Held to account

zoom

Accountancy ranks poorly on most dentists' list of priorities, discovers Rachel MacDonald. But if you want your practice profitable, you need to get canny about its vital statistics.

Many dental professionals labour under the misconception that strategic planning is only for big businesses. Wrong. Planning is just as essential to smaller companies, and your accounts can be a road map to your goals, says SME consultant Ryan Halswell.

"Strategic planning is all about making sure your business is well positioned to take advantage of the available opportunities in the market," he explains. "To do this effectively, you need a clear understanding of your business - its strengths and weaknesses - and you must have clear objectives."

Acquiring such an understanding often involves more work than you might expect, he warns. "It's a case of frequently and realistically assessing a business you are convinced you already know well."

Hard reasons for software solutions

The cornerstone to this process is your practice accounts. Without solid knowledge of your balance sheet, it's almost impossible to get an idea of how the business stands. Even if you employ an accountant, it's essential to be thoroughly au fait with the financial condition of your practice, from its day-to-day profit and loss reports to its long-term projections, says dental accountant Wei Ling.

If you tackle your accounts in-house, she insists, their maintenance needs to be a regular feature in your diary.

"Yes, it's time-consuming, but purpose-designed software can save hours and effort. If you put your mind to it, you could perfectly adequately keep track of all things financial simply through Excel...but why go to the effort of customising the programme to meet your requirements exactly when others have already done just that?" she asks.

Accounting software such as QuickBooks (available in both English and Arabic) or Prophix can make it easy for you to track your practice's actual performance against your projected figures.

And Microsoft Office offers forecasting, income and expenses templates, which might come in handy. Most importantly, all these products can walk you through creating an operating budget, which is your fastest daily means of keeping tabs on your practice.

"One of the oldest sayings in business is that you have to spend money to make money, but it's essential to spend that money carefully, which is where budgeting comes into play," says Wei.

"A successful budget tries to anticipate your spending needs, control your expenses, and set realistic goals for your income. It helps you predict when money comes in and goes out, so you can better manage your cashflow, and gives you a standard against which to measure your performance."

Three pillars of profit

The three main elements of any business budget are sales revenues, expenditures and profits. To create your budget, you'll need to anticipate a dollar amount for each of these. "Sit down with your bank statements, and start making lists," Wei says.

"Note down your regular outgoings, starting with your fixed business overheads, such as office supplies, rent, utilities, car expenses, travel, advertising, professional services, loan repayment and salaries. What else do you spend on? Then determine your average income - annually, monthly, weekly, even daily. What proportion of this do you retain as profit after the costs of business?"

It's better to be cautious with your revenue estimates, she advises. If you fall short of projections, you could end up without enough money to cover your expenses.

Don't forget, too, she says, that your business will need cash on hand for day-to-day running and unexpected expenses, so be sure to build a buffer into your budget. Then, she says, it's time to get proactive. How can your business work better for you?

The financial aspirations of your business are going to be guided by your business plan, says financial advisor Chris Wilkes. "You need to understand what you want to achieve and by when. This takes a thorough assessment of your practice using tools such as staff appraisal systems, and the establishment of key performance indicators that allow you to monitor progress over time."

He agrees with Wei that it's also essential that you adopt a financial management system that will provide you with accurate data regarding your financial performance. Wilkes describes one client who, only a few months after he overhauled his practice - and far sooner than the 12 months he had expected it to take - was enjoying less time at work and more time with his family, while actually earning more.

"This isn't something that happens by accident. It's the result of a sound financial structure and good budgeting," Wilkes stresses. "In a couple of years, he will be selling a strong, profitable practice to fund his retirement."

Productive pricing

Central to your budget is the pricing strategy of your practice, which can ultimately determine your success, advises Ryan Halswell. Never assume that the way to win new patients is simply to offer the lowest cost service.

"You don't want to get into the price war mentality, especially as a smaller business - it can be fatal. Look at the packages your competitors are offering and what they charge. Assess the ceiling price for dentistry in your area - what is the most people are comfortable paying?" he explains. "Once you understand the local demand structure, review your costs and profit goals as they are set down in your business plan or financials, so that you can capitalise on these as much as you can."

Take a look at your fee structure - the performance of your individual accounts' revenue categories will determine the overall margin available to your practice for indirect overhead, administrative overhead and profit.

If you're doing too much low-worth work, chances are it won't be covering those overheads. You could be working your fingers to the bone, but actually seeing decreased profitability. You need to work out where your break-even point is - at what point does your revenue cover your expenditure?

Regular reviews of your financial statements can also be helpful, says Wei. Analyse three to five years of statements, comparing the performance of each category in your chart of accounts. The categories you look at should include types of revenue, variable or direct costs, indirect overhead, general and administrative overhead, debt service and leases.

Break down each dollar amount into a percentage of revenue, to determine operational differences within each line item. Review the individual circumstances that contribute to these differences and take a look at their impact on your practice's profitability.

Do your patients pay before they leave the surgery, or do they pay on invoice later? Lack of consistent monitoring and specific collection procedures can lead to reduced cash flow and increased borrowing, so you need to be sure your accounts receivables are completely under control. Simply keeping accounts current will increase your cashflow on an annual basis, reduce borrowing and increase profitability.

Your cashflow is literally the lifeblood of your practice and its accounts and budget is your best diagnostic tool when it comes to keeping track of business health. So, it's well worth taking the time to master best practice...or find someone to do it for you.

Print | Email | Discuss this article

| Share |

READERS' COMMENTS

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic. Arabian Business would like to point out that only comments relevant to the story will be published. Any containing personal insults or inappropriate language will not be approved.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Enter the words above *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM