Growing your implant practice: Understanding the financials

Transcription

1 Growing your implant practice: Understanding the financials

2 The 7 habits Habit 1 - The budget and cash flow forecast Habit 2 - The KPI Analysis Habit 3 - The ADP Analysis It has been suggested that profit doesn t flow out of a poorly managed business, it simply leaks through the cracks while everyone is busily chasing their tail. I ve seen a lot of that over the years and so this White Paper is intended as a beginners guide (and reminder for the experienced) of the characteristics of a wellmanaged business, insofar as finances are concerned. Habit 4 - The Associate Profitability Analysis Habit 5 - The MROI analysis Habit 6 - Pricing Habit 7 - Finance and Discounts

3 Habit 1 - The budget and cash flow forecast Here are the 7 key financial habits of successful practices. Download your marketing reporting template here: This template will help you report on total reach, website visits, leads generated, customer conversion rate and more, click below to find out more Create a 12-month Excel spreadsheet that estimates all of your sources of income and items of expenditure on a month by month basis. First time around this will be a timeconsuming process - you may have to take a look back at historical sales and costs to give yourself some idea of past trends and seasonal variations. Your diligence will be rewarded by building a comprehensive overview of the financial performance of your business and having your finger on the pulse. What s then important is to revisit the spreadsheet after each month of trading, to replace the budgeted figures with the actual income and expenses. If your existing bookkeeping and/or accountancy systems don t provide a monthly profit & loss statement, it really is time to upgrade! As the year unfolds, your estimated numbers will gradually be replaced by the real events - and, thus, you will gain an even greater insight into the way in which your business works. DOWNLOAD

4 Habit 2 - The KPI Analysis KPI s can be used as a benchmark to compare individual performance to industry averages. Key Performance Indicators (KPIs) are the significant items of expenditure that can make a big difference to your profitability should they change. When collected for large numbers of practices, they also represent benchmarks against which you can compare your own performance to industry averages. They are measured by expressing each individual category of expenditure as a percentage of total sales for a given period let s assume this is done monthly. So if lab fees are 1,000 and sales are 10,000, the KPI for lab fees is 10%. The good news is that aren t too many to keep track of: 1. Laboratory fees; 2. Implant component costs; 3. Material costs; 4. Salaried staff costs (full and parttime but not self employed associates, therapists or hygienists); 5. Net profit before tax.

5 Habit 2 - The KPI Analysis Keeping track of KPI s lets you know if things are changing. The benchmarks differ for different practice types and a detailed summary can be downloaded from the 7connections web site: benchmarks-2/ Keeping track of KPI s is an earlywarning system to let you know if things are changing and prompt a conversation with your team as to the cause. I sometimes liken this to changing course on a sailing ship - tacking as your vessel is affected by external changes (wind and tide) and internal changes (the trim of the boat and the set of sail). The more often you tack, the more efficient your journey.

6 Habit 3 - The ADP Analysis In the last 10 years a greater emphasis has grown on daily production. A crucial figure that is often overlooked is the Average Daily Production (ADP) of each of your fee earners. Historically, much energy was invested in calculating average hourly rates but in the last 10 years a greater emphasis has grown on daily production, which may include some UDA s, some membership fees and fee per item treatment. Experience shows that clinicians perform very consistently over long periods of time - and can be easy to predict (good news) and hard to shift (bad news). A seasoned eye will be able to look at the ADP of a dentist and give you a very good indicator of their likely treatment preferences and expertise.

7 Habit 3 - The ADP Analysis I normally recommend that clinicians are measured on a 90 day rolling average. The importance of this in implant dentistry is that you may need to shift some treatment modalities to other clinicians to facilitate the growth of your own implant sales and you will need to know which are the safest hands not just clinically but financially as well. I normally recommend that clinicians are measured on a 90-day rolling average to iron out seasonality or prospecting, planning and delivery cycles. Rather like a football manager, knowing the ADP s of your fee earners will allow you to put you players in the right positions on the pitch.

8 Habit 4 - The Associate Profitability Analysis Perhaps the most important measure is to identify what contriubtion is being made by individual fee earners. Perhaps the most important (and controversial) measure is to create a spreadsheet that will allow you to identify just what, if any, contribution to profit is being made by individual fee earners. Completion requires an explanation beyond the brief of this White Paper. You can download a free copy at The questions that will be raised in completing this spreadsheet include: What are my total operating costs in a year? What is the average daily operating cost of each of my surgeries? What is the ADP of the fee earners in those surgeries? After I have paid the fee earners, is there any real profit to the business? Be ready for some surprises when you complete this exercise - mostly unpleasant.

9 Habit 5 - The MROI analysis It is essential to measure your MROI in simple terms. It is essential to measure your Marketing Return On Investment (MROI) - in simple terms, what did you spend on each item of marketing and what, if anything, did you get back in confirmed sales? This is perhaps the area in which the existing data in implant dentistry is most incomplete and confusing. It is common to see sums invested in: Digital marketing Direct marketing Word of mouth marketing Advertising and PR...but with inadequate measures as to how effective these methods have been.

10 Habit 5 - The MROI analysis Once this habit is tightened up, you will gain insight as to whether you are getting a bang for your buck. As well as the mysteries of interpreting Google Analytics and social media management, often the main problem is the collection of accurate data by the dental team during the patient journey. When a patient is asked how did you find us? and responds by saying that they visited your web site, this may not be an accurate description of their real marketing journey. A web site is now frequently viewed before first contact, even when the real reason for the approach has been a recommendation or a response to some other marketing activity. How did you find our web site? is a better question. Once this habit is tightened up, you will gain a more useful insight as to whether you are getting a bang from your marketing buck.

11 Habit 6 - Pricing Scientific pricing involves a detailed analysis, emotional pricing is driven by your confidence. We are a long time past the finger in the air method of pricing, taking a look at other practices in the area and deciding how you want to position yourself in the market. Pricing is both scientific and emotional. Scientific pricing involves a detailed analysis of your fixed and variable costs and your target profitability to determine a strictly mathematical answer to the question how much should we charge? Emotional pricing is either driven by your confidence ( I know I m good at this and that we provide the very best clinical care and customer service ) or by your lack of confidence ( what do I need to charge to attract people? ). Frankly, I m more interested in helping confident dentists to attract the right patients through their door.

12 Habit 7 - Finance and Discounts If you need to discount, you are in front of the wrong people and in a race to the bottom. Great practices do very little financing and no discounting. They obtain agreement from the right type of patient for the most appropriate and affordable treatment BEFORE they introduce the subject of finance. I have long been a critic of 0% finance for the simple reason that it will usually reduce your profit margin by 33% - a huge cost to the business. If patients require finance and have been suitably motivated to trust your skills as a clinician, they should be happy enough to take interest-bearing finance. This will have a far less damaging effect on your bottom line. If you need to discount, you are in front of the wrong people and in a race to the bottom.

13 There is no magic in financial mathematicsjust simple analysis can have a profound effect. Understanding more about your finances is a superb investment in the future welfare of your business and your own peace of mind. The skill set required is beginners on spreadsheet knowledge and the commitment to collect and collate data that passes under your nose every single day. There is no magic or witchcraft in financial mathematics - just simple analysis that can have a profound effect on your business growth.