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7 simple steps to plan your way to profitability in 2012

Dec. 12, 2011
Whether you’re just starting out or have been in practice for many years, annual practice profitability planning is a must if you desire financial stability, predictability, and profitability in your practice. Kristin Pelletier explains seven things you need to do right now to plan for the unexpected and reach your goals in 2012.

By Kristin Pelletier

As you approach the end of the year, it’s a great time to reflect on how well you met your financial goals for 2011. If you reached your goals, congratulations! If you aren’t satisfied with your 2011 results, or you want to reach the next level of success, an annual practice profitability plan is a great place to start.

Without a well-thought-out plan, practices often flounder under the weight of unplanned expenses. Wouldn’t you prefer knowing now what’s going to happen next year, rather than having to make a midyear correction that could be both costly and time-consuming?

By following the seven simple steps listed below, you can plan for the unexpected and reach your goals in 2012.

1. Analyze your expenses.

While you probably view your profit and loss statement as a tax document, you can also use it as a management and planning tool. Your profit and loss statement can tell you how your practice has operated in the past and can help you project — or more importantly plan — for the future. Group items from your P&L into the following categories (the associated industry standard ranges for each expense category are also noted):

  • Personnel (salary, benefits, continuing education, etc.) — 22% to 28%
  • Doctor direct (benefits, CE, insurance, licenses, etc.) — 2% to 4%
  • Lab — 8% to 12%
  • Marketing — 1% to 3%
  • Facility — 4% to 8%
  • Dental supplies — 4% to 7%
  • Minor (office supplies, accounting, magazine subscriptions, etc.) — 6% to 10%

How do your previous year’s expenses stack up against the industry ranges? In total, your operating expenses should be 45% to 65% of your bottom line, excluding doctor compensation. Doctor compensation should be a minimum of 30%.

2. Forecast next year’s expenses.

Go through each of the categories from item 1 and make projections for 2012. Make adjustments by asking yourself the following questions:

  • Do you plan to give your staff raises?
  • Are you planning any equipment purchases?
  • Do you intend to add any new technology?
  • Is your staff attending any continuing education events that you are paying for?

Through this analysis, you will identify a minimum collection goal for the next 12 months. This is what it takes just to keep the lights on and your team paid. Divide this number by 12 to establish your minimum monthly collection goal.

3. Determine 2012 workdays.

Your 2012 workdays are simply the number of available workdays for each provider, taking into account things like vacations, snow days, training days, and any other planned or potential unexpected days off.

4. Establish your doctor and hygiene production goals.

Here are a few questions you’ll want to consider:

  • Are you planning a fee increase?
  • Are you planning to add new services?
  • Are you going to set goals to improve systems in your practice that result in greater revenue?

Once you establish your new production goals for each provider, compare them to your last 12 months. Don’t make too big of a leap or you could find yourself making midyear corrections. You want to balance your potential against your history. Find the happy (and achievable) medium.

5. Determine your collection goal.

Can you improve your collections? Here’s a quick way to determine if you can improve your collections:

Divide your total collections by your total production less any credit adjustments.
(e.g., insurance adjustments, patient discounts, bad debt write-off, etc.)

The resulting number should be a minimum of 98%. If it does come out to 98%, congratulations; your collections are solid. If it is less than 98%, then there is room for improvement. Improvements could include:

  • Adding new systems to improve collections
  • Working with a collection agency to improve your collections
  • Hiring someone dedicated to collections

6. The bottom line.

Here’s where the rubber meets the road. Plug your numbers into the following formula:

Production goal for each provider X Collection percentage = Projected collections
Compare this number to your breakeven figure from step 2. If your number is higher than the breakeven, congratulations. If it’s less, you’ll have to adjust your expenses and/or production goals.After all of your expenses, including doctor compensation, you should have a minimum of 5% profit; otherwise you’re cutting it too close.Isn’t it great to know where you stand at the beginning of the year rather than once you’re into it?7. Set an action plan for the coming year.This is a perfect place in the process to get your team involved. The first step is to present your findings to your team. Then, as a team, create an action plan of specific steps to make sure you reach your goals. Your action plan should have specific achievable goals. I recommend setting goals by quarter rather than creating one long running list of goals to achieve throughout the year. This will allow you to celebrate achievements throughout the year and keep your team focused and motivated to reach your goals. Here is an example of an action plan:
Whether you’re just starting out or have been in practice for many years, annual practice profitability planning is a must if you desire financial stability, predictability, and profitability in your practice. The time you invest now will put you on the road to achieve the success you want and deserve!Author bioKristin Pelletier is the owner of KP Consulting, a dental practice management consulting firm that partners with dental practices or teams who wish to take their business to the ultimate level of success while building a winning team of professionals. Visit Kristin’s website at, contact her by email at [email protected], or call (918) 459-4624.