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!
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Main Takeaways:
Quotes:
“What you really wanted when you became a dentist, obviously, you loved the science of dentistry and you wanted to be involved. But really, there was something that motivated you to do it. I'm going to guess it was the freedom — the freedom to choose how to practice, the freedom of how to treat people, the freedom of when you could work, the freedom to choose all that. A lot of this goes away when you get heavily involved in PPOs. And freedom in dentistry doesn't come from how much you produce — it comes from how much you keep.” (3:51—4:24) -Kirk
“A profitable practice gives you the freedom to choose. Some people come to me and say, ‘I don't care about money. I didn't do this for the money.’ I get that. But money is to your practice what oxygen is to your body: without it, both die. So, I get it. Money is not the most important thing to me — margin is. I need the margin to enjoy my family, and enjoy those things that matter to me, and to breathe. So, when it comes to cutting back on clinical days, investing in technology, or just taking vacations where you can be present, you're going to need that margin, that profit. You do need a profitable practice, bottom line, and you have to know how to do that.” (6:21—7:04) -Kirk
“When you understand the true impact of write-offs, you can now start to mitigate that stress. You can stop chasing misleading numbers like gross production. Gross production is a false proxy. When you're talking to your friend about how much you produce and they produce, it's false because, who cares? That's just potential collections. We don't know how much you're collecting. So, it's important to start making smarter business decisions that bring you peace of mind and improve your profit.” (7:38—8:15) -Kirk
“More than 95% of dentists have no idea how hard they worked last year. They're like, ‘I don't know.’ I'm like, ‘Go home and count the number of days that you worked.’ Then, they go, ‘Do you know how many days I worked?’ The average dentist in the United States, according to the ADA, works 220 days a year. That's too much. Don't work that hard. That's what we call the effort gap. Now, the first step of any of this is knowing what's in there. Once you get your arms around that, now you can start to tighten those dials.” (16:51—17:21) -Kirk
“The second gap is called the collections gap. This is an important one too, because in there you're going to see there's net collections, and then you've got gross collections percentage, and then net collections percentage. The bottom line is you should collect, of your collectible production, 100%. We say it all the time, but it's worth repeating: 95% is an A in the classroom, but it's a D in practice management. Now, there's an opportunity there because you should collect 100% of what's owed to you. I don't think it's good to celebrate 95%. We can start there, and let's go to 96%. Let's go to 97%. We can celebrate that, for sure. But when you're leaving five percent on the table, that's money you could put in your retirement, or that's money you could use to service your debt, or that's money you could use to give yourself a raise or give your team members a raise.” (17:25—18:21) -Kirk
“The fourth gap where you can tighten the dial is the overhead gap. Now, here's what I would say being the old timer in the room. Overhead isn't overhead. It actually was kind of true when somebody said back in the day, 20 years ago, ‘What's your overhead?’ ‘My overhead is 55%. What's yours?’ ‘Well, mine's 60%.’ There would be some type of a conversation. But now, that's irrelevant because overhead is a function of gross production. The percentages come out of what you collect, but you have to understand that some practices are writing off so much that their overhead is not relevant anymore. They're writing off as much as 42% or 43%, which makes their overhead percentage insane. So, that's an opportunity in there.” (18:23—19:11) -Kirk
“The cash flow gap, it's important to know that there's a difference between net income and true profit. The first thing to understand is that the doctor's salary is not in overhead. I know that's a big conversation in dentistry, but we don't consider that part of your overhead. That's actually down in the bottom of the cash flow gap. It's associate compensation, your compensation, and then you have what's in net income, which is probably going to show up in some type of report that your accountant is going to create. But what you won't see in any of those reports or a P&L report is going to be your true profit. So, at the bottom of your P&L, it probably says $320,000, which puts you in the top five percent of dentists in the United States. But your accountant doesn't tell you how much you paid in taxes that you had to pay cash for, or your loan payments. That shows up only in other things. You say, ‘Well, that's great. But I don't have any money.’ So, you have to be aware of how taxes and loans affect your true profit. We have many practices that come to us that produce north of $5 million, and they have no money. It's the worst place to be.” (19:15—20:25) -Kirk
“Part of what our industry has always celebrated is gross production. ‘How much do you produce? How much do you produce?’ We should really be celebrating how much do we collect, how many days are we working, how much fewer are we working this year than we did last year, and celebrating seeing those write-offs go down so that we can really celebrate that true profit.” (20:58—21:18) -Miranda
“Every practice has an effort gap — you should have one. What we want you to understand are three things. If there's a takeaway today, I want you to answer these three questions for yourself. What is the true output of my or our business? How much output are we creating? The second question I want you to answer for yourself is, how much of our dentistry or my dentistry am I not able to collect on? Meaning, how much are we leaving on the table by having a collections gap? Then, the third question I want you to answer for yourself is, how many days per month am I really working for free? Now, I'm going to warn you, the third one is going to create some chest pain. It's going to frustrate you. But don't stay there. It's important to know the number because it will create some inertia, some intention, around saying, ‘I'm not doing that anymore.’” (22:23—23:17) -Kirk
“Here's what happens when your practice is writing off 40%, 45%, 48%, or 50%: you're not making money. So, you think, ‘Oh my gosh, we have to do more. We have to do more. I have to work harder. We need to squeeze in every emergency that we can and do every bit of same-day that we can.’ We're pressuring our hygiene team and our assistant team to upsell, upsell. We're becoming this environment or this culture that we never intended to be because we feel the crunch, that tightness of not really having money at the end of the day. Most people think, ‘Oh, no. We don't have enough. We need to do more at the top,’ when in reality, all you're going to do is write off 50% of even more. So, you're not really solving the problem. You're just getting busier and more stressed, and your office and your practice and your team feel crazier every single day.” (27:18—28:13) -Miranda
“You're like, ‘Oh, I don't have that many elective write-offs.’ Well, your sister was in last week and you prepped all of her uppers. The next week, you prepped all of her lowers — and you didn't put it in the computer. You're all mad because we're not collecting enough this month. So, the point is this: put everything in the computer. Always put in your full fee so that you have complete visibility on how you use your time and what procedures you do. When you do that, now you can start to go to work on that. I always want you to give back, but I want you to give back on your terms, not other people's terms. That's when it becomes fun.” (28:35—29:09) -Kirk
“Membership plan adjustments are actually a great way to help with patient loyalty. When you are making that transition away from insurance and into a bit more of a cash or fee-for-service practice, they bridge that gap and they tie and tether patients to your practice. So, we do have to be very aware of the fact that there are also discounts, write-offs, money leaking from the practice within this adjustment gap. But there is a balance here if we're doing it well and we have more control. So, with the insurance company, we don't have control. I mean, we can negotiate, we can look for the right plans that provide us with a higher contracted fee, or maybe we join an umbrella that negotiates higher fees for us. But with a membership plan, we are in more control of what we are charging and what discounts we are providing. You get to pick and choose and say, what do I want this to look like? You're able to have a bit more control and a bit more freedom around using membership plans.” (37:46—38:53) -Miranda
“The beauty of a membership plan, because there are pros and cons, is that you do develop this loyalty with your patient. They've now signed on to say like, ‘I believe in you. I trust in the service and the care that you are going to be providing for me. I'm going to do that here with you. I want to come back here for my hygiene visits. I want you to be the one who helps me through these challenges when they occur. But I just need a little help. I need to figure out how to make this work financially.’ Okay, so we can work through this membership plan. What we see is that that loyalty and the way that patients are tethered to the practice is they're doing more dentistry. They're staying longer. We're ultimately receiving more cash or revenue from these patients than we would from an insurance patient or someone else. So, the balance has to be just right, and we have to be aware of what's happening within those plans and what our write-offs look like.” (39:42—40:34) -Miranda
“The leading elective adjustment is doctor-applied courtesies. I would categorize these as the doctor coming up front and saying, ‘Hey, we're going to give Mrs. Jones 20% on that. Hey, we're going to go ahead and do 10% on that,’ that verbal, like, ‘I got you, buddy.’ I work with a really awesome team in South Carolina, the nicest people — too nice sometimes, if you're listening. He knows who I'm talking about. He’ll say, ‘Oh, but he goes to my church and he's a nice guy.’ I'm like, ‘Does that mean he shouldn't have to pay his bills?’ So, it's that doctor-applied. Like, you want to do something nice for the community, or for this person. Or sometimes, it's just softening the blow because you're not confident in those objections or conflict conversations. So, a patient pushes back a little bit, and you decide like, ‘Ah, we'll go ahead and give you 10% off if you want to go ahead and go forward with it.’ Those are our doctor-applied courtesies.” (45:16—46:14) -Miranda
“The other thing that happens most often is you'll see on an adjustment report, “professional courtesy”, and then all of this that's listed here: service and trade, cash courtesies, senior citizen — those doctor-applied courtesies — prorated treatment. All of that is listed in your software as a professional courtesy and you don't actually get that granular information when you're running the reports on what your adjustments are. So, we generally recommend building out adjustment types to suit those most common elective adjustments that you're applying. If you do cash courtesies, have it say “cash courtesy adjustment”. If you're doing senior citizen or military, have it say that specifically. If you have a friends and family courtesy, or you barter with your community members, “service and trade”. You want to make sure that at the end of the month, at the end of the year, when you run an adjustment report, it's not lumped into one bucket, but you can really look and see where we are giving away. And just think, if you're doing a lot of prorated treatment courtesies, it's going to give you a little insight that maybe something is going on with the dentistry if we're having to do that a lot and things are failing within a short period of time. If we're doing a lot of military courtesies, there's a great marketing opportunity to market to the military community, ‘Hey, we must be seeing a lot of military patients. Let's lean into that. You've talked about having teacher days. We could have military days.’ There are a lot of things that you can learn from the granular information within elective adjustments, but you have to code for it.” (46:26—48:00) -Miranda
“Know what you're giving away, and then be okay with it or not. So, if you look at it every month and you're like, ‘That's a decent amount. But you know what? I'm okay with it because I feel good about what I was able to give back,’ fine. But if you do that and you're like, ‘Wait a minute. What?’ now, you know where you need to tweak the dials to make a little bit of an adjustment there.” (48:53—49:13) -Miranda
“Eliminate emotional discounting and make those fee reductions intentional and rare. So, really work on the confidence, in the value that we provide in our dentistry so that when we are met with an objection, we don't feel like the answer to that objection to help someone say yes is to give a little bit away or to discount the value of what we do. Instead, we're confident and comfortable in managing those objections. And that's alignment — that's across the whole team.” (53:23—53:51) -Miranda
“Evaluate your membership plan pricing. If you have a membership plan now and you're not sure what the write-offs are associated with that plan, take a look and see what you are charging versus what you are writing off. Is there a gap there that can be closed so that you can start to keep a little bit more of the effort that you're putting into that dentistry that you're producing?” (54:00—54:20) -Miranda
“Ultimately, money isn't everything. But profitability, on the other hand, is what funds that freedom. When you have profit, you can take a day off. When you have profit, you can leave your practice. When you have profit, you can go on vacation and not call the office. When you don't have any profit, you're thinking about your business all the time because you need it. So, it's important. I would say profitability also helps you create more dentistry for people that need it, because when you don't need it, they feel that. When you need it, they feel that too. Owning your own practice should bring you the freedom that you wanted at the beginning. Then, you get to pick how you want to live your life. And that, my friends, is the fun part.” (55:53—56:42) -Kirk
Snippets:
0:00 Introduction.
0:57 Smile Source and ACT have merged!
3:23 Why understanding write-offs is important.
8:15 ACT’s core focus and core purpose.
9:34 ACT’s GAPs at a Glance.
12:16 A great coach isn't going to turn the dials for you.
14:51 Overview of the financial gaps.
20:35 The effort gap, explained.
22:22 Three important questions to answer.
25:44 How production leaves in this gap.
29:28 Insurance adjustments.
37:08 Membership plan adjustments.
40:59 Q&A: Do you recommend anyone who helps facilitate membership plans?
43:03 Elective adjustments.
49:14 ACT’s energy quotient, explained.
51:41 Steps to closing the effort gap.
54:40 Final takeaways.
56:42 ACT’s new Financial GAPs Calculator.
58:46 ACT's BPA.
Miranda Beeson, MS, BSDH Bio:
Miranda Beeson has over 25 years of clinical dental hygiene, front office, practice administration, and speaking experience. She is enthusiastic about communication and loves helping others find the power that words can bring to their patient interactions and practice dynamics. As a Lead Practice Coach, she is driven to create opportunities to find value in experiences and cultivate new approaches.
Miranda graduated from Old Dominion University, and enjoys spending time with her husband, Chuck, and her children, Trent, Mallory, and Cassidy. Family time is the best time, and is often spent on a golf course, a volleyball court, or spending the day boating at the beach.