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974: Where is the Profit Hiding? – Christina Byrne

You're working hard, and you're super busy. So, why is your bank account empty? In this episode, Kirk Behrendt brings back Christina Byrne, ACT’s director of operations, to help you understand the different financial gaps where your profit may be hiding. Don't let your hard-earned money slip through the cracks! To learn how to keep more of what you produce, listen to Episode 974 of The Best Practices Show!

 

Learn More About Christina:

Learn More About ACT Dental:

More Helpful Links for a Better Practice & a Better Life:

Episode Resources:

Main Takeaways:

  • You may be losing a significant amount of money from your different financial gaps.
  • Working harder isn't the answer. Find where money is leaking from your practice.
  • Know your effort gap. Being busy doesn't equal more profitability and success.
  • Understand your collections gap. Collecting 96% isn't as good as it sounds.
  • Be aware of your overhead gap. Be smart with spending and budgeting.
  • Pay attention to your cash flow gap so you understand true profit.

Quotes:

“Doctors think that they just have to work harder, like, ‘I'm going to work hard. I'm going to work hard next year. I'm going to work harder the year after that.’ Then, they're not seeing the profit in the practice. But they're working so hard, and they don't understand what is happening. What we have learned is that the profits and the rewards for all of that hard work are slipping through these cracks or these gaps in the practice. So, when we can help our clients uncover where those gaps are and where money is leaking out of the practice and we plug those holes, they can stop trying to work so hard. Most of our clients actually don't work harder. They work less, and they're actually bringing in more income and more revenue, and they're doing it in a smarter way. They're not so stressed and thinking that they have to be on this gerbil mill or hamster wheel all the time.” (1:51—2:50) -Christina

“Going back to thinking that, ‘I just have to work harder. I just have to be busier. I just have to put in the time and put in the hours,’ what's happening is — and you mentioned effort. This effort gap or where the time is actually leaking out of the practice is where the doctors are writing off so much. So, when we look at the effort gap, we're actually looking at what the write-offs are. The write-offs can come from insurance participation, and they can come from membership plan write-offs. But I will say we do a pretty good job of helping our doctors to manage those so that they're not having a huge amount of write-offs from those membership plans. Then, elective write-offs, which are professional courtesies, employee discounts, things like that. So, being aware of what they are is really, really important. Even if you're a fee-for-service practice, you want to be super aware of those elective write-offs.” (3:18—4:17) -Christina

“Some people think they're writing off 20%, but they're actually writing off 40%. So, ignorance is not bliss. You have to know what this number is.” (5:58—6:05) -Christina

“[Profit is also] hiding in the collections gap. Oftentimes, we think, ‘I'm producing $1.5 million, so I know I can collect on that.’ Well, you can't. Your production is based on that, and your overhead is based on that production. But you really have to be careful about understanding what you're actually able to collect on. So, you are only allowed to collect, if you are participating — even if you're not, whatever your write-offs are, they're gone. Just put them aside because you cannot collect on those. So, what we are looking at is your net production. You've got your gross production. You subtract your write-offs. Now, you have your net production. That's what you can collect on. Our goal for every client is to collect 100% of their net [production].” (10:05—11:00) -Christina

“Let's say we're collecting 96%. Okay, great. We're collecting 96%. That's fantastic. Well, let's say I'm a two-doctor practice, and last month my net production was $200,000. So, 96% of that is $192,000. That's pretty good. I'm not collecting $8,000 this month. Okay, big deal. At the end of the year, that's $96,000. There are tens of thousands of dollars in that 4% gap that you have. So, it is imperative that you collect every single dollar that you are able to collect.” (11:19—11:59) -Christina

“I have seen this where doctors are complaining that there are too many 2x2s on the tray when they're coming in for an exam. Yet, they're letting $8,000 a month go out the door without tightening up their financial systems.” (13:54—14:10) -Christina

“Basically, your overhead is your expenses. It's anything from every pen you buy, every Post-it you buy, toilet paper roll you buy, supplies for the practice, your team compensation, it's marketing, it's operational expenses, anything that you need to run the front office. So, every expense is part of overhead, other than the doctors’ salaries. It is really a place where we have a lot of freedom to look at some of those variable or flexible expenses and try to tighten them up with some really good budgeting.” (14:38—15:17) -Christina

“Your overhead is a reflection of what your gross production is, not your net production. So, I have to have this many people in place to produce $1.5 million. But if my net production after all of my write-offs is only $800,000, I am so well behind the eight ball at this point that it's really difficult to wrap our heads around it. We do get a lot of clients who are in that situation. So, again, the first step is getting the numbers. Let's take a look at that P&L. We're going to dissect every single piece of this, and we're going to look at your PPOs. We're going to look at all of this and figure out how we can reduce some of these, even the collections gap. So, we talked about collecting every single dollar that we can because your overhead is also a reflection of what your collections are. Your overhead is a percentage of your collections. So, the more you can increase your collections, the lower your overhead will be.” (16:40—17:45) -Christina

“Someday, you're going to sell your practice. If I were buying practices — which I don't — I would only want to buy the profitable ones. So, if you come to me with a 75% or 80% overhead, I'm going to tell you I don't want it because it's not profitable. I'm going to have to put a lot of energy into changing this practice because I have to have profit, at the end of the day. We also teach young dentists that you’ve got to buy a profitable practice. Don't buy a practice that's not profitable because it's going to take you forever to turn it around.” (18:32—19:07) -Kirk

“This is the one that a lot of doctors don't even pay attention to. It's the one that a lot of accountants don't even pay attention to, and it's your cash flow gap. Oftentimes, your P&L stops at where net profit is. So, your accountant is saying, ‘Hey, everything looks great and it looks like you're super profitable.’ You've got this great net profit, but then you're saying, ‘I have no money. Where is my money going?’ So, we have brought this one level down into the cash flow gap. You are actually taxed on that net profit, but you're paying things after that. You're paying those taxes. You're paying draws and distributions. You're paying out all of your loans. You're getting taxed on that net profit, but you're not actually collecting all of that money until after you pay all of those things. So, that is the piece that I think we do a really good job of, is showing doctors that you need to go one level deeper and see exactly what you have. That's where we get our true profit from, and that's often the spot that a lot of doctors have not really dove into yet.” (20:13—21:28) -Christina

“Your profit is not going to increase by simply working harder. You need to understand where these gaps and these leaks in your practice are coming from, and awareness is key.” (25:19—25:31) -Christina

“You may look at these gaps, and they may be small. So, you may have an effort gap that's pretty good. You might be at 12%, 15%, or 20%. Your collections gap might be 4% or 5%. Your overhead gap might be a couple percentage. But if you put that all together over the course of a year or five years, that is a huge amount of money. That is a substantial amount of money. That's a practice renovation. That's a CBCT that you could have had. So, understanding that piece of it too and knowing that you need to plug all of these gaps so that we're not losing that money in the practice.” (25:38—26:18) -Christina

Snippets:

0:00 Introduction.

1:42 Why this is an important topic.

2:52 The effort gap.

9:57 The collections gap.

14:11 The overhead gap.

20:09 The cash flow gap.

24:54 Final takeaways.

26:19 ACT’s BPA.

Christina Byrne, BS, RDH Bio:

Christina Byrne has been involved in dentistry since 1985. Over the years, she has held many positions on the dental team, including dental assistant, business office, and dental hygienist. Christina’s extensive knowledge of the front office and clinical procedures is a great asset, and she loves to impart her knowledge to guide dental teams do the best they can to achieve a Better Practice, Better Life! 
ACT Dental Team

ACT Dental Team

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