expenses — from staff salaries to dental supplies — preferably through accounting software. Record how much the practice spends in each overhead category every month. Following a budget brings discipline to financial decision making. When offices fail to track expenses, cash tends to disappear. Dentists who budget their expenses control their overhead and achieve better financial results.

2. Take inventory
Do you know your current level of supplies? When was the last time a staff member took inventory of all supply closets? By taking stock of materials, many practices discover extra supplies that will carry them for months. By reviewing inventory on a semi-annual basis, a practice can maintain a steady stream of supplies, avoid overages and shortages, and exercise stronger control over expenses.

3. Order supplies as needed
Automatic ordering of supplies can lead to inefficiency, misuse of office space and outright waste. For example, a year’s supply of gauze pads gathering dust in a storeroom is not helping the practice provide better quality of care. In fact, unused inventory decreases the practice’s cashflow and may hinder the dentist from making necessary purchases.

4. Benchmark performance
What supplies did the practice use in the previous years? What was the practice production and how did it affect the use of inventory? Will this year’s performance surpass last year’s? Benchmarking against past performance and using KPIs can help the practice accurately order required supplies.

5. Collect 99% of fees
Overdue account receivables siphon cashflow and profitability away from the practice. Dental practices deserve to be paid for the work they perform. Instituting an effective collection system maintains a practice’s financial viability.
The following protocols will help practices reach the 99% target:
• Collect initial payment upfront. This prevents collections problems from arising and reduces the need for billing patients later. Train front desk personnel to ask for payment before patients leave the office.  
• Follow any payment schedules exactly. If patients are unable to abide by their payment agreements, treatment should be postponed. This may sound harsh, but patients who complete treatment without making payments become major collection headaches.
• Provide several financial options. Present several payment alternatives, such as cash, credit card and outside financing. You want patients to be completely aware of all options, especially outside financing during a recession.

Overhead is a necessary part of running a practice, but eliminating unnecessary expenses can ensure the practice’s financial health. Many dentists and their teams fail to look at overhead as an opportunity to reduce costs and improve financial performance. These five tips can help your practice control overhead, manage expenses and increase profitability.

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