Part 2 of 2

In the previous blog post, I talked about how not to analyze your dental practice’s financial performance. But if you cannot necessarily rely on your bank account balance, your tax return or your QuickBooks reports to tell you how you are doing, then what else is there? Here are a few suggestions on financial analysis done right.

Look Forward

An analysis of historical performance is only valuable if it drives future results. Spending time to map out your desired financial outcomes is the first step toward realizing those outcomes. Setting financial goals will give you an internal standard, or benchmark, to grade your performance.

The American Dental Association and other resources can provide external benchmarking data that is helpful in determining how your practice performs compared to your peers. My personal preference is to look at four categories of overhead—people, clinical expenses (lab and supplies), space (rent, utilities, repairs/maintenance) and administrative (office-related) expenses. If overhead is way high in a certain area, I will then dig deeper to see what specific expense categories are the culprits.

Top Line Focus

Most dental practices manage their expenses very well but are not nearly as adept at managing their productivity and collections. The reason is that top line, or revenue, management typically involves process changes that are difficult and, at least initially, painful.

However, the benefits of even marginal improvements in scheduling, case acceptance and patient referrals are far more lucrative than expense cutting. Why? Much of your overhead expenses— people, real estate and certain administrative costs—are fixed, meaning that these expenses will not increase as revenue increases. So for each new dollar of revenue collected, as much as 80 cents drops all the way to the bottom line and into your pocket.

Success on Purpose: Create an Action Plan, and Track Your Progress

Financial performance is a result of operational actions taken by you and your team. Spend some time to identify two or three action items that will drive financial improvements. Regularly measure the outcomes, and recalibrate your goals and action plan accordingly. Create financial rewards and other incentives to keep your team interested in the results and to make it fun.

Real financial analysis takes time and thought and even a little creativity. If you look beyond your checkbook balance or your tax return numbers, you’ll know exactly what your practice has to work with, and then you can manage that more effectively.