FOUR: Strategy 3: Control your finances

My definition of success is:

Step 1: Prepare personal and professional budgets

We begin by encouraging you to take the time off around each October to prepare projected expenditure budgets, both personally and professionally, for the following calendar year. This should be an uninterrupted couple of days and preferably somewhere away from work. If possible, use a spreadsheet program, such as Microsoft Excel, to list all personal expenses, including luxury items, for the next 12 months. For your professional budget, detail fixed costs, overheads and any projected capital expenditure.

When CB worked as an independent financial advisor, he used to tell the following story:

Imagine that the government has introduced a new system for collecting money from businesses. You are allowed to keep all the cash patients pay you for the complete calendar year and you don’t have to pay any bills whatsoever.

On New Year’s Eve a giant cash till is constructed outside your dental practice and your creditors line up to take their share. Who is first in the queue?

The answer is Her Majesty’s Revenue and Customs followed by your staff for their wages if the business is solvent and statutory redundancy pay if the business is bust. Next in the queue will be your secured creditors (those to whom you’ve given a charge on bricks and mortar), next come unsecured creditors (mainly your trade creditors) and – finally – at the stroke of midnight you, the principal, the owner of the business, the person who took the risk, the one who lies awake at night worrying about everything. You can take whatever is left in the till home. By preparing your personal expenditure budget one year in advance, you are putting yourself at the front of the queue. The total income you require for the year becomes the first line in the budget that you prepare for your potential business expenditure.

Imagine that your total personal expenses for the year are budgeted to be £60 000 before the payment of any tax. That includes your necessities, your optional expenses and the luxuries that you build in, such as holidays, clothing, entertainment, and so on. You may then arbitrarily apply a factor of say 30% for taxation and gross this up to around £90 000, pre-tax. This then is the first line on your professional budget to which you would add the fixed cost, overheads and capital costs that we already mentioned. So, let’s say that the overall gross revenue target for the year is £200 000.

We’ll talk about pricing later, but for the moment let’s accept that in business, once you have calculated your gross revenue target for the year, you only have three potential ways of breaking that target down during the year itself.

  1. Divide the gross by the amount of time available; for example, I plan to work 200 clinical days next year so my gross revenue target is £1000 a day. I plan to work 8 hours clinical each day so my hourly rate is approximately £120; therefore, every price I quote to patients is made of ‘average time’, plus lab fees.
  2. Divide the gross by the number of clients who you intend to deal with (very difficult to achieve in dentistry).
  3. Divide the gross revenues by the unit price of sales. As far as we can see, the only group in dentistry that could do this would be specialists; for example, an endodontist could argue that to achieve a gross revenue target of £200 000 while working 100 clinical days with eight appointments a day. The rate would, therefore, be £250 (200 000/(100 × 8)) per patient.

For dentists in general practice, their prices will most often be expressed as average time, plus lab fees. Budgets establish the prices. Once the year begins, it is necessary to compare budgets versus actual expenditure on a monthly basis and make appropriate adjustments to the overall gross revenue target for the year and, subsequently, to the prices that you charge. For this reason, we advocate a revised price list every three months.

If you need new equipment, to recruit an extra member of staff, or to refurbish the surgery, then there are only two groups of people who can pay – either you (and your family) or the patient. You can’t gather your staff together and say, ‘I’ve just bought a new car so I’d like you all to take a 5% pay cut.’ Therefore, any increase in costs must be passed on as an increase in prices.

It’s your choice – would you rather work like crazy for 364 days and then look in the till at the end of the year to see what’s left or decide, in advance, what you want your pre-tax income to be and then spend the next 364 days making it happen?

Step 2: Prepare monthly management accounts

The budgets that we have just talked about are the number-one tactic for you to run your businesses and financial lives – the old cliché ‘cash is king’ is undoubtedly true. An extremely tight control of cash flow and projected cash flow is necessary to ensure your financial well-being. However, we still need to produce accounts because they are a means by which:

  • the Inland Revenue can keep score and charge us tax
  • banks and other lenders can assess our credit-worthiness
  • we can measure trends in our business to determine whether there are any subtle increases in our costs, which need to be passed on to the customer.

Monthly accounts ensure you express every category of expenditure as a percentage of gross revenues for that month. The figures are not important, but the percentages are. For example, if we see that your lab costs move from 12% to 12.5% and then up to 13% of gross revenues over a three-month period, that could be telling us:

  • the lab put their fees up
  • you have started to use higher-quality materials
  • perhaps you are seeing more private patients
  • there is some factor we need to identify that is affecting these costs.

Your accounts should look at everything – staff costs, lab fees, utility bills, other materials and dental supplies, petrol, everything – so that you can determine what’s happening. If there has been an increase in your costs, then you must choose to either reduce your standard of living or pass the increases onto your customers. One last thing: if at all possible, delegate this function to a bookkeeper. It will save you many hours of work, which you can use far more profitably doing other things.

Step 3: Look at your financial results

How often do you call a meeting, away from work, free from interruptions, mobile phones switched off, in which to monitor your financial progress and make plans for the future? In Strategy 2 we looked at free, focus and buffer days. Remember buffer days = business development days = days on which you consider financial results. It is imperative to schedule time each month to evaluate your financial results, review management accounts, compare them with your budgets and then make course corrections as needed. Make it an agenda item at the monthly board meeting that we recommended in Strategy 2.

To recap, the board meeting should include a five-point agenda: (1) finance, (2) sales, (3) marketing, (4) resources and (5) personnel. When discussing finance, you might like to:

  • review management accounts for the last month
  • review management accounts for the last year to date
  • compare management accounts with budget
  • make required course corrections
  • assess the current cash flow situation
  • decide what action needs to be taken to accelerate cash flow
  • review the current pricing strategy.

Who should be present?

  • If your business is a one-man band: make an appointment with yourself to do this.
  • Small business: yourself and the practice manager.
  • Larger business: yourself and all partners, directors, and external consultants, such as your accountant and banker, although they may only need to come in occasionally.

What should I do now?

If you have not already scheduled all your board meetings a year in advance then it is highly recommended that you do so now.

Create your own personal board of directors. This is made up of those people you know and trust who can keep you on track. Who do you know who would be willing to be part of your continued success?

Step 4: Make course corrections

Running a business is like sailing a yacht. A yacht is susceptible to both external and internal influences – externally, the wind and the tide; internally, the set of the sail and the trim of the boat. Likewise, your business yacht is subject to both external and internal influences: externally, market conditions, taxation, raw material prices; internally, the changes in your desired lifestyle and in your cost of running the business.

Let’s imagine that two yachts begin a transatlantic race. They are crewed by people of exactly the same competence who sail for exactly the same number of hours. The first crew sail around the clock as hard as they possibly can, but never navigate, take a positional reading or tack. The second crew sail around the clock, but every hour take a positional reading and tack. Both will expend the same amount of energy, but we have no idea where the first crew will end up. Which of these vessels looks most like your business?

By producing your budgets you have already started plotting a course and a destination. Your monthly meetings are the framework you will use to change course, as dictated by any changes in your financial position, otherwise you will be just as exhausted at the end of the year, but you could arrive anywhere, including troubled waters. Remember:

Consider – Decide – Act.

What needs to happen to get the vessel back on course, or to change direction completely?

  • Look at the current cash flow situation: consider how to accelerate cash flow into the business.
  • Review your current pricing strategy to reflect increasing costs of business.

More control = Less stress = More confidence!

Step 5: Get your prices right

We are going to spend some time looking at this last tactic for gaining financial control because it causes so many problems for so many dentists. Let’s go all theoretical for a moment and ask the following question …

Why is putting a price on dentistry different?

If you were asked to estimate the price of, on the one hand, a CD or, on the other, a service for your car, you would probably be able to provide an answer for both on the basis of memory – the so-called ‘internal reference price’, which can consist of, for example, the last price paid, or the price most frequently paid. However, with these two items, the CD or the service, which of your estimates do you feel most confident will be closest to the actual price? If you are like most people you will feel quite uncertain about your knowledge of the prices of services, and the reference prices you hold for them in your memory will probably not be as accurate as those you hold for goods (the CD). There are a number of reasons for this difference.


Because services are intangible and are not created on a factory assembly line, service providers have great flexibility and can conceivably offer an infinite variety of pricing combinations and permutations. Life insurance is a prime example, with a multitude of types and variations on offer. Only an expert customer, one who knows enough about the insurance industry to completely specify the options across providers, is likely to find prices that are directly comparable. The same applies to dentistry. So much of the care we provide is intangible in nature – when we provide immediate dentures, for example, we are not just providing an off-the-shelf product but a custom-made item, the success of which is determined not only by the physical characteristics of the dentures themselves but also by our own, very intangible, ability to explain, motivate and encourage. Dental marketing expert Sheila Scott*

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May 10, 2015 | Posted by in General Dentistry | Comments Off on FOUR: Strategy 3: Control your finances
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