How to spark your next big idea.
By Ed Dallwein, CPA, MBA, Chief Financial Officer, Riccobene Associates Family Dentistry
We’ve all encountered a time when we have either tried or considered everything on our list of ideas to improve the financial performance of our dental organization, and we are at a loss about what to do next. This article proposes a few things to help spark your next big idea.
Top line improvement
We sell chair time. We want to maximize chair utilization (butts in seats) and revenue per minute (collections). Turns matter. If a day is 8 hours long and appointments are 60 full minutes (including cleaning the room), a practice can only see 8 patients per chair per day. Reducing appointments to 50 minutes could increase that number to 9 and provide a 30-minute buffer for the day. Such a change could increase revenue for that chair by 12.5%.
DSOs often get a bad rap about pushing for production. Opponents have us scheming about quotas. Those on the inside know the real message is to identify and inform the patient about everything that they need and let them decide what to have done. Few patients would rationally choose for their dental disease to go untreated. Providers who do not inform a patient about their dental disease are doing the patient a disservice. Best practice is for providers to identify industry benchmarks for disease rates and track their percentage of appointments where such diseases would be diagnosed.
Studies show that patients often pass on treatment for financial reasons. Offering financing options helps to remove that barrier. The best solutions take seconds for patients to apply and get approved after a soft credit check (no impact to their credit score). Some lenders even guarantee approvals for a sizable percentage of borrowers with poor credit.
People costs are by far the largest expense category for any dental group (compensation, taxes, benefits, perks, and outsourcing). A good exercise is to create and measure ratios.
For example, how many dental assistants (DAs) or patient coordinators (PCs) should an office have? Ask a practice, and the answer is usually at least one more than they currently have. Instead, calculate and compare ratios. If you have multiple offices, compare lower performing offices with top performers. Consider talking with other providers in your area about their ratios. If your best office has 2 DAs per provider and your worst has 2.5, ask questions to understand why. If there is not a valid reason, consider reducing the ratio in the lower-performing office. For PCs, the ratio may be a function of patient visits.
Hourly employees must legally be paid for all time worked, but reviewing payroll and time clock reports may show that they are getting paid more than their scheduled hours. A medium-sized DSO found that over 25% of its hourly employees routinely clocked in at least 15 minutes before their shift began. They reduced payroll costs by implementing (and enforcing) a policy that employees were to clock in and begin working at the start of their shift. (To remain compliant with employment laws, the policy also prohibited them from working before clocking in.)
An annual budget process is a great time to review all expenses, especially those that are repetitive in nature. While the output may be a budget for the following year, the true value of a comprehensive process lies in aligning the organization around common goals. It provides a forum for asking “do we really need that? How does it help us reach our goals?” When done well from the bottom up (justifying every dollar spent), companies can identify expenses that are no longer relevant and should be eliminated. A common example is software licensing or support for products that no one uses.
Superior financial results come from holding people accountable for financial performance. Every action in the business is reflected in the financial statements, but it is often difficult for team members to understand how they have an impact, especially since the various roles influence different elements. It helps to start with one metric that all office team members can easily understand and affect. Keeping the schedule full and percentage of actual production compared to goal are two examples. After the first metric takes on, it becomes easier to add more, eventually settling on three to five that work best for your culture.
Rewarding the team for achieving a metric aligns incentives and reenforces the desired behavior. The keys are to reward for outcomes, not effort, and make the reward meaningful. Incentives can range from bringing in lunch for every week above a target to extra money on pay day. The more impactful the achievement, the bigger the reward. Regardless of size, it helps to make the reward visible by broadcasting to the entire organization who hit goal and the type of reward (no need to publish an amount).
Any good financial advisor will say that the keys to long-term financial success are to begin early and to be consistent. Keeping an eye on your top line while managing expenses and enlisting your team to do the same help with that consistency. My hope is that one or more of the options presented here provided a spark to fuel your next big idea.
Ed Dallwein is the Chief Financial Officer of Riccobene Associates Family Dentistry (Cary, NC). He earned his MBA from Michigan State University and his BA from Walsh College. He has been in the healthcare industry for over 20 years in addition to a few others (software, services, public accounting, banking, manufacturing, and retail). His varied background helps him see challenges from multiple perspectives and provide innovative solutions.