Orthotown July-August 2023 - 58

shifting my client's mental outlook
from a fear-based approach to a more
data-centric, goals-based approach
focusing only on what we can control.
Things like how many new patients
the practice is bringing in, how much
the practice is writing off, and where
the practice is buying supplies are
all areas to start evaluating. We also
want to take a step back and ensure
there is a rock-solid, goals-based
financial plan in place for both the
practice and the doctor.
By leveraging tools like the Orthodontic
Practice Comparison Report,
as well as the advice of a trusted CPA
or advisor, it's easier to pinpoint where
to focus and put a solid growth strategy
in place.
Identify areas to improve
For most practices, the first area
to look at is expenses. Even if your
net profit fell within the range, it's
worth diving deeper into the report's
numbers to find areas where you
could improve.
The report shows expense averages
and also breaks out salaries and payroll,
which is most practices' largest
expense. For example, how did your
office manager's hourly rate compare
to the average practice like yours? Did
you spend more on your lead assistant?
Is your new-patient acquisition
cost higher than like-sized practices?
If you find yourself above the averages,
you've found a good place to focus on
for improvement.
With inflation, it was expected
that direct expenses such as staffing,
supplies and lab would increase. But
also pay attention to fixed costs in
2022. The report shows that fixed costs
have increased more than we've seen
Fig. 1
PROFITABILITY FACTORS
PRODUCTION
VISITS
PROD/VISIT
COLLECTION % OVERHEAD
in the past-no surprise there. What
is surprising, though, is the category
that most notably went up is one we
call " Other Fixed Costs. " These are line
items such as subscriptions, janitorial
and consultant fees. This is likely also
a direct result of inflation, because
most of the line items in this category
are also services. In all types of businesses,
we are seeing miscellaneous
cost increases because of supply and
demand for services.
Another interesting note about
expenses: They might not be the reason
your net profit wasn't within range
at all. Suppose your expenses are in
line with the averages, yet net profit
was outside the norms. In that case,
there's a clear indication you need to
focus more on increasing production
instead of lowering expenses.
Revenue drivers include new patient
flow, treatment acceptance, procedure
mix, insurance makeup of the practice
and conversion speed. To illustrate
how the factors work together to
determine net profit, first review, then
evaluate each component of the profitability
formula seen in Fig. 1.
Reassess your insurance write-offs
Taking a close look at your insurance
write-offs is essential, because they
JULY/AUGUST 2023 | 58 | ORTHOTOWN.COM
PROFIT
can factor heavily into your profitability.
I've seen orthodontic clients who
increased their revenue considerably
but didn't see an appreciable jump
in net profit. Upon looking deeper,
we saw that the practice was getting
paid only 60 cents of every dollar
of revenue.
Obviously, the percentage a practice
should be writing off varies dramatically
based on whether the practice
is 100% insurance-driven versus feefor-service
only. Talk to your CPA to
determine the " normal " range for the
type of practice you operate.
Write-offs are especially important
now, because practices are
raising fees more consistently to
keep up with higher operating
costs. It's more imperative than
ever to continue to maximize cash
flow by making adjustments with
insurance providers.
Check your collections rate
Another important area to determine
the health of any orthodontic practice
is its collections rate, which should be
around 98% of adjusted production.
This metric is easy to overlook in times
of prosperity, but in times of adversity
like we're navigating right now, its
impact becomes all the more glaring.
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Orthotown July-August 2023

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