Making the Most Out Of Financial Planning

Did you resolve to make better financial decisions for your dental practice this year?

Financial improvements are the third most popular resolution people make on January 1. It’s not too late to make progress for 2017. Use this guide as a starting point to set up your office for success.

Tips for Financial Success from the ADA

According to the American Dental Association (ADA), smart financial planning for dentists begins with a profitable practice. A profitable practice begins with raising fees. A good rule of thumb is to implement a small increase every ten months; that way, you’re netting one extra increase over a five-year period.

Next, on the ADA’s list of recommendations is collecting 100 percent net. Make sure you see all the gains from your work. Setting your expectations lower can impact your profitability and your staff’s collection procedures. So if your monthly gross is $50,000 and after insurance adjustments and other write-offs, the net is $45,000, make $45,000 your collection goal. Don’t settle for less.

The third tip for financial success is having a plan for consistent growth. Involve your staff in this discussion, and benchmark at least the following figures:

• Gross Production
• Net Production
• Collections
• Net Collections
• New Patients

In 2015, the median gross billing for dentist owners in private practice, including specialists, was $640,000. The top source of gross billings in 2015 was private insurance, followed by direct patient payments, managed care, and government programs.

Other Recommendations

Other recommendations include viewing overhead expenses in terms of revenue, doing everything possible to ensure quality patient care, and properly managing debt.

Don’t be so quick to cut expenses if doing so would negatively impact practice growth. For example, investing in a new patient billing system requires up-front expenses, staff training, and perhaps ongoing maintenance expenses. If the new billing system allows you to serve patients better and more efficiently, it’s a win in the long run.

When it comes to debt, debt that will increase your practice’s profitability and efficiency is good. Think mortgage, software, and better equipment. But any debt you struggle to pay off is problematic.

Practice growth planning is time-consuming and sometimes difficult. But it’s time well spent. Don’t put off your financial planning goals. Put a plan in place now and see the benefits throughout 2017 and beyond.

Contact us today to make the most of the financial planning at your dental practice.

Conventional Loan or Other for Dental Practice Financing?

Ok. So this is for my wife. She is looking at a couple of loans to do a buyout of a practice. We could do a conventional loan at roughly 8.25 percent or there is a variable one at 5.5 percent. We were also offered a loan which is locked for 6.1 percent for 5 years or 6.5percent for 7 years and renewed then.

First question is: do you think interest rates will increase 3 percentage points in the next 7 years?

Which one would you go with? I honestly don’t know too much of the details. I think the 5.5% is a SBA loan and the other is a loan 6.1 or 6.5 that is privately financed for professionals. The 8.25 percent is across the board with conventional loans.

This is for an ortho practice and price is roughly 900k

It depends on the specific situation and your ability to pay off in five or seven years. I prefer fixed rates for longer terms (10-15 years), and variable is fine for shorter terms (2-3 years). A 5-7 year term is a toss-up.

If the practice is priced right, you should be able to pay it off in 5-7 years. Therefore, I'd review my cash flow analysis for the 5-7 year fixed rate loans and see if it works, and if it does, go with either of them as my first choice.

I assume the 8.25% is a 10-year term and the 5.5% variable is tough to overlook even though it is variable. Yes, I think the variable rate could climb by 3 points in 7 years; however, the interest savings you'll achieve over those 7 years will likely more than offset any interest cost at a higher rate in the last 3 years. Remember: the rate may be higher than 8.25 in 7 years; however, the balance is MUCH smaller.

I've gone through this once before with my practice. The loan term is for 10 years on the 6 percent ones. It'll be paid by then, hopefully sooner. We are going to shoot for 7 years. I’m just wondering if interest rates will jump 3 percent in the next 5 years. That's the big question for us. We are trying to figure out if we should get the fixed rate of 6.5 for 7 years or 6.1 for 5 years If we refinance after the 5 or 7 years on a 10 year note will interest rates be high enough that we did not benefit from the lower interest rates. The 5.5 is at a variable from day one. This one can be scary. I don’t know too much about interest rates but I know they will need to go higher in the future to offset inflation. I was hoping to get some help with this.

Thanks!

This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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