For many hard-working dental professionals with a good flow of patients to their practice and healthy revenue, it may seem as if their success isn’t propelling the business forward in the way that it should. This is likely because although they may have a general idea of how much money is coming into their practice, and how much money is in their bank account, this often doesn’t provide a full and clear enough picture of the practice’s overall financial health.
For a clearer picture of your dental practices financial health, you should track the following 5 key metrics, and ideally, work with dental practice accounting for deeper actionable insights:
Profit margin
This tells you whether your practice is actually profitable, instead of just generating revenue. Tracking your practice’s profit margin on a monthly basis gives you a much clearer picture of whether your practice is in line with your goals and lifestyle, or if there might be something that’s quietly impacting your bottom line.
Break-even point
Including everything from payroll and rent, to software subscriptions and dental supplies, your break-even point is the lowest revenue amount needed to be generated by your practice, in order to cover costs. When you surpass your break-even point, you’re into the realms of profitability.
Once you know your break-even point, you can make financial decisions for the future of your dental practice, with a lot more confidence.
Collections percentage
While dentists may well be aware of their net collections – the amount they actually collect compared to your expectations based upon PPO agreements and fee schedules – if this number isn’t at or above 98%, there’s a real chance that money is being left on the table due to unsuccessful insurance follow-ups, roadblocks in the billing process, or issues with patient communication.
Even a gap as small as 5% between production and collections over the course of a year, can add up to losses of many thousands of dollars, and if not tracked, this problem can go undetected for months, if not years.
Cashflow
Helping to answer questions like whether your practice is consistently making more money than it’s spending, and whether collections and deposits are being timed so that they support overheads and payroll, cashflow is the movement of money in and out of the business.
In understanding your practice’s cashflow, you can plan with confidence and stability’ eliminating any guesswork.
Goal-based forecasting
While you may have goals in mind for your practice, mapping them out and formulating a solid plan for the future, isn’t always easy. But by sitting down and meticulously going through what it would take for you to achieve your goals with this kind of forecasting, such as an increase in fees or a change to the scheduling system, you can formulate a more measurable plan to get your practice to where you want it.
Following these 5 key metrics will almost certainly give you a clearer view of your dental practice’s overall financial health. Seeking help from professional accounting for dental practices is also a great step to take, and will help you delve even deeper into your financials, for sustainable success long into the future.
