The last three years have been unlike anything you could have ever prepared for. From mandatory shut-downs to PPE shortages to the Great Resignation, your practice has weathered it all. Congratulations on making it through!
But now that things may have settled a bit, have you thought about how your practice is really doing?
The end of the year is a great time to catch your breath and reflect on where your business is and where you want it to go.
Let’s look at how to go about a comprehensive dental practice business review.
Review your expenses
Costs have gone up widely over the past couple of years, but you may not realize the extent unless you actually look at the numbers. Compare utilities, PPE, dental materials, etc to 2021, 2020, and even 2019 to see how things have changed. Your business manager or accountant can be very helpful here!
And don’t overlook major purchases. How much did that upgraded HVAC system cost? What about your new sterilization or suction equipment?
Checking your expenses against averages can help you determine if something needs attention. For example, if you’re spending 18% of your total overhead on lab costs, while the average practice spends between 8-10%, it may be worth exploring ways to increase efficiencies. Ask your accountant for national averages to obtain the most current information.
Look at your processes
How have your processes changed? Many dentists report that updated sterilization procedures require more time between patients. As a result, many now see fewer patients in a day. Other practices have had to recalibrate to do business with fewer staff members.
Now is a great time to review how everything flows in your office. Are there areas where you could be more efficient? Your team may have great insights here.
Either way, it’s always smart to document your processes. Doing so helps show future associates or buyers that the practice is well run.
Don’t forget about salaries
91% of practice owners report raising staff wages in the last year, so make sure you’re accounting for any increases in your own practice. However, make sure that inflation hasn’t completely undone your raises. This is particularly important as many dentists struggle to retain great staff — let alone attract new people. 93.3% of practice owners say it is “extremely” or “very” challenging to recruit hygienists, while a third of owners say that a lack of staff is preventing them from running a full schedule.
Recent ADA Health Policy Institute data notes that 68.2% of assistants and 62.0% of hygienists say their last raise was just one to three percent. Further HPI analysis finds that, when adjusted for inflation, average “nonsupervisory” staff wages have actually declined 1.8% in the past year to an average of $30.95 per hour. Comparatively, “nonsupervisory” jobs in other healthcare settings, such as hospitals and physician’s offices, average $32.27 per hour.
Also consider how your benefits stack up. While health insurance and more paid time off can be expensive, they may be more cost effective than cutting production after staff leave. You can also consider profit sharing or bonuses tied to the practice’s success.
Review your contracts
I’ve heard from many dentists that their reimbursements have not kept up with the increased costs of doing business. And if you’re seeing fewer patients due to staffing shortages or more time-intensive processes, your bottom line may be feeling the squeeze!
Over time, many practices accumulate quite an array of payer contracts. Yet some of these may no longer be competitive. Some may not even cover your costs anymore.
Look at each contract with your business manager. Ask:
- How many patients are covered by each contract?
- What’s the reimbursement rate?
- Which ones are great at timely, painless reimbursements?
- Which drag their feet or constantly require more documentation?
You may decide to cull your list of payers, especially if you find that the worst contracts account for a relatively small share of your patients.
The ADA offers many resources to help you understand and negotiate your payer contracts, plus a free-to-members contract analysis service.
Review your dental fees
Pricing is one of the hardest parts of any business. And it’s a moving target — as your costs go up over time, so should your fees.
But pricing dental work is tricky. A crown isn’t a commodity.
Rather, your fees should reflect the time, effort, and expenses involved in delivering the treatment. Prices need to account for all your overhead — salaries, rent, utilities, equipment, etc — in addition to the time, materials, and lab fees required for that procedure.
It’s good business to periodically review and adjust your fees. And if you’re considering selling your practice, reviewing fees is especially important. Buyers will want to know that your fees cover the costs of doing business for the office. Patients are more likely to accept a (reasonable) fee increase from their long-term doctor than from a new buyer. If a buyer must immediately raise fees to cover the practice’s true costs (and service their debt), patients may view them as greedy and leave the practice, hurting patient retention.
Once you’ve reviewed your expenses and reimbursements, see how your fees stack up. Do your fees adequately reflect the care offered in your office? Or do you need to consider raising them?
Think about what you want
Now that you’ve looked at every aspect of your business, think about what you would like to be different one, five, or ten years from now. Consider questions like:
- What do your patients want? Are they asking for certain treatments or more flexible hours?
- Do you want to add new services? What do you need (training, equipment, staff) to start?
- Do you want to adjust or expand your hours? What will the staffing implications be?
- If you want to grow, how will you recruit new patients? What is the local competitive landscape?
- How far away is retirement? If it’s in the next five years, start thinking about what you want to do in retirement and consider your succession plan. If you have the capacity, you may want to bring in an associate who will commit to buying when the time is right.
- What’s your staffing situation? Are long-term team members approaching retirement? What would you do if they left?
- Do you want to be more involved with the community? What might that look like
This is just a start. Discuss your career path and vision with your loved ones and ask for their perspectives. They know you best and may have insights about what seems to frustrate or excite you most about your work.
Return to these questions periodically. In the meantime, determine what steps you’ll need to reach your goals — and then begin. For example, if you realize that you will likely want to sell within the next few years, review 5 Years Out: Prep Your Practice for an Eventual Sale for more tips on getting your business in tip-top shape.