Are you Focusing on the Wrong Aspect of your Business?

Are you Focusing on the Wrong Aspect of your Business?

maximize-revenue-profits

Why Profitability is More Important than Your Overhead.

 

Today we have Jonathan VanHorn, CPA, speaking to us about business in general. He had a passion to become an accountant from an early age as he saw first hand the financial hardships his parents had to go through as small business owners.

He discusses how you can benefit by focusing on your revenue rather than overhead. Many small businesses and professional private practices tend to focus on the wrong things. The best way to grow is by working on your business and trying to increase your revenue and maximize profits. To do this one must be committed to tracking a practice’s performance. What gets tracked, gets measured and managed.

Jonathan will discuss how tracking performance can be a game changer, enabling you to implement new processes and improve on weaknesses. For those that feel their business is in a rut or could be doing better, he may have a simple solution for you.

In this Interview Learn:

Why Profitability is more important than your Overhead

What Key Performance Indicators are really about

How to get your business out of the Plateau

Why Execution can be the spark for action & momentum

The 3 components of Marketing

 

Can you discuss Your background?

I’m a CPA in the great state of Arkansas.

The reason I became a CPA in the first place is because of my family. Growing up, my parents were small business owners. My grandfather was also a business owner and was very good at handling the finances and accounting aspect of business. He owned a big bottling distribution company for Dr. Pepper products. He was a finance guy and knew how to make all the numbers work. He understood growth and profitability.

He helped my parents start their furniture store.  After 5 years of helping my parents with their business, he passed away unexpectedly at the age of 62.

About 9 years later, my parents had to go through bankruptcy.

I can still remember to this day, my father sitting in front of the fireplace with tears rolling down his eyes as he talked about how the family was going to be bankrupt. That we needed to sell the house we grew up in and move to smaller place, and all these other things.

fireplace

My parents had always said, if my grandfather had still been alive, that they would not have gone bankrupt. He would have kept their business alive and running well. He could have seen the tide turning and help them navigate. He could have told them things like how there is too much inventory sitting in the warehouse or that they’re overpaying for it. That employee payroll is too high or there isn’t enough turnover on inventory. All of these things he was great at.

So I always grew up with a deep respect for the financial side of things. That’s what drove me to become a CPA. Everybody hears CPA and thinks of Taxes. But to me it meant much more than that.

After graduating and working for one of the largest accounting firms in the country, I realized that accounting is not what I thought it would be. So I went from a big CPA firm to a small one. I helped about 150 different businesses become compliant with their taxes, accounting, and bookkeeping. But basically we were doing things to follow regulations and protocol. Doing things just because they had to be done.  

But I wanted to create value and actually help my clients grow their business. So I left the firm and started my own company, DentistMetrics. We are an online, virtual CPA firm for dentists. We also have a coaching program for dentists to become better business owners.

I got into helping Dentists, because I already had several dental clients. However I noticed a lot of differences in the financial performances between different practices. Some were doing great, while others seemed to be struggling. Some were profitable by 60% while others were barely taking home 10%.

So I began to ask myself why one practice was so much more profitable than the other. It told me there was a lot of room for growth and improvement for the less profitable practices. So I set out to become an outsourced CFO for dental practices. That’s how we got into the business world of dentistry.

Going from a general CPA to a dental CPA. We learned that it’s immensely more practical and valuable to actually teach our clients how to handle and run the financial aspect of their business rather than doing it for them.

fishing

Teaching them how to fish rather than giving them the fish.

 

So there is great variability in overhead, anywhere from 40%-90%. Can you discuss how to best manage your overhead?

This is one of the biggest misconceptions in dentistry. That you should focus on overhead.

Instead, you should focus on Profitability, not just overhead.

There are the most frugal dentists in the world, who watch their expenses like a hawk. 

hawk

They make sure not to waste any supplies, they negotiate prices and get the best deals.

But they will never get to that ideal level of profitability.

The reason is because they’re focusing on the wrong thing. They know how to save money, but they don’t understand how to generate revenue. You can’t just look at your expenses, which most people only do.

Expense is a percentage of profitability, which is Expenses divided by the Revenue.

Expense / Revenue = Profitability Ratio

Most people can get an understanding of expenses, but they ignore the revenue part of the equation.

They don’t understand how to maximize their revenue. They don’t know how to generate the revenue correctly or maximize it.

 

So rather than cutting costs, one should focus on increasing revenue.

Typically there is always room to cut down on expenses. We helped this one practice that was generating $3 million a year in revenue, to cut their supply costs down by 2%. That was an extra $60,000 that they took home.

But for most practices, especially the smaller ones, they will do much better if they spend their time learning about their revenue and how to optimize it. How to actually work on their business and grow it.

Dollar for dollar, the most effective way to start working on your business is to start by looking at the performance of the practice. Tracking the performance will be a game changer. By tracking it, you can begin to implement new processes, improve on weaknesses, and drastically change the way you do business.

 

action

Why execution can be the spark for action and momentum.

 

For business professionals that feel like they could be doing better, or have plateaued, what would be a good solution?

Really, for people that feel like they plateaued, there is always room for improvement.

Dentistry is great, because there really is no ceiling. What I mean is that you can stretch yourself really far and do a lot of different things.

The practices I’ve found that have plateaued are really the people that have almost given up. They have stopped trying to be creative. They don’t want to try new things. They’re doing the same things they’ve always done, over and over, but expect a different result.

A lot of the times they’ll say,

“That doesn’t work for us, because we’ve tried it in the past and it didn’t work.”

They have limiting mindset and believe that nothing will work for them.

The only way to break out of a plateau, is to give the system a shock.Click To Tweet

 

You have to do something different. You need to implement a new change and stick with it.

For businesses that have plateaued, the owner needs to really educate themselves on business in general. They need to analyze their practice internally and externally. They need to know what’s actually occurring inside and outside their business. Just reviewing numbers on a P&L is the bare minimum.

You need to understand how your clinical philosophy aligns with your production and revenue. Looking at profitable dental practices, there are certain key indicators showing a correlation for profitability. Meaning, as this number does better, there is a positive trend in profitability.

One of those indicators are the type of treatment you consistently offer and do for patients. Of the people that come through your door, how many receive a crown or an implant?

If one practice is doing one crown out of every 5 patients, while another is only doing one out of every 20. Hands down, the other practice will be more profitable.

The one out of every 20 will come to me saying,

We can’t do that, our patients just don’t have enough money. They don’t have the wealth. We just help them get by.”

That may be true in some cases, but that’s a limiting belief. Doing patch work fillings is actually a disservice to them when the tooth eventually breaks down and has to be pulled out later.

This is just one example of how clinical philosophy ties into the practice’s revenue. Yes people may be financially strapped. But have you given them opportunities to say yes to the work? Just accepting insurance may not work. Does your practice offer flexible in house payment plans? Do you make it easy and affordable for people to get the work that they need?

Outside of that is treatment presentations. The way you present the work that they need. How you lead a person into saying yes to something is very important. But a lot of people don’t look at it that way. They just diagnosis the treatment and then blame the patient or treatment coordinator when they say no.

How well are we leading the patient to accept the treatment that is needed?

 

From a financial tracking standpoint, can you discuss the importance of Key Performance Indicators?

Really think about that word, Key Performance Indicator.

The most important word in KPI is Performance.

Everybody has heard,

“What is tracked and measured gets managed.”

You can’t improve what you don’t measure.

The problem is that all they’re doing is tracking. They’re not changing their performance that influences what gets measured. Which is really how you get results.

Our motto is,

“Execute, Track, and Refine.”

You need a strategy to execute. You then track those results of whatever you’re trying to implement. Then if you’re successful, you refine and tweak it to become better at it. Then you keep on going, “Execute, Track, and Refine” over and over. For some practices that might mean they have to focus on case presentations or start tracking how many walk ins get plugged into your hygiene department. For others it might mean focusing on marketing to get new patients. There are many different ways to improve.

That’s the whole thing of being a business owner. Continuously executing on different strategies, tracking, and refining. This is how you move the needle in a positive direction. But to do this, you have to get out of your business. Stop working in your business and work on it, as whole unit from the outside.  You have to get a different perspective to fully see and understand any fundamental issues or problems going on to be able to solve it.

 

Can you give an example of how you “Execute, Track, and Refine” to get new clients?

There are different ways to bring in new business. Marketing is one of the time tested methods. You can do External and Internal Marketing within your practice.

With External Marketing, you always have your “Message, Medium, and Market.

marketing

The Message is what you say to bring people in.

The Medium is where you say it. You can say your message online or on paper through direct mail. TV or radio is another medium.

The Market, is the people you’re sending your message to.  Your target demographics.

All three of these components are important in the success rate of bringing more people through your door. Just changing or refining one of these components can make big difference in results. You have to find the right combination of your Message, Medium, an Market.

So with “Execute, Track, and Refine,” you execute a marketing campaign. Then you have to track and measure the results. How successful is it? If it’s working, you put more money into it. If it’s not working, you change the message or medium.

Test and refine to find out which one will bring in the most people through your door. Which one brings in a higher number of quality of people? Which ad brings in more headache or stressful people through your door?

metallzeitung 9/2012

Internal Marketing is another area you can work on. This is a great area to bring in referrals. Speak to your existing patients and let them know you’re looking for new patients. Influence and incentivize them to bring in new referrals. You can set up prizes or gift cards for every person that they refer to you.

To do this, your whole staff must be motivated and committed to doing this and figure out what works best in your location.

If you’re in a small town, building up your online reviews may not be the best use of time and energy. Or if you’re in a competitive city, then facebook could be extremely important. Have your patients post on their facebook how good of a job that you’ve done. They can “check in” at your practice or post before and after photos.

There are many different strategies you can deploy and track to see if it’s working. But you have to be patient, give it time. Then you can track it and refine it.

If your practice becomes very busy, then you might need to find outside business coaches, specialized CPA’s, or hire online marketing consultants.

Sometimes the business owner has too much going on in their plate.  But really knowing your own limitations, of what you can and can’t do is really powerful. Because then you can find other people to help execute, track, and refine different strategies for you.

“You as the business owner, have a responsibility to track and know what is working and not working for your practice.”

 

End Part 1 – Continue to Part 2

 

 

vanhorn

Jonathan VanHorn, CPA, ABV

Jonathan is the founder of DentistMetrics.

His specialty is in Accounting, Taxes, and growing businesses. He coaches dentists to become better business owners by controlling their profitability through understanding numbers.

“I don’t know how many times I’ve sat down with a dental practice owner to talk about their dental practice’s performance.

It’s surprising how many of those practice owners know that there is something fundamentally wrong in their dental practice. They know that they are under-performing somewhere inside the practice. They just don’t know how to fix it or what is specifically at fault.

A lot of practice owners feel like their hands are tied. By far the most common excuse I hear is that there is some outside circumstance that is beyond their control.

The good news is that this is rarely, if ever, the truth. There is always the ability to change.

The same is true of dental practices. The longer a weak spot is left unchanged, the greater the opportunity for the practice to turn bad.”

 

End Part 1 – Continue to Part 2

 

vanhorn

Jonathan VanHorn, CPA, ABV

Jonathan is the founder of DentistMetrics.

His specialty is in Accounting, Taxes, and growing businesses. He coaches dentists to become better business owners by controlling their profitability through understanding numbers.

“I don’t know how many times I’ve sat down with a dental practice owner to talk about their dental practice’s performance.

It’s surprising how many of those practice owners know that there is something fundamentally wrong in their dental practice. They know that they are under-performing somewhere inside the practice. They just don’t know how to fix it or what is specifically at fault.

A lot of practice owners feel like their hands are tied. By far the most common excuse I hear is that there is some outside circumstance that is beyond their control.

The good news is that this is rarely, if ever, the truth. There is always the ability to change.

The same is true of dental practices. The longer a weak spot is left unchanged, the greater the opportunity for the practice to turn bad.”

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