A recent Dental Economics/Levin Group survey of U.S. dental practice owners found that the average collections percentage for general dentistry practices was a dismal 91%. What makes this figure even more disconcerting is that it represents a 3% drop from the 2015 report’s figure of 94%. If a dentist consistently maintains such a low collections average over a 25‑ or 30‑year career, he or she could be looking at a dead loss of millions of dollars.
Practitioners must increase those numbers for their own sake and the sake of their clients. People generally become dentists for two reasons: to help people look and feel better, and to enter a profession with a traditionally excellent career success rate—which is great, as these are both terrific motivations. However, to accomplish these two goals, it’s necessary to remember that a dental practice is, fundamentally, a small business. It has to be run like a business, with sound systems and procedures put in place, kept updated, and followed.
If a practice is collecting receivables at a 91% rate, it means that a payment-at-time-of-service policy is not being strictly enforced, and/or that proper collection procedures are not being followed. And the consequences can be serious: At a 91% collection rate, a practice generating $700,000 in annual billings is writing off $63,000 per year in profit that should be dropping to the bottom line. That’s $5,250 per month that could be going to the owner of the practice which could—if it were collected and banked—make a noticeable difference in that owner’s financial situation.
As reported by Dental Economics, underperforming collections more often than not will lead to cash flow problems, which tend to be rooted in inattention. If you take your eye off the things that affect cash flow—payroll, payables, receivables, daily revenue—you’ll simply end up spending more money than you make. There are only five places where money goes: living, debt, service, taxes and giving. Many people—including dentists—are not conscious of these categories, nor do they track all five at the same time.
A common component of cash flow problems among dentists is debt. I suggest that any dentist struggling with financial issues begin by analyzing the practice’s debt load. Debt comes from a variety of sources, including business credit cards, loans, mortgages, lines of credit, and equipment leases. Some debt is inevitable—it’s a cost of doing business. But more often, it’s the result of poor financial management.
To help with such situations, I strongly advocate engaging the services of a financial advisor. And not just dentists who are having difficulties; all dentists should do this. But don’t forget that it’s important to ask a lot of questions:
- Has the financial advisor worked with many dentists and other specialists in different phases of their career?
- How are they paid—by fee or commission? (Fee-based is almost always better.)
- What’s their investment philosophy?
- Their educational background?
- Are they a Registered Investment Advisor?
Boyd Industries’ goal is to help dentists achieve the practice of their dreams—to allow them to maximize the work they do in helping others to look and feel better, and to maximize their own success. This is a golden age of dentistry: Today’s practitioners can do things for their patients that were just a dream 20 years ago. But to make the most of this opportunity, they have to remember to run their business like a business—to reduce their debt and increase their profits. This will allow them to stop worrying about money and deliver even better service to their patients and to their communities. And if they do that, everything else will follow.
Adrian E. LaTrace, CEO of Boyd Industries, has more than 25 years of leadership experience in companies ranging from start-ups to large public corporations in the healthcare, renewable energy, and aerospace industries. His experience in developing high-performance organizations is helping Boyd to provide leadership for the dental equipment needs of the future.
For more advice about growing your practice, visit Manta’s guide to Medical & Dental Marketing.