Money Management Solutions: Dental Practice Case Study
Financial and money management expert Sandra Simmons describes how she was able to assist a dentist to handle debt and put him on the road to wealth and financial freedom.
Financial Difficulty: How do I fix my declining profitability and rising debt?
A dental practice I worked with was actually doing well, but expenses were out pacing income on a business level as well as the personal level for the practice owner. With almost $3 million per year in revenues and $1.5 million in debt the practice was just keeping its nose above water.
The challenge was to raise revenue, cut expenses and pay down debt at a rapid pace, while reducing the practice owner’s personal tax liability from 40% to a lower level.
Money Management Strategy #1: Cutting Expenses
The first action was to create a budget in the Money Management Solutions program to find out what it was costing to run the practice on a weekly basis, and where expenses could be cut.
Once an evaluation was done, the big culprit in rising costs turned out to be the dental supplies. There was no formal ordering procedure, and staff were shopping the catalogs and ordering whatever they wanted. To get this under control, a two-pronged plan was developed.
The first action was to institute new ordering policy. A self-carbon internal requisition form was designed for staff to request supplies be ordered. All requisitions are routed to the owner’s wife for review against on-hand inventory and other requests. The carbon copy is sent back to the staff member requesting the supplies with a notation of whether the request has been approved, approved with modifications, or disapproved. Ordering is now handled by one person rather than everyone ordering.
Second, a complete inventory of supplies was ordered, and excess inventory found tucked away in drawers and cabinets was scheduled to be returned for credit. This alone saved a substantial amount of cash.
Money Management Strategy #2: Raising Revenue
An income planning drill was done to identify areas of the practice that were non-viable, discover what services were profitable and easy to deliver, and discuss what new products or services could be added to raise income profitably.
The dental supplies were examined again to find out if the suppliers had raised their prices. Several vendors had increased prices and the retails needed to be adjusted in the dental practice.
Next, to address the 8 – 12% annual increase in the cost of doing business, the services were reviewed to see where prices could be raised without causing undue upset with patients. It was found that prices had not been raised on some items for over a year. Several services were raised immediately and yet were still competitive in the market. Lost income from keeping retail prices stable is a common mistake business owners make. Every consumer knows that the cost of living and doing business goes up each year. They are rarely surprised by price increases.
The Doctor/Owner was scheduled to get trained on a modern procedure that he had been wanting to learn for quite some time. The new procedure was determined to be “where dentistry is headed in the future” so the modest training cost could quickly be recovered within a very short time after introducing the new service in the practice.
The staff bonus system was based on revenues that were too low for the practice to be viable. The bonus system was revamped with a new, higher “break even” target set to qualify for bonuses. In addition, a bonus game was added whereby all staff and their spouses could play to win a group trip of their choice.
The promotional activities were evaluated to determine whether they were producing a good return on investment and where costs could be cut while improving response. Changes that were made included adding a monthly email newsletter to all patients. Here is what the practice reported after the first newsletter went out. “I had to send you our first e-mail newsletter. We already have gotten responses!”
Money Management Strategy #3: Reducing Debt & Implementing Long-Term Savings
Using the Money Management Solutions software, the weekly allocation of income included percentages to reduce debt, pay regular expenses on time, promote the practice and set-aside funds for a long-term retirement savings plan.
The increase in income from cost cutting measures, promotional activities and weekly income planning was immediate and profitability was on the rise. A mere 3 weeks after implementing the Money Management Solutions program, here is what the practice owner had to say, “Thanks for ALL the tips. We are putting things in place and already seeing results!”
Money Management Strategy #4: Setting the Course for the Future
In a few short weeks the practice was turning around and headed in the right direction. The regular weekly planning using the Money Management Solutions software maintained tight controls and the practice owner could clearly see that this was painlessly helping the practice stay on course toward a bright financial future.
The key to the success of the plan was the practice owner’s decision to fully embrace the Money Management Solutions program and keep the discipline in. Once that decision was made, the rest was simple.
Statistical graphs are being charted weekly and the decrease in debt and increase in cash reserves are a validation that the plan is working. Continuation of the actions taken to keep a tight control on costs, raise income and pay off debt is handled in less than an hour each week using the Money Management Solutions software, and the practice owner spends the rest of the week with his attention on treating his patients. He is sleeping well at night, no longer worries about money and is having fun in his practice again.
My estimate of how long it will take until the practice is free of the $1.5 million debt…14 months, provided the Money Management Solutions program discipline is kept in and used as intended.
You can speed things up considerably by adopting and using strong financial policies and training your staff on them.
If you would like a money management consultation regarding your dental practice or business contact Sandra Simmons by email at email@example.com .