The Practicon Viewpoint by Ann Page Griffin

ZERO BASED BUDGETING—A TREMENDOUS TOOL FOR INCREASING PROFIT

There are two ways to increase profitability: earn more and spend less. Many practice management experts place more emphasis on ways to earn more—better scheduling, increased production, more new patients, improved recare system, etc. While earning more is important, control of expenses remains one of the most under-utilized, yet valuable, ways to increase profit. Spending less (saving) becomes a reality only when practice expenses are analyzed and controlled. Dollars not spent go directly to the bottom line.

There are two types of budgeting:

• Incremental
• Zero based

Incremental budgeting is familiar to most business/dental practice owners, regarded as next year’s financial plan for the practice. In order to write the budget, a net collection goal for the year ahead is set. Expenses, including monthly operating costs and any capital expenses, are projected. The current year’s production, collection, and expense totals are reviewed, projecting increases or decreases in income and in costs. The budget, covering both income and expenses, is monitored monthly. Only after thorough analysis and justification of numbers that vary greatly from the budget will adjustments be made to the original budget plan.

Zero based budgeting involves questioning every activity in the practice outside of hands-on patient care to see if it is necessary, if it adds value to the practice, and if the cost can be justified. Activities such as marketing, website function and costs, legal, accounting, and management consulting fees, supply costs, lab costs, janitorial and maintenance services, CE costs, acceptance of reduced payments from managed care or government-assistance patients, on and on. Even details such as magazine subscriptions, staff activities and meals, costs of various insurances; merchant fees for credit card use, trash service, cost of telephone service, and so on need to be scrutinized.

In summary, list every activity or function done in the office outside of hands-on patient care. Then ask the following questions to analyze each and decide whether to eliminate, replace, or modify each activity or process.

Six Questions for Zero Based Budgeting

1. What is the reason for the expense?
2. Why are we doing this? Why did we start doing this in the first place?
3. What is accomplished by this activity/process?
4. Is it still necessary or beneficial for the practice? For staff? For patients?
5. What would happen if we stopped or changed this activity/process?
6. Are we getting the best price for services rendered? Are there less expensive alternatives?

An annual review through the zero based budgeting exercise will help keep your practice expenses well controlled. By questioning every activity and cost, there is great potential to save thousands of dollars which will flow to the bottom line in the form of profit.