How Does Your Practice Stack Up?
A helpful tool to check how you are doing financially is to compare your practice to your peers. The results can be eye-opening in that you will often find that you are doing well in areas where you thought you were struggling. On the other hand, if your practice is struggling in certain areas, financial benchmarks can provide you with the information you need to right the ship.
Where do I find appropriate benchmarks for my practice?
If you are a member of one or more industry associations, check the “member’s only” section of their websites. As a member benefit, many organizations will periodically survey their members and share the financial and non-financial results. Even if the data is a few years old, chances are it is still reliable.
If you strike out with your industry association, call your accountant. If he has a robust dental practice client base, then he may have access to financial data from various sources. Moreover, he ought to be able to assist you in applying that data to your practice.
Lastly, Google can be a very good resource for financial data, but be careful. If you go the Google route, do your homework on the organizations providing the content, and, if possible, confirm your findings across multiple independent resources.
How do I apply benchmarks to my practice?
In a prior post, I indicated the most important driver of your financial success is revenue, so direct your initial research toward provider revenue and collections benchmarks. This information will provide insight on whether your team performance is in line with industry standards and also if your practice is appropriately structured to maximize revenue.
Once you have vetted the revenue, turn your attention to the major expenses of the practice – people, rent, medical supplies, technology and compliance. Often you will find these benchmarks expressed as percentages of revenue. Compare these benchmarks to your practice performance to identify areas of potential improvement.
Many practice owners look to benchmarking as a tool for cutting expenses. Responsible expense management is important, but do not fall into the trap of thinking that all expenses are bad. Instead, view your expenses as investments designed to promote a healthy revenue goal. For example, if the leading practices in your specialty spend 2% of collections on marketing and business development and you are only spending 1%, you might want to consider upping that budget.
The same mindset goes into staffing. Your staff expense may be 35% of collections when the industry standard is 30%. That does not mean you need to reduce headcount or freeze wages. If you have a great team and culture, paying a little bit more for that may be okay. Or you may have excess capacity, which is nice when you are looking to grow.
Finally, you know your practice better than anyone. Don’t be afraid to set your own benchmark targets if you know where you want to go and how to get there. The main point of benchmarking is to provide you with the information that you need to effectively manage your operational and financial performance.