Practice Profitability – The “Why” of running a profitable practice
Every day I talk to dentists all over the country. Many of them are filled with zeal for growing their practices, which is great. But when I start hearing about new buildings or satellite offices I often find myself asking, “why?”
When you start adding all this mass (overhead), and finance it all with debt, most of the time what ensues is more work, more stress, more taxes, more time at the office, and less time and money for the doctor and his/her family.
Why are you working so hard?
So what about you? Really. Stop reading and answer the question. Why am I working so hard?
We believe in work. Many of life’s greatest joys are the fruits of hard work. It takes hard work to run a business and see the profits therefrom; it takes hard work to keep yourself physically fit past your 30s; it takes hard work to have a meaningful and fulfilling marriage; and it takes hard work to raise good, well-adjusted children who contribute positively to society.
But I’m talking about your practice. Is your life’s highest aspiration to be a doctor? When you get to the end of life do you want people to look back and say, “Man, that guy placed a lot of implants!”
If you’re like most people, it will be your contributions and experiences – mainly your relationships – outside of work that bring you lasting satisfaction. If this is true, then why are you working so hard? Why do we meet doctors who, time and again, are successful at work (i.e. they produce a lot) but flounder in their personal lives? Or maybe not “flounder,” but they just don’t spend enough time at home. Are you one of them?
I’m not suggesting you stop working. I am suggesting you work smarter. And by doing so, you take more of your life back!
Raise your hand if you have heard the term, “don’t work harder, work smarter.” What does this really mean?I’ll tell you one thing it means: you get more out of what you put in. In other words, you have less overhead and are more profitable.
A “smart” doctor realizes that in her lifetime there is a limited number of procedures that she can perform. At some point in time, your body is not going to let you place another crown. I once heard of a 78-year-old orthodontist who fell over onto his patient – fainted I guess – as he was trying to check her brackets. Hopefully you can stop “checking hygiene” long before that.
So the smart doctor tries to produce a lot while keeping overhead down. The smart doctor is very slow to buy more equipment. The smart doctor, on most days, wishes he had more space to work in. The smart doctor doesn’t own a mansion – he would rather have more time with his children than more rooms for them to hide in while he works.
The average dental practice in America has a 40% Operating Profit Margin (OPM). OPM (not “Other People’s Money) is the % of collections that the doctor keeps after paying all overhead costs (e.g. you collect $1 and you keep $.40 to pay debt, taxes, save, and spend). What is yours? The higher your overhead, the less money you keep per procedure, and therefore the “less smart” you’re working.
We’re proud to report that the average PFG client has a 49% OPM! We have learned a thing or two from these profitable clients.
How is this done?
The full answer is too complex for a blog post, but let me give you a couple of BIG ideas that we have learned from our “smartest” (i.e. most profitable) clients.
- Of the portion of life they give to work, they focus 95% of their time, attention and energy on production – treating patients. They either ignore, automate, or delegate the rest.
- Of the other 5% of effort (time, attention and energy), they invest 95% of that into keeping supplies’ costs down.
- Their building is just not quite big enough to be completely comfortable (i.e. they maximize the use of their physical space, they are efficient)
The next three blog posts I’ll write will be about these three topics in order. So stay tuned.
What is the meaning of your life?
Why is profitability so important? I want you to think again about the meaning of your life. When you get to the end of life, what do you want to be said about you at your funeral? What do you want your loved ones to remember about you? I’ve heard time and again that none of us will say “I wish I spent more time at the office.” Do you believe that? Does your overhead support that belief?
My job at work is to make my clients a lot of money. At the end of my professional life I do want to look back and see a massive pile of collective wealth that belongs to my clients. If that’s the case, I will have succeeded at work.
But that is not what I want to be remembered for! The day I retire someone will replace me; my clients will no longer turn to me for answers; they will mourn my absence for a few minutes, then they will move right on to the next person – someone I train – and this new person will now “be their go-to guy/gal.” And I’ll be quickly forgotten.
And so will you. I have never seen a parade thrown in memory of a retired dentist no matter how many smiles she fixed. So there has to be something, even a lot of things, outside of work that we’re working for. And those “things” are people; they are relationships. And those relationships require time – a lot of it. A client of mine – a man who helped raise an amazing group of kids – once told me, “they say that ‘family is about time,’ and they’re right. I read over 150 long books to my kids while they were growing up; that took a lot of time!”
How much are you working just so you can work?
Please consider this question: “How much work do I have to do just so I can work?” What does that mean? When we work, most of that work – and the income from it – doesn’t actually move us ahead, it just requires us to do more work. For example, if you buy a new, big, fancy building, much of your work for the next 30 years will simply be to pay for that building. With the new building you are forcing yourself to do a lot of work, just so you can work!
Or if you buy a Cerec – you have to make and sell a lot of crowns, just for the opportunity of making crowns. What else do we have to pay for just so we can work? To start: insurance, utilities and the building, taxes, salaries, marketing, new clothes, a fancier car, etc.
I recently met with two different clients – both good men who love their families, both of whom talk about financial independence and freedom from work…one day. One has a huge practice with a ton of production – over $2.5M annually. The other produces less than $900k. One works 5 busy days per week and, to manage the “empire,” takes a lot of work home at night. The other works 3.5 days, takes 1 hour for lunch, is home by 5 on the three nights, noon on the fourth, and home all day on the fifth. The first has a massive office – 4,500 square feet – and over 15 employees including associates. The second squeezes by in 750 square feet. I recently projected their income for the year for tax planning; the first doctor is going to net about $500k from his practice. The second, $500k from his. The first works a lot harder. The second, a lot smarter!
Perhaps more importantly (and forget that their children are still young), the second, “far less impressive” doctor (according to most of our financially illiterate society), has most of his $500k going towards investments that will replace him as the breadwinner by his early 50s. The first? Most of his money goes to service debt. He’ll easily work 10-15 years longer than the second doctor.
I’m not saying that buildings are always bad; or that you should never buy a Cerec; or that you shouldn’t hire an associate. I am saying that most dentists do these things too often for the wrong reasons, encouraged by the wrong people (bankers, equipment reps, their broke peers, etc.), and end up working way too hard for way to long, just so they can work some more!
Are you one of them?