August 26th, 2020
How many of us were prepared for a pandemic shutdown this year? Quarantine affected many mentally, physically, and financially. While talking with Fortune Management we learned that many practice owners were not prepared financially. This led to an increase in debt, employment terminations, a lack of PPE supplies, and more.
While we are still unsure if we will experience another quarantine in 2020, it’s always best to prepare should a future pandemic occur. To be a resource for you, we teamed up with Fortune Management to discuss strategic ways practices can be financially prepared for a future shutdown while still optimizing any downtime that may occur. Here are Fortune Management’s top tips for being better prepared during a pandemic:
#1: Have 3-6 Months of Operating Expenses in Your Savings
Becoming financially secure in your business is specific to the needs and dynamics of your practice. You need a good (ideally dental-specific) CPA and a financial planner on your side.
From here, Fortune Management recommends starting with your breakeven point. This is the point that all bills, salaries, supplies, rent, and of course YOU are paid. After you calculate that number, plan production goals around what percentage of profit you want to achieve. Working with your CPA will help you to minimize your tax obligations while saving at least 3-6 months of that breakeven point in fluid funds.
After you have a plan set you can look at other ways to minimize spending and maximize your EBITDA (earnings before interest, taxes, debt, and amortization) in other words . . . profit! Some areas where Fortune Management sees the most deficit for dental practices during a pandemic are:
Gone are the days that we should be reaching out to the insurance companies to credential or re-negotiate fees on our own behalf. If you have not re-negotiated or credentialed within the last two years, Fortune Management recommends that you contact an insurance negotiator to see what difference if any they can make in the amount you are writing off.
Profit and Loss
You should know your percentages off the top of your head and be reviewing your P&L monthly as well as quarterly. Knowing where each expense is vs. guideline is important to running a viable business. Fortune Management has provided an “Expense Guideline Sheet” to evaluate how your practice is measuring up.
Overall Budget Tracking
Ordering all supplies for the office with a budget in mind is one of Fortune Management’s “best practices.” Many practices order what they need with no budget for them to be conscious of.
To start budgeting your expenses, run collections for the previous two weeks (if you order bi-weekly) and take about 1% for office supplies and 6% for dental/hygiene supplies. This gives you a rough budget to not exceed your expenses. Keep in mind, if you are under budget that you should not spend the remaining amount.
Keeping track of PPE inventory is important now more than ever. Fortune Management provided us with their PPE “Burn Rate Calculator”. This allows you to track how quickly you are using supplies and what PPE you have on hand. You should always have a surplus that covers 2 months’ worth of supplies.
#2: Ensure Only Team Players Are Working for You
Do you have a team of excited people, who look forward to work and really make your practice operate efficiently? If not, you need to evaluate these questionable employees in your practice as they are probably costing you more money than you realize.
While terminating employees is never easy, having the right employees working for you will not only optimize your expenses but enhance your overall production and increase office morale.
#3: Optimize Your Downtime
IT Budgeting and Technology Upgrades
Improvements to technology can be difficult when you have a fully operational practice. If your practice has downtime or is unable to operate at maximum capacity due to COVID-19 related restrictions, we suggest working with your IT provider to take advantage of that downtime in the following ways:
Develop an IT Budget for Your Practice!
Since unforeseen circumstances will always arise, sometimes in the worst of times, it’s important to use any downtime you may have to create an IT budget if you currently do not have one in place for your practice.
In the past, Medix has taken a reactionary approach to advising clients on replacing technology. Before, we may have told you that 10 of your computers needed to be replaced every 6 to 12 months, but 10 new computers can be quite pricey – as you have likely found out. The correct way to go about technology replacement is to spend part of your budget on computers every couple of months, rather than buying them all at once for a much larger bill. Take notice of which computers are slowest in your practice, speak with your Medix sales associates, and we can provide you with a quote. Medix can phase your computers out little by little. This will allow you to proactively plan out your technology expenses versus simply reacting to your technology breaking down.
Your practice must keep pace with technology to be able to maintain a competitive advantage in your market. This could mean spending a part of your IT budget on the newest gadget or software, a pricey initial investment that will likely increase your productivity in due time. To stay on top of your financials, set aside a fraction of your budget for any innovations that may pop up in your market. If you don’t use it now, save the money for a later time.
An IT budget also allows you the freedom to focus on your long-term business goals. By prioritizing your spending in the short-term, this can lead to opportunities for improving your practice in the future. If one of your business goals is to grow your business operation, technology is a way to do that. Faster processes enhance the patient experience, lead to happier and more productive employees, and keep your practice on track to success.
Even after budgeting your IT expenses, you may be hesitant to move forward with actually purchasing and replacing your outdated technology. How do you know when your technology is outdated? “Can’t it wait?” you may be wondering.
“When your equipment reaches three to four years old, it is time for an upgrade. Even if your equipment appears to be working adequately, we have found that after 5 years technology does not work the same as it once did. It’s general industry knowledge that around this time equipment starts to fail, causing you to invest in fixes and repairs.” – from our, Avoid Falling for These 6 IT Support Myths in Your Dental Practice article.
The longer you wait to replace outdated technology, the more risk you are putting your practice in.
Replace Outdated Technology
You may have experienced the following scenario, where one of your employees is frustrated with how slow their computer has been acting lately. Those complaints are perfectly valid, seeing as your employee can no longer do their job to the best of their ability; the computer has reduced functionality and runs at a fraction of its usual speed, causing unnecessary delays.
Not only is the computer slow and a hindrance to productivity, but it is also a security risk. Older models may be missing crucial security patches and updates that are no longer available due to their age, making them vulnerable to malware.
In the first half of 2019 alone, data breaches exposed 4.1 billion records to the general public (Risk Based Security, 2019). Hackers and cybercriminals consider small businesses, like dental practices, to be low risk and high reward targets. Practices hold valuable personal identifying information about their patients that they can steal and extort at a substantial cost.
HIPAA has standards in place for companies like yours who deal with protected health information. The physical, network, and process security measures in place to be considered HIPAA compliant have to be supported by up-to-date technology. To better put that into perspective, the foundation of a house has to be completely secure before building on top of it. The same can be said about your practice’s technology.
System Clean Up
“Systems” are a pretty broad subject in the dental industry. From answering the phones, the confirmation process, the clinical portion of a visit, all the way to treatment planning and billing insurance, it all includes a system. What we know is that a comfortable patient accepts treatment. Each one of your systems should be designed with the patient’s comfort in mind.
Though there are many ways to run a practice well, there are certain systems that run it both efficiently and effectively. A great way to evaluate if your systems are working properly is to review your KPIs. These “key performance indicators” are the “exam” to “diagnose” what system is broken or in need of some strengthening. Typical KPIs Fortune Management recommends looking at monthly are:
- Gross Production vs. Net Production
- Account Receivables
- Hygiene Re-Appoint
- Treatment Acceptance by Dollar and Case
- Perio Diagnosis vs. Accepted
- Fluoride Acceptance
- New Patient Numbers vs. Lost Existing Patients
- Adjustments by Class
- P&L Evaluation of Expenses
If these numbers are falling below your goals, it is time to evaluate what system is failing or needs attention. Fortune Management recommends making a clear plan, being specific as to which team member will be the source person to get it completed and held accountable. While systems can be all-encompassing, once you start monitoring each KPI, it will lead you to your strengths and weaknesses.
We realize in these times patient AR can be uncomfortable to collect due to the nature of the financial effect the virus has had, so Fortune Management has provided “Statement Letters” (Example 1, Example 2, Example 3) to assist with the preservation of patient relationships while collecting balances.
If your practice is down or operating at minimum capacity, now might be the perfect time to take on any office renovations that have been set aside in the past. Does your waiting room need a new coat of paint? Is there an old 60’s room divider somewhere in your practice that desperately needs a sledgehammer taken to it?
These changes may seem trivial compared to the security risks and system failures we mentioned previously, but presentation does matter to your customers – and you. So why not have it all? (As long as it’s in-budget.)
For dental practices operating during this pandemic, it is in your best interest to prepare for the next shutdown – whether it happens this year or not. Make sure you have the necessary funds in your savings to carry your practice through another quarantine. Optimize any potential downtime by creating an IT budget, making much-needed renovations, and focusing on the future of your practice. As always, we are here as a resource for you during this time. If you have any questions, please do not hesitate to reach out to us at Medix Dental IT or Fortune Management directly for financial guidance.
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