It's impossible to get into any discussion about anything to do with business without talking about money.
Money dominates everything, and even though there is so much more to running, developing, and cultivating a business, money always gets the upper hand. Money always gets in the way.
That is generally because our attitude to money and our relationship with it are usually distorted by so many other factors and emotions that we cannot see it as a tool that we can use to help us build, not something that dominates our thoughts and decisions overall.
Dentistry is no exception anywhere else, and compensation for the people who work in the clinic becomes one of the biggest considerations in the financial aspect of a dental business.
In our experience working with dental practices keen to improve their businesses, we find that hardly anyone has a robust financial model related to the dental practice.
This can generally be seen with two clear examples.
1) Generally, the principal (or principles) work on the basis that money that's left at the end of the month (or if they're sophisticated at the end of the quarter) is theirs, and they can take it. Dentists leave very little money in the business for later on.
2) It is generally (although less moving forward) the case that dental businesses rely on the principal or partners for 70% or more of the income and profit they generate.
The 70% model is so obviously seen in practices that provide implant dentistry at a decent level with a superstar senior clinician who runs the show; the 70% model is broken.
One of the other areas of finance in dentistry which causes the most difficulty is the associate contract and this is what I would like to spend a little bit of time exploring over the next few paragraphs.
If we look at a financial spreadsheet, a dashboard for a dental practice and particularly a dental practice that has several associates, the biggest (apart from the principal's wages) is the associate's remuneration.
This is often because the associate remuneration is way too high for the amount of money the associates actually generate.
The 50% associate model was broken 15 years ago although many practices continue to adopt this model because they feel that they will never get anyone else to come should they not offer that level of money.
It's worth remembering that if you are offering 50% of remuneration to an associate and they are losing you money it is much better not to have the associate in the first place.
The 50% model probably comes from the one that's applied to barbers or taxi drivers because they generally have 50% of the money that they earn and their costs stay pretty much the same.
Once the guy who owns the barbershop puts in a chair, there's very little other cost besides rent and heat, which is pretty predictable.
The barber tends to buy his own scissors, often his own products and keeps half the money so that he doesn't have to pay rent on his own shop.
The taxi driver fills the car with petrol and drives it, taking half the money, while the owner keeps the rest. The costs are pretty level and stable, and they don't tend to go up massively over time.
It's worth remembering that when I started as a 50% associate in 1997 in Ilkeston, Derbyshire, the practice had only been using gloves for every patient for 36 months!
The principal was still drying his hands on a dishtowel that hung at the side of the sink. As far as I could see, it had never been washed.
The 50% model worked in those days.
All the principal had to pay for was gloves (only recently) some amalgam and some polishing paste and some extraction forceps if ever they had to be replaced.
Consider the world now, consider what a principal or a practice owner has to invest in a practice now on a day-by-day and week-by-week basis.
Understanding your financial model is absolutely critical. Developing a dashboard where your key performance indicators are listed that you can check on a month-by-month basis, knowing which is above what you predicted and which is below, and understanding why is the essence of running an ethical, honest, robust, and stable business.
For the record, I am terrible with finance; I hate it.
My relationship with money is weird, but I had enough insight to know that I needed to surround myself with people who had a much better relationship with money and a much better understanding of how to count it.
A long time ago, a very clever man taught me that profit is like oxygen to a business. It's essential for life, but not the meaning of life. Therefore, at The Campbell Clinic, we target 15% profit year on year (after everyone has been paid, including me). If the turnover goes up, everybody wins. If it goes down, we have to get together and try to make it better (the turnover has not gone down very often).
Once you've built your financial model with your key performance indicators, you can refine it and adapt it over the years to the circumstances you find. It gets better and better, and predicting gets easier and easier.
You can stop looking at finances retrospectively all the time (looking backwards risks crashing into the car in front). Very quickly, with a good dashboard system, you can understand where you are today in your financial world. You can forecast with increasing accuracy moving forward, and the joy of forecasting is peace of mind and sanity.
One final thing to remember, which carries over into human resources and leadership, is that your staff costs are a considerable portion of your overall income (up to 25% in our clinic).
Understanding, though, that people don't come to work just for money is absolutely critical.
This article from the Harvard Business Review from 2017 is one that we use regularly when teaching human resources, leadership, and financial management.
If your business's culture is right, then all you have to do is set your wages in the top 25% of your industry and get the culture, values, benefits, leadership, and vision correct. Get those correct, and you will not have a recruitment problem, and you will not have people coming back repeatedly, asking for more money.
You don't have to believe me that that is true. Over 600,000 people were involved in the study I've listed here, which is much more than a study with 25 implant patients.
It's why we started this blog series with vision setting: people are drawn to companies that have a vision, pay their employees correctly, show them the vision, and allow them to progress a new one.
That's why financial management is so important, and it's why the development of a dashboard that allows someone in your organisation to enter the numbers each month and allows you to provide insight is so critical.
Over the next few months, the Campbell Academy Business blog will discuss finance, dashboards, financial management, and key performance indicators extensively.
I hope you might subscribe here; it will go out on Sunday nights parallel to this blog and we hope to get some cracking discussions and insights as we move forward.
See you soon.
Blog Post Number - 3959