How to Run a Financially Healthy Dental Practice

Written by 
Oct 20, 2020
4:30 pm

As the owner or manager of a dental practice, one of your main priorities is helping patients maintain good oral health. However, it’s just as important to stay focused on the financial health of your business.

Maintaining a steady stream of patients and boosting practice revenue is only part of successful dental practice financial management. There are myriad other factors that go into maintaining healthy dental practice finances, including managing overhead, fees, insurance, taxes and more.

Here are 5 tips for running a financially healthy dental practice:

1. Identify and track the most important KPIs for your practice.

Key performance indicators, or KPIs for short, are the metrics and ratios that will determine the financial success and profitability (or lack thereof) of your practice. Keep an especially close eye on the following dental practice KPIs:

  • Over-the-counter (OTC) collections — Goal: Between 45% and 55% for a fee-for-service practice.
  • Ratio of periodontic-to-overall hygiene production — Goal: At least 30% periodontic services.
  • Ratio of treatment presented-to-treatment accepted — Goal: Between 70% and 90%.
  • Average dentist and hygienist production per hour — Goal: $375 per dentist and $100 per hygienist.
  • New patients — Goal: 15% growth in new patients annually.

2. Use the right accounting software.

Even if you work with an accountant or CPA, you still need to use a dental accounting software program to generate the data your accounting professional will need. The right program will enable you to keep track of practice expenses, revenue and other financial data, thus giving you and your accountant an accurate picture of your overall financial situation.

Depending on the size and complexity of your practice, you may be able to use a generic accounting program like QuickBooks® or you might need a program designed specifically for dental practices. There are a number of these on the market — a few of the most popular are Total Dental, Curve Dental, Dentrix, Open Dental and Denticon.

3. Be strategic when setting fees and salary levels.

Fees represent the bulk of your practice revenue, while salaries and wages represent a big chunk of your expenses. Most practices set their fees based on average fees charged by other practices in their area. These are also referred to as UCR (Usual, Customary and Reasonable) fees. It’s generally not a good idea to charge the lowest or highest fees in your area — aim for the middle of the pack.

The same goes for salaries. Determine average wages in your area for each position in your practice and set your pay scale accordingly. Consider offering bonuses to staff if they achieve certain performance benchmarks and give employees the opportunity to earn merit-based raises on an annual basis. One benchmark is to keep staff wages between 23% and 25% of total practice expenses.

4. Keep your overhead down.

Overhead consists of fixed expenses that remain steady from month to month — like your mortgage or rent, utilities and payroll — and variable expenses that change based on monthly production, such as labs and supplies. Every dollar you can save in overhead drops straight to your bottom line, boosting your profitability.

Supplies are one expense area that dental practices often overlook. You can lower your supply costs by only ordering enough supplies to meet your needs for the month, instead of buying supplies in bulk. Excess supplies sitting on your shelves represent cash that could be sitting in your coffers instead. If you haven’t priced out supplies lately, now would be a good time to do so. If you find cheaper prices, ask your current supply reps to meet — or better, beat — them.

5. Invest in revenue-enhancing activities.

There’s an old saying that you have to spend money to make money and this holds true when it comes to dental practice financial management. For dental practices, this often means investing in activities that boost patient satisfaction and increase the practice’s visibility in your community.

For example, recognize your long-term, loyal customers by offering them discounts or preferential treatment, like priority when it comes to setting appointments. Invest in new technology and facility upgrades that will help you improve the overall patient experience. And set a budget for practice marketing that incorporates both offline and online marketing activities, including localized search engine optimization (SEO).

Implementing these and other financial management best practices can help you improve the financial performance of your business and boost your profitability. Plan now to meet with your staff to discuss how you can put these tips into practice.


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