6 Ways to Reduce Missed Appointments!
Six ways to stop no-shows and increase your profit!
Six ways to stop no-shows and increase your profit!
In this episode of The Authentic Dentist, Shawn and Dr. House dive into the importance of tracking finances and understanding profit and loss for your company.
It’s important to remember that in order to keep a practice afloat, finances must be utilized efficiently and effectively – and it doesn’t need to be hard!
From setting up simple budgets to allocating a certain percentage of profits, Shawn and Dr. House talk about how they manage their finances and how you can too!
Hey you guys, this is Shawn and Allison with The Authentic Dentist podcast. And wow, first off it is 2021 and we got through 2020. Um, I don’t think we’ve been as consistent maybe as we were planning, but I’m giving myself a big Pat on the back and I’m really proud of you and just where we are. Um, and today we want to talk about what we always look at in the beginning of a year, and that is, uh, you know, finances goals with finances, um, looking at profit and how to increase that and how to make sure the business is going to be sustainable. So that’s what we’re going to talk about today, but yeah, 2021, we’re believing this is going to be a great year.
It is going to be a great year. Absolutely. So yeah, when we, um, we start a new year, I always have to create a budget and I’m assuming that everybody does a budget at the beginning of the year. Do you do that, Shawn?
Um, huh. That’s interesting question. You know what, with us, um, because of the nature of like the startup. So with our business, what it is is we have a parent company that ends up providing the funds for the startup that we have. So we don’t have to go to venture capitalists. We don’t have to get outside investment. We have our own parent company investing. Uh, and because of that, it’s not necessarily a science, but right now I do know, uh, for the next quarter I have a certain amount of funds that we can put into marketing and events. And I’m like, yeah, I’m very jealous over those funds and where they go, because if I’m not getting some sort of ROI, we’re, we’re not going to go anywhere.
So I see that with a startup, it’s, it’s more complicated, but with a practice that’s been established even a couple of years, you want to look at the trend, you want to pull up your QuickBooks and look at, you know, what have you been spending in each category and why?
Yeah, I think the numbers, like they make more sense when there’s an established business, like there’s income and then there’s, and if what’s coming in is less than what’s going out, that’s not sustainable. And if there’s any way again, in these categories that you can maximize or optimize or limit the loss, then you’re going to be more profitable.
I think sometimes we get this big ego about how profitable the PR, how profitable the practice is. But what we’re saying is I have a million dollar practice, or I have a $1.2 million practice, and there’s this bragging that you’re doing. But the reality is it doesn’t matter how much your practice produces. If you spend so much that you’re not taking any money home or there is no profit. So it’s more important to look at what that profit is rather than how much overall your business is making. Not that it’s not important, but if you have a $1.6 million business and your bills are 1.7 million every year, you’re just falling into a bear hole. I mean, that’s, that is not a good business, even though yeah. 1.6 million sounds like a lot of money.
Yeah. Like debt is debt. And, um, whether it’s $200,000 in debt because you were, you know, making 400,000, but you know, your expenses are 600,000 or whether it’s $2 million practice, but your expenses are 2.2. Like it’s still, you’re losing money. Um, and I mean, maybe like, it’s good to know that you could produce something great like that. Like, I think it’s a great threshold, but ultimately like what you’re saying, it’s so important to make sure that your practice is, is profitable. Um, because ultimately that’s what keeps your practice going
And breathing room, you know, how much work is it to produce 1.6 million. It’s a lot of work. And if you’re not making a salary commiserate with that, then yeah. Drop your practice down and start making a salary that’s higher with less expenses. And sometimes it’s hard on the ego, but your whole life will. Thank you. Oh my goodness.
So if I take a step back, this is where I’m always in awe of dentists, because I think about it and I’m like, okay, um, you really like your education is you’re, you’re, you’re a doctor. Like you guys know so much about the human body, about the anatomy. And at the same exact time, you have to know everything about the specialized aspect of just oral health. But it’s not just about what you know about oral health and just the ability to prescribe or diagnose something. You’re also a surgeon. So you have to know surgically what procedures and how to do them. And at the same exact time, because of the model, you’re typically not. Um, I dunno, just in some sort of clinic where you don’t own it. Um, right now, I guess we’re speaking mainly to solo practitioners. You own your practice. So here, we’re talking about a financial responsibility you have in the midst of every other responsibility for continuing education, what you have to learn, what you have to know. And that’s why once again, I will say, and I will continue to say dentistry is incredibly difficult and I just honor every dentist that’s out there giving it their best. And that’s why we want to talk about finances because it’s something that I don’t want to say. It could be easily overlooked, but maybe it’s something that, um, yeah, that there’s room, I believe there’s room for dentists to grow in this area.
So there was a myth that was, I was given I’m sure most dentists were given in dental school that you go out, you do beautiful work and you’ll be successful and you’ll have a nice living. That’s not true. There’s nothing true about that. This is a business. You have to look at your numbers. You, you can do beautiful work and be totally unsuccessful and you can do terrible work and be successful financially for awhile. Eventually that’ll catch up to you.
So when did that myth get busted for you?
I started my practice in 2002 from scratch and about 2004, I had figured that out that I was running a pinky model practice and I was accepting MetLife, Aetna in network fees. So I was just losing money left and right. And it was really frustrating because it seemed like I had all this money coming in. But yeah, I didn’t, I didn’t cause I was spending too much.
I mean that must’ve been frustrating because you’re doing great dentistry or you’re, you’re doing your best to do great dentistry. You have a team you’re trying to get them on the same page you’re trying to lead. And then at the same time, I don’t know when this is like hitting you, but you’re looking at the numbers at some point and they’re not adding up. Like when, what did, what did you do when you were in that place and realize like this isn’t working? Like, how did you, like, what did you find out? And discover?
I read a book that was a personal finance book that gave me some insight first. And it said a lot of things, but one of the big things was I had to hide money for myself because I want to say that I’m incredibly disciplined, organized person, but I’m still human. And when there was money in my checking account, I wanted to spend it. So in my personal life, I would take a salary and then I would put so much away into my savings. And then I started a 401k, which I could not afford. They did it anyway, because again, I needed to have money taken away and put into my savings. When you do that, then all of a sudden there’s, this is only how much I have to live on. And you know, it didn’t seem commensurate with my doctoral degree at the time, but it was what I had to live on.
And once you start realizing, this is what you have to live on, then that’s what you live on. It’s the same thing. When your practice, you know, um, you have your profit, you need to take your profit and just put it away. So you can’t see it. And then you need to take your owner’s draw and it needs to be whatever you would pay somebody to take your place. So 25% and you take it. So then whatever’s left. Whatever’s left is what you have for your operational expenses. And if your upper expenses are more than that, you got to cut somewhere and that’s painful,
But, but you’re a dentist and you’ve already paid for this education. And your peers are looking at you, your friends are looking at you, you should be driving a Benz, right? You should just be living the good life, you know, pictures of you on vacations and Cancun. Like that’s what dentists do, right?
What is a good life? I mean, what does that mean to you? To me, I wanted some security in my life. So I was 30 years old and I started putting money away. Well, that’s added up over the time and now I’m 47. I still live in a pretty modest home and I drive my Toyota Camry, but I have enough money to go to Europe if I want to. So that was important to me. If you want to drive a Benz, that’s fine, but there’s going to be, have to be someplace that gives.
Um, so it’s like that idea of hiding money from yourself as is like, Hey, it’s not like everything in the account is accessible for, I don’t know, expenses or just to spend through, um, I get that because I remember early on, I always wanted to find the right, um, almost like blueprint for what you do financially when you’re running a business like, Oh, okay. So you make some money and an X amount, this percentage goes toward marketing. This percent goes toward HR in a product business. This goes toward inventory. And just to find exactly what those numbers are. And I remember always talking to my dad like, okay, tell me what those magical numbers are. And he’s like, you know, business is fluid. It’s not static. And as much as you’d like to boil it down and reduce it to like this science that you can be predictable, predictable about in some ways you can.
But in other ways, it’s also like very much of an art. Like when you double down on buying inventory, because you believe the next season with your market, like it’s, it’s not as exact as I was wanting him to give me like an exact number, an exact way, an exact breakdown now, dentistry, I I’m sure it’s different depending upon whether, again, you’re an orthodontist or a what your model is. Um, but even like right now, I think you you’ve been mentioning some tensions about like hygiene and the profitability and how to, how to handle all of that. Like it’s not cut and dry in dentistry. Is it even though some things are like, as far as like expenses and like, you know, again, income and outflow, that that makes sense. But how you decide to manage your fees, um, how you decide to market your practice. Like there’s some freedom within all that, right?
Of course there’s freedom. And if you read like dental economics, it’s going to give you like this perfect percentage of how much you should be spending on your team, how much you spend on supplies and lab. And those, those are good. Those are framework, but you also need to look at your equipment. You know, there’s not a really good at Mt that you’re supposed to send, spend on equipment. If you have a high-tech practice, you’re gonna spend more on your equipment than perhaps supplies, you know? So there has to be some balance in the practice that you want, but you still have to have enough to pay yourself and enough to have profit for the practice. So one of the things I feel like is really important for people to look at run all those numbers. How much did you pay in expenses and break them down?
You know, I know what my Cox bill is, and I know it costs to do century link. We’re going to move to century link. You know, I, I cost compare everything. Now I also want service. So I’m willing to pay for more service. Absolutely. But I’m paying attention to all those little things because the little things that matter, I paid off an equipment loan last year. Um, it was $300 a month, not a whole lot, but now I put the $300 a month into another account that I can’t get to well, not easily so that when I have to buy another piece of equipment, I have money now I’ll probably still have to finance it, but they’ll, there’s some of it. Do you see what I’m saying? So, so I still have an equipment budget. It’s just that I haven’t spent it today. It’s it’s somewhere else. I didn’t take it home as profit. Those are different. Does that make sense though?
Um, so I know like in, in my line, what happens is in the startup world, you got that investment money at first. And then the second you start turning a profit. You try to scale as fast as you can. And there ends up typically being some sort of season. If the Boulder you’re pushing up, the Hill starts going down the Hill, that money starts coming in pretty fast. And during that period, it’s what successful founders do. That makes a difference because when you think you have not just the a hundred percent of what you’re making, but the projected earnings, sometimes you can rack up and scale so fast because of projected growth. That if things slow down a little too fast, you’re, you’re out of luck and you’re way in over your head. And that’s why companies go bankrupt. Um, and it’s just that wisdom of what, if you actually didn’t spend all that you had, what if you were planning for the future? What if you were like, Hey, we don’t know. No one knew there was a pandemic that was going to happen. No one knew that maybe it was a good idea to have three months of, uh, employee salaries or wages on hand.
Yes we did. Because you have an emergency fund personally, don’t you for three months of, of income. I mean, you, you have to, as soon as you’re, you’re able to start working, you should start putting money away for that. Cause you need a three-month reserve for yourself. Well, your business is just another, another place where you have money. You need a three month reserve. That’s where your profit comes in. That’s where you’re shoved that profit away.
And that’s what I think is so great about your mature mindset is that if we’re talking to a young dentist right now, and we’re kind of saying, well, the assumption is you’re going to have good financial sense professionally because you have good financial sense personally. Well, I think that’s where we’re in trouble because a lot of people in my generation and younger, uh, I mean, you spend what you make.
There’s also all these budgeting tools personally, and your budget professionally comes from your accountants sometimes. And that profit and loss is not your budget. When you look at that, that is not your budget. You have to really sit down and make a list of what your budget is because the profit and loss, as you know, leaves out what you’re paying in, in principle for your loans, it’s, it leaves out all this information that you need. So your profit and loss is not how you make your budget.
So do you feel like it’s a common thing for young dentists to not pay themselves?
Oh yeah. And I don’t think that’s unreasonable for the first year or two practice because you are just investing in your business. But as soon as you can possibly take some profit out, you need to, because you don’t want your expenses to get out of control. And it’s so easy to just say, Oh, I need this piece of equipment. Do you really, really think about it? How much are you going to make off that? Look at the return on investment.
See, I think that’s such a mature approach and I really hope people catch that. There’s two things you just said. One of them is having the right outlook in the very beginning. When I started, um, the first company under this, you know, our parent company, my assumption was the second, the company was ready to be communicated to someone in the offering that it was just going to start taking off. And that I had six months, pretty much that idea of like, wow, it’s going to start being successful and just take off within six months. And when it didn’t, I felt like I failed. And I talked with, um, someone I really respect. And they’re like, I didn’t expect to make a profit for the first three to four years. And I knew I was just going to be sewing and I was going to be hustling.
And I was just going to be doing everything I could to build up the base. And then hopefully I was going to be able to take some sort of, uh, you know, income or, or, you know, paycheck after that. And I was like, wait a second. That was your expectation going into it. I’m like, yeah, no one ever told you that. And I was like, no. So I thought then all of a sudden, when I was in month seven, when I was in month eight, I just thought I’d already kind of failed. Like I thought it was already like, it wasn’t going to work because it hadn’t already worked so wrong outlook, wrong expectation. So if you’re listening now and you’re starting a practice, like don’t throw some unrealistic expectation on you having to reach. You’ve heard of those scratch practices, they reach a million dollars on the first year. Don’t do that to yourself.
They might reach a million dollars in production and collection, but did they reach a profitability where they can pay themselves? There’s a huge difference between that, how much you’re bringing in and how much you pay yourself is very different. And it needs to be looked at every year.
Um, so I totally forgot what the second thing was, but I really hope I go back to it because it was such wisdom. First thing was the outlook, uh, expectation. And the second one, I’m trying to think of what it was. Cause it was so good.
They’re putting away the profits, you hide money from yourself.
I know, I know, I know I’m going to be like kicking myself. Um, but it was something that had to do with probably some sort of, uh, outlook or expectation again. So I’ll have to circle a circle back with that. But yeah,
I think overall eat, you do just want to, if you know about running your own, your own money, and if you don’t, you need to take some courses and run a, learn how to run your own personal finances because that’s going to help you a lot. And then you take the same principles and move it to your business. So in your, in your private life, you don’t have a profit and loss probably, but you do have a budget. You know how much you can spend on clothes every year, you know how much you spend on your car payment. Hopefully once you paid off your car, though, you have a car fund where you put that payment, you used to make to your car into that fund. So when you have to buy a new car, which at some point you will, you have some money to start with same thing with your business.
Yeah. Um, I, I think this is so important just for like obviously the reasons that we’re talking about, but it’s like ultimately the reason you signed up for dentistry is to really take care of your patients and your patients don’t get taken care of. If all of a sudden, you’re not able to keep your doors open. If you’re not able to pay your staff, if you aren’t getting sleep, because you have anxiety over how you’re going to pay your bills, like we want you to be financially successful so that your team can be whole so that you can have fulfillment. And ultimately your patient can receive the best dentistry, which is why you got into dentistry. So I think that’s kind of like the full circle. It’s like, we care about the financial health and you having the right tools and mindsets and perspectives because ultimately we want this year to be a year where you can live a fulfilling practice and deliver the dentistry that you care most about.
So if you haven’t done it yet, go to your office, run your profit and loss and then run every single bill that you pay every month, make yourself a budget, a real budget, and then start cutting. See where you can get to where you can pay yourself appropriately and have a profit. That is really important.