Graph going down

The trouble with a little drop in revenue

Practice Development, Ross Martin

By Ross Martin, Accountancy Director at Hive Business

Imagine your bills go up by 10%. Maybe it’s a pain but it doesn’t seem like it will be impossible to cope. Anyway, what with higher fuel prices, energy, insurance, materials and whatever else, you kind of expected it, and 10% seems smallish. You’re resigned to it.

And there are plenty of other ways for costs to ratchet up: debt repayments, staff wages, equipment, refurbishments, GDC fees. They always seem to be creeping up. You’re in a more precarious situation than you might think, and a more precarious one than you might think you deserve, especially given that all your patients like you and say good things about your practice, and even supply a chunk of your new patients through word of mouth referrals.

But business isn’t just about leaving people smiling. If that’s important, fiscal prudence over the long haul is just as important. With average profit in a dental practice in the region of 5%, a £60k a month practice may return £3k of profit, making sure everyone has got paid of course (even if a lot of practice owners shield themselves from knowing the true profitability by excluding their own pay in this calculation).

Missing your £60k target by 10% means you’re at £54k. OK, clinicians’ fees and lab costs will be lower by perhaps £3k, but all the other costs for the ongoing function of the practice will be almost the same, so that monthly profit of £3k will evaporate, just like that. This means that you, your clinicians and the entire practice need to push all the way to your targets as though it is life or death. Because, actually, it is.

Normally the principal does OK vis-a-vis their own targets when their performance is averaged out across the year. It tends to be other clinicians in the practice who don’t hit their targets. The trouble is, when a principal is taking out, say, £12k a month, whatever revenue is being generated, they don’t feel, see, hear or know about the health of the business.

They might notice after nine months when they get their end of year accounts, but they probably won’t do anything about it. It’s far more comfortable to keep drawing the £12k and looking away. If you are a principal, here’s what you should do:

  • Pay yourself as an associate, so if you are generating, say, half of your practice’s £60k monthly revenue, pay yourself the standard associate rate on it (even if it’s more than what you usually pay yourself)
  • Call a meeting of all clinicians when a monthly revenue target is missed and establish the cause in the open
  • Factor in average daily/ weekly/ monthly yield targets as a key part of your clinician recruitment policy, with persistent failure to reach targets a clear aspect of your terms of employment

I know none of this sounds fun, but before too long there will be no jobs for anyone, including yourself, if your business continues to fall under its monthly revenue and cost control targets. For a quick analysis of your business performance over the past 12 months, ask us about our diagnostic day. To find out more please call 01872 300232 or email [email protected].

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