Survival Tips from an Okie

 

 

by Rick Willeford, MBA, CPA, CFP, PFS


Most of us have not experienced an economic downturn as severe as the one we face now. However, there was a second "Great Depression" that many people are not aware of. It occurred in the Oklahoma Oil Patch in the 1980s when the oil market collapsed. My friend and fellow member of the Academy of Dental CPAs, Paul Woody, CPA, CVA, was there. He was practicing during that time, so I asked him to share some observations that might help everyone get through the impending storm.

Paul Woody: The’80s actually got off to a good start. I was preparing to celebrate my 10th year in private practice in 1982. The national economy had come together under President Ronald Reagan and he had reduced all of the income tax rates, so everything was “rocking and rolling.” The fastest growing bank in the country was Penn Square in Oklahoma. (Things got so heady that there was an incident at a nightclub where a particular vice president drank beer from a boot!) Everything was going great for folks in the Oklahoma Oil Patch! 

Then oil prices began to plummet, and the value of oil land leases tanked. Independent operators failed as their financing dried up along with their business. (Sound familiar?) We all got a huge wakeup call on July 5, 1982, when Penn Square Bank suddenly closed! I vividly recall a television newscast showing a long line of people standing in front of Penn Square Bank, including some of my friends. A number of my friends/clients lost everything. Sadly, one man even took his own life in the face of financial ruin. 

Since the state economy was heavily oil-based, many of the local economies throughout Oklahoma collapsed. The unemployment rate accelerated out of control into double digits. That impacted so many people that they had to pack up and leave the state, reminiscent of the 1930s described in John Steinbeck’s novel, “The Grapes of Wrath.”

Oklahoma faced the same depths of economic upheaval locally that the entire nation may be headed toward today, so I thought some of my experiences might be insightful. Here are some concise and effective ideas that got us through those troubled times: 

1.    Marketing – Getting back to basics 

  • Put the skunk on the table: Recognize that many of your patients are going through financial struggles. Patients may be too proud to bring it up. You should proactively tell folks that you recognize the economic problems, and that you have some financial solutions to allow patients to get the care they need. You might offer some form of in house financing (shudder!), which would include a large enough down payment to cover your lab fee. Also, you could promote that you have third-party health-care lenders who provide interest-free financing for 12 months.
  •  Do a better job on case presentation and informing patients of their choices. In the appropriate cases, add some sense of urgency to get treatment done before things deteriorate further.
  • Empower the entire dental team to get on board in the marketing effort. It cannot be the doctor alone. Everyone needs to help during these perceived troubled times.
  • If patients are not doing what they need to do for their own oral health, then the hygienist and/or doctor should suggest corrective action and explain the reasons. If someone is simply not flossing, it may be time to increase the number of hygiene visits that will ultimately improve the bottom line.
  •  Be nice. As basic as this may sound, I’m amazed at how many patients leave a practice because the front desk person or hygienist is not nice, or the chairside manner is poor. We need to be nice to all of our patients in good and bad times, but in particular during these difficult times.
  •  Clean up the cluttered reception area and the office in general.  Sometimes a cluttered look can elicit negative vibes from the patient, so market your dental office. Refresh the magazines, and this may be a good time to start putting fresh flowers in the reception area several times a week.


2.    Monitoring and controlling the overhead

  • Look at all cost items in your dental practice for ways to reduce expenses.
  • Spend some time on the variable expenses such as lab expenses and dental supplies. Make every effort to keep dental supplies in line with the national averages. If your dental supplies are exceeding 7%, this needs to be reviewed with your dental CPA.
  • As difficult as this may be, it may be time to look at your staff to see if it may need an adjustment. Is your team as productive as they should be?
  • The overhead should equal a certain percent of gross depending on the dental specialty. The American Dental Association says the average overhead is 65% for a general practice, but in my opinion that’s too high. Depending on the specialty, the “true” overhead should be at the most 55%, and some manage to get it down to 50%. Review all of these items with your dental CPA as you begin 2010.


3.   Personal spending

  • The third component of working toward a prosperous practice in difficult times is your own personal spending. It is time to sit back and reflect on what is really important in your personal life and make some tough decisions.
  • Put together a 2010 personal budget plan. If a budget is not for you, consider a spending plan with certain guidelines that attempt to keep you solid. Some of these personal guidelines are:

              1.    Housing expense – 19% to 30%
              2.    Food – 6% to 14%
              3.    Clothing – 4% to 5%
              4.    Transportation – 7% to 11%
              5.    Entertainment/recreation – 5% to 6%
              6.    Medical – 1% to 4%
              7.    Insurance – 3% to 4%
              8.    Gifts and charities – 4% to 6%
              9.    Debt – 3% to 4%
            10.    Other – 3% to 4%
            11.    Tax – 45% to 12% (federal and state)
            (Totals 100%)

  • Work with your family on things to eliminate that will increase your “personal equity.” For instance, if you eat out four times a week, what would your financial picture look like if you cut that by 50% to two evenings a week? Look at your other expenditures with the same careful eye, and with the knowledge that this, too, will pass and you can return to your previous lifestyle. But it may be as long as a year to 18 months to recover.
  • What other items can you adjust or eliminate? If you have a history of taking two to three vacations a year, what would happen if you only went on one vacation? For many of you with children, spring break means taking expensive trips to ski slopes or beaches. Could you stay on the home front this year, or drive 150 miles and do something different that could cost thousands less?


By doing all of the above, you should be in a better position to preserve some funds that will serve you well, depending on the length of the economic turndown. Many times a downturn can be psychological because we start to believe what we hear on the news and apply it to our own lives. However, it is clear that we have some struggles ahead of us when we hear things such as one of the largest American automobile companies, General Motors, may have trouble surviving. We need to take heed and make sure we don’t end up in a similar situation. This will have to be accomplished by you, your advisors, your family, and your team.


Paul Woody (pwoody@woodycpas.com) is a CPA and CVA and partner with his son, Grant, in the firm Woody & Associates, CPA’s, PLLC, in Oklahoma City, Okla. For 35 years his firm has promoted business and tax planning, assisted with retirement planning and dental transitions, consulted on taxes, and helped dental practices become more efficient and profitable. As members of the Academy of Dental CPAs (www.adcpa.org), Paul and Grant consistently provide their 260 dental clients with sound, up-to-date, timely financial and business advice.

For more information, or to speak with Rick Willeford, contact him through the WillefordGroup at www.thewillefordgroup.com.

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