This is blog five in the series The Business of Owning a Dental Practice. Todays topic is to discuss a Production Model or a Profitability Model of business and why more production doesn’t always lead to more money in your own pocket.
The prevailing theory of most dentists I speak with is the belief that increasing Production will grow their practice. The dentists I speak with usually have an annual number as their set goal for Production. And I fully support setting a production goal but it’s not the measure of practice growth I would choose to use.
That’s because I’ve worked with way too many dentists who came to me because they had done everything possible to increase Production and Collection only to find their expenses increased too and they themselves did not really make much more. They were frustrated with all of the extra work it was taking to make the increased production happen and then not see the reward for this extra effort.
They tell me they had to hire more team members including an associate. They are spending more on marketing to make sure the schedule is full. There just seems to be more of everything needed including more time in leadership and management.
All they really wanted was to grow their practice. This is where you need to get really clear on what business growth means to you. Is it a Production number? Or could it be more Profit? The book I wrote, "Profit First for Dentists" is all about the Profitability model. It’s a manual for implementing a simple Profit model into your dental practice business using Bank Accounts and natural human behaviors around money.
It does take some initial set up and time to learn the system but isn’t that true of anything new you are learning? Once it’s set up and you are fully implementing the system, it only takes about 10 minutes each week and about an hour every month to fully know your numbers and your true Profitability.
Profit is not what you pay yourself for being a dentist. Yes, technically you do get paid from the profits of the business, however, if you hire an associate to do the dentistry, you would pay them as an overhead expense. I want you to think of yourself just as the associate in the practice. You are delivering dentistry and you get paid to do so.
As the owner of the practice you have some other responsibilities that are very important to the success of the business. You are the leader, the manager, the business person, and so much more. You deserve to be paid for all these other things you do and that is where the additional profits of the business come in to play. In order to be paid for being the entrepreneur and taking all the risk associated with it, you must have additional profits above and beyond paying yourself and your income tax.
This means your cash flow must be in a positive position. I’ve worked with other systems in the dental space and I can tell you with 100% confidence, Profit First is the simplest and best system I know for a business to increase their profitability.
If you want to learn more, click on the Resources tab here on this blog website. There you will find a free download of the first 2 chapters of the book. Happy Reading and don’t forget we still have 4 more weeks of this blog series.