The storm you didn’t see coming
The storm you didn’t see coming
It’s a sad mathematical fact that for many practices, something simply isn’t adding up.
July 27, 2023

By anyone’s yardstick, the last three years have been tumultuous for businesses. Pandemic closures, pandemic re-openings, staff shortages, behavioural shifts, four-day weeks, war, energy price increases, bank interest rate rises… Any one of these would be challenging, but the weight of one after another is creating a cascade that threatens everyone in its path.

One of the benefits of working with a large number of practices, as we do, is that it’s possible to take a detached “macro” view of the industry as a whole. Because we’re not working, head-down, on the frontline as dentists typically are, we’re able to spot issues gaining momentum at a greater distance. However, right now, there’s a massive storm on the horizon and nobody seems to see it coming.

Up until now, dentistry has weathered things fairly well. Other industries have experienced the sharp, shocking lightning bolt of change and have had to innovate – quickly. However, for dentists the effect has been dampened by the industry’s previous buoyancy. And yet, this was never going to last forever. Now, we’re noticing a definite and concerning shift.

So in this article, I’m issuing a call to arms. If your practice is still rooted in the past, please join us in changing things now, because you really, really need to.

Fundamentally, it all comes down to mathematics and what I call the profit equation. This is a simple equation for how dentistry does (or doesn’t) make money, which is: Profit = income – clinician cost – surgery overhead cost. Your profit is the result of your income (how much money your surgery brings in) minus your clinician cost (how much you pay the clinician generating that revenue) and your surgery overhead cost (the cost incurred for opening that surgery for the day, spanning everything from staff to postage stamps).

I’ve carried out this analysis for practices large and small all over the country and found that when it comes to running costs, I almost always end up with numbers that are very similar. For a private practice, the overhead cost per surgery used to be £550 a day, largely regardless of size and geography. As an example, if the income for one surgery is £1,100, the associate fee is £500, and the surgery overhead cost is £550, the profit you’re left with for one day is just £50.

From this, we can see that the economics of many dental practices – based on how they used to run five or ten years ago – doesn’t make sense in today’s climate. Sadly, relying on check-ups and rectification treatment (when required) is no longer viable. The issue becomes even more pressing when we consider that costs aren’t fixed; they’re still rising. As our £550 running costs figure has now become £600, suddenly any profit you might have made in a practice is wiped out.

Gone are the days of the so-called security of plans and the odd dynamics a Care Plan brings. Although these provide a mirage of profitability, with guaranteed regular income flowing in, there’s no benefit to you (quite the opposite, in fact) if your running costs are higher than your income. With the plan/check-up model, you can only increase your income by seeing more patients, and as we all know, there are only so many hours in a day. On a macro level, we’re seeing this turning into a seriously big problem for practice owners.

What’s vital is that you know your maths. Having financial control means far more than checking your bank statement at the end of the month. If things are going south, you might find that you’re working harder than ever but making no money. This can be for various reasons: I’ve already mentioned an over-reliance on check-ups, but other culprits include slow-moving staff or too many gaps in your diary. If margins are tight, losing even half an hour of billable time each day can completely cull your profitability. At this point, everyone in your practice needs to be performing at a certain level. To know if this is happening, or to get to the heart of what is, you must be looking closely at your numbers.

So, knowing that costs are rising, how else can you balance the equation? Clearly, it’s not possible to simply pedal faster; instead, you need to change your model altogether. This means, as we’ve written before, providing an experience around your practice and proposing treatments to your patients. It may sound unlikely, but people often like it when their dentist offers treatments; I’ve been waiting, hand on wallet, for about two years in the hope that mine will suggest teeth whitening.

Many of the methods for boosting profitability are things that we’ve been suggesting to clients for years. Some took us up on these suggestions and some didn’t, and that was fine; it used to be the case that you could afford not to do them. Now, nothing is a luxury, and you really can’t afford not to do everything. The positive thing is that there’s still a huge amount of opportunity within dentistry. It’s just tougher to extract it.

Another plus is that as conditions become more challenging, this creates a void for some to succeed. Many established practice owners will choose to exit, with new and inexperienced owners arriving in their stead. Many will reduce the number of associates they work with, and many will slash their marketing budgets. This sounds like a doom and gloom stance, but it does mean that those who are willing to be better can capture the opportunities. But it’s not enough just to be good at marketing; you need to be good all the way along your chain.

If there’s an issue with your practice, you’ll probably know it deep-down. You might be able to feel that there’s something “off” without identifying the core problem. Being busy without making a profit, tension within the business, and your bank account slowly dwindling; they all represent the far-off rumblings of a storm sweeping in. The underlying cause is always the profit equation: your income can no longer support your costs.

The first step towards change is to love your numbers. Get a real handle on the mathematics of your practice and dovetail your finances with your overall strategy. Often, even when costs have been cut and a practice is operating leanly, this is the missing piece of the puzzle, and it’s where we can add real value.

If you want to know how to be better, we’re here to help; get in touch with us to get started on a solution.

The information contained in this article is based on the opinion of Hive Business and does not constitute formal tax advice. Any tax outcomes will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future. You should seek specific advice before embarking on any course of action. Hive Business does not provide regulated Financial Advice, including advice on investment, insurance or lending products or their suitability for you. This article is provided for information only and does not constitute, and should not be interpreted as, investment advice or a recommendation to buy, sell or otherwise transact, or not transact, in any investment including Bitcoin and other crypto. Any use you wish to make of any information contained within this article is, therefore, entirely at your own risk.

By Ross Martin Group Chairman
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