Keys to a Thriving Dental Practice: A Best Practice Blog Series by Shawna Aho, Bookkeeping and Payroll Expert from STAC Bizness Solutions
This post is the second installment of our blog series on What Separates Thriving Dental Practices from the Rest. If you missed part 1 of this series, you can access it here.
Best Practice #2: OPERATE FROM A BUDGET
While your vision and strategy serve to define your destination, it’s your annual and monthly budgets that act as your road map. Your budget maps the specific route to your practice’s financial success, and it also helps alert you when you get off track.
Don’t worry, your budget doesn’t need to be complex. It’s simply a way to document anticipated revenues and expenses and provide a much-needed element of control to properly manage your day-to-day operations.
Here’s some high-level advice as well as a couple pitfalls we often see that you’ll want to avoid.
Forecasting Revenues: This may be the most challenging part of the budgeting process, especially if you don’t have multiple years of revenue figures that can be used for reference. Having said that, even newer dental practices can arrive at an accurate revenue forecast by considering each practitioner’s average daily production multiplied by the total anticipated working days.
What’s our biggest advice on the revenue side? BE CONSERVATIVE. Resist the urge to over-estimate revenues based on arbitrary logic like, “We should be able to grow the practice by 15% next year.” Also, if you plan to add new dentists or hygienists in the future, remember… it will take time to get them to full production levels. Over-estimating revenue forecasts by assuming immediate payoff of new hires is a very common pitfall that can quickly wreak havoc on your budget.
Forecasting Expenses: Forecasting expenses is usually a bit easier. After all, you have recent and accurate data to use as a benchmark. However, over-reliance on these numbers can lead to problems. The classic case is the practitioner who simply uses last year’s expense numbers as the basis for creating the current year’s budget – sure, it’s the easiest approach, but it’s a mistake.
Instead, a budget-setting session is the ideal opportunity to evaluate your expenses in detail. What expenses did we incur last year that can be eliminated? What expense increases do we foresee? Are we planning to add staff or equipment… or perhaps move to a larger building? All these things (and more) should be considered when forecasting your expenses for the upcoming year.
One last point on budgeting: Like the way your GPS is quick to reroute you based on new traffic or road closure data, your budget must remain flexible in order to adjust to business demands and unforeseen opportunities. A solid budget provides direction, but it should never leave your dental practice feeling hand-cuffed!
In summary, here are a few advantages to creating a budget and using it as a tool throughout the year to guide your decisions:
- It’s a measure of financial health. Only through a well-defined budget will you know if you’ve exceeded, met, or fallen short of your goals.
- It’s a strategic tool. Your budget is a key tool that helps you clarify the financial operations of your practice and help guide you in decision making.
- It’s important for securing debt financing. Plans to add expensive equipment or expand your practice’s footprint? If so, and you plan to finance expansion activity, you’ll need a solid budget to share with potential lenders.
- It’s a time saver when it comes to taxes. An accurate dental practice budget can help you efficiently prepare for income and payroll taxes.
We hope you found this helpful!
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7 Key Financial Practices That Separate Thriving, Growing Practices From The Rest.
There’s no denying it. Creating a thriving practice is about much more than practicing medicine!
Topping the list of “other” priorities is your practice’s financial management. In this short guide, the experts at STAC Bizness Solutions outline 7 financial best practices that differentiate struggling practices from those which are highly profitable and experiencing healthy levels of growth.