Monday, December 18, 2017

MONEY MATTERS FOR 2018

Production is one key to a thriving practice; collections, however, is the do-or-die indicator of profitability. After all, one can only spend or take as profit the fees collected.

The New Year is a perfect time to calculate new production and collection goals. Set realistic numbers based on your own needs and the potential of your practice using the model described below.

Sound fiscal planning begins with the dentist setting personal, lifelong financial goals based on how much money you will need to earn each year to maintain your chosen lifestyle, meet family needs, fund retirement, and so on. Additionally, you must know the annual cost (overhead) of operating your practice.

To establish a one-year collection goal for your practice, project these totals:
  • Overhead—the cost of operating your practice, not including dentist's compensation
  • Dentist's compensation—wages, taxes, and benefits
  • Debt service
  • ROI (Return on Investment)—profit
Divide the sum of these four items by the number of days to be worked that year. 185 to 195 days per year is typical. The quotient is the daily goal for collections.

Next, adjust the collection figure by the average collection percentage rate to determine the daily production goal. The collection percentage rate is calculated by dividing the collections for any period of time by the production for that same period. An ideal collection rate is 97% or better of production.

A scheduling goal allows the production goal to be met. One other adjustment is necessary to establish a reasonably accurate scheduling goal; that is, the dollars that must be scheduled daily to assure production and, therefore, collection numbers are reached. That adjustment is the show rate. The show rate is the percentage of patients who keep appointments as made. It is calculated by dividing the number of patients seen, not including single visit emergencies or last minute fill-ins, by the number of patients scheduled during a certain period of time (day, week, or month).

Example of show rate calculation:
  • 88 appointments (hygiene and treatment) were scheduled for one week
  • 79 appointments were kept as appointed
  • Show rate = 79/88 = 90%
Every office should calculate the average show rate, one of the most important management statistics for managing scheduling and production goals. Three months will provide adequate data to calculate an average show rate. The year's average show rate, monitored from year to year to note any decline, will alert the dentist to problems in scheduling, confirming appointments, etc.

The following example demonstrates the meltdown between dollars scheduled vs. dollars produced vs. dollars collected. The differences are surprising.
  • $900,000 annual collection goal
  • 190 work days/year = $4,737/day collection goal
  • $4,737/day collection goal @ 95% collection rate = $4,986/day production goal
  • $4,986/day production goal @ 90% show rate = $5,540/day scheduling goal
  • Meltdown:
    • $5,540/day scheduling goal
    • $4,986/day production goal
    • $4,737/day collection goal
    • $803/day meltdown between treatment scheduled vs. dentistry produced vs. fees collected
Caveat: These production and collection goal calculations focus on money rather than real-world day-to-day patient scheduling, so please note that my advice in this area is based entirely on providing service to patients. Service beyond patients' expectations is today's mantra for success in a fee-for-service dental practice. When I write specifically about money, production, collections, budgeting, and financial goals, I do not suggest turning your patients' care into dollars. Absolute commitment to superb care for patients must come first for any successful practice and its business systems.

No comments: