There are three certain things in life: death, taxes and rising costs. The first is a certainty in which no-one escapes. If you have a clever accountant then taxes can be reduced but a rise in rates can have a damaging impact on your business. Not many organisations address the third certainty of rising costs.
The most important financial indicators for dental companies are turnover and net profit margin. When turnover increases year after year then a company can boast that it has achieved a certain percentage of growth. Sometimes, an increase in turnover is underpinned purely by an increase in unit selling price or a more expensive service rather than selling more numbers or seeing more clients.
Many businesses concentrate on headline turnover. Directors, principals and managers set out their vision, their strategies and their targets in the hope that turnover increases yearly. However, in the process of trying to do so the cost of doing business also increases (stealthily too) and you find that whatever improvement in turnover has been achieved has also been eroded by the increase in cost. This leaves a rather flat or sometimes deflated profit margin.
The smarter companies not only look at ways to increase turnover, they also look at ways to reduce their costs. Dental companies and practices should have a top-down and bottom-up approach to make sure they are running effectively and efficiently so that there is growth in profit margins every year.
The effectiveness of a company’s success is based in some measure on its vision, strategy and targets. The efficiency of a company is based on its costs and unfortunately, the majority of dental companies do not give priority to this area. Some directors and managers think the costs of the company are under control by their financial controllers or other designated employees and although they all do a good job to contain their company’s costs they simply do not have the know-how, technical tools and time to make a very big difference to the cost base.
So how can dental companies and practices reduce their costs? The options available are: use internal methods such as existing staff members, use brokers or use a cost management consultant.
Most companies and practices would rather use their existing staff to lower costs because this would be the easiest and cheapest option. Often staff members are already inundated with work and asking them to find ways in which to lower costs does not go down too well. In addition, staff members will be using their time in doing something they do not have the proficiency in. It is better for staff members to work on areas they were originally employed to do and in which they can excel at.
Brokers are very specific and can only provide a service in their chosen area. For example, an energy broker can deal with gas and electricity, a stationery broker can deal with various office supplies and a telecoms broker deals with all kinds of telecommunications whether it is fixed or mobile. The advantage of using brokers is they will reduce the cost of a specific area. Energy brokers are most popularly used because in a rising energy market, brokers can reduce the price of energy consumed. There is a problem though, all brokers are paid on commission and most of them are not independent, which means they will only use their favoured few suppliers. The disadvantage of using brokers is that once the deal has been agreed and the broker implements the cost saving then that is the end of their service. If there is a problem following the implementation then it is up to the company or practice (and normally an unlucky designated staff member) to sort it out.
The last option available to reduce costs of dental companies and practices is to employ the services of a management consultant. Unlike brokers, a management consultant deals with a variety of costs so that they look at each company holistically rather than in parts. Unlike brokers, a management consultant is independent and provides an on-going service so that once implementation has taken place if there is a problem then the management consultant will resolve it. This allows staff to focus on their roles.
The next time you think about how to improve your company’s turnover, consider how to reduce its cost. Think of the two ways in which you can make your company successful: effectiveness and efficiency and deploy the resources that are suitable for each. Lastly, make sure you deal with someone who understands your trade and has experience working in it.