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Defining a Profitable Orthodontic Business
The most profitable way to run the business side of your Orthodontic Practice is to understand, define and know what your break-even number is for your business. Many doctors try to operate the business side of their practice on intuition: “I think we did really well this month”, “It feels like we started a ton of patients”, “The checking account looks good, our starts must be great”.
Intuition is not a solid numbers system that provides feedback of real data for making knowledgeable business decisions. Profits in an Orthodontic practice can greatly increase when the doctor has the ability to understand the practice business numbers, particularly the practice's break-even point, and monitor these numbers with a system to keep the team and practice on course.
Break-Even Point
The break-even point is the first and most important business number a doctor and his staff should know. The break-even point number should provide enough revenue to meet expenses and profits needed for the below financial goals.
- Doctor income
- Retirement contributions
- Overhead expenses
- Salary expenses
- Loan payments
- Increase in staff labor costs such as raises, benefits and skill levels
- Capital improvements such as new equipment and office remodeling
The Four Keys to Success
Profits in an Orthodontic practice depend directly on four numbers: the break-even point, production, collection and overhead expenses. From the break-even point number, production and collection goal numbers and a budget for the practice can be calculated. When the doctor and staff know what the production and collection goals for the practice are and have a system to work towards and monitor these goal numbers, it is much more likely that financial goals will be reached.
Defining, monitoring and controlling all of these numbers each month will more likely result in the desired profits for the practice. Doctors must understand how all of these numbers work together.
The Game Plan
1) The break-even point must be calculated and defined.
2) The doctor must determine what the practice will need to produce and collect each month to meet the break-even point number. The production goal must be defined and divided among the producers in the office. In Orthodontics it’s generally by the number of new patient exams, records and starts.
3) The scheduling coordinator must schedule each producer's day to meet their individual production goal. It is important to remember that cancellations and changes in the schedule affect how much the doctor, the treatment coordinator and other staff members may be able to produce each day.
4) Have excellent financial arrangements and or collection policies in the practice. Delinquencies should be no more than three percent of your total collections.
5) The doctor must have a defined budget for the overhead expenses of a practice. The budget should be divided among many areas: salary expenses, clinical supplies, lab costs, marketing etc. These budgets should be monitored on a monthly basis. The doctor's Profit & Loss Statement (also called an Income Statement) will have the necessary information to monitor expenses.
The entire team can help the doctor control and monitor production, collection and the appropriate expense numbers for the practice budget. Each member should know what these numbers are, how they are accountable for meeting them and how to monitor them throughout the month.
The Summary
It is well worth the time and effort to define and monitor the business numbers discussed: break-even point, production & collection goals and an overhead expense budgets to maximize profits. This gives the doctor and team more control and it ends the guessing game of where you really are financially as a business.