One common problem that dentists face is that they spend ample time working in their businesses and not much time working on their businesses. They can hardly be blamed, for while the hygiene department is a crucial contributor to production, dentists are responsible for most of the daily production total. The pressure to produce is intense. Visions of loan payments, payroll, and personal obligations merge into a specter that roars to dentists about imposter syndrome and failure. A combination of pride, urgency, and fear can keep dentists pinned to the chair in a desperate attempt to produce at all costs and ignore less urgent needs. If this mindset takes hold, practitioners risk developing tunnel vision in which the target is production, and every possible arrow is shot toward the bullseye without much thought to taking time to aim.

Production is critical to the success of a dental office. There is no doubt about that. But production is not all that is important to success. A production mindset can prevent dentists from thinking about their practices holistically and can limit the attention paid to other critical numbers, like weak collection ratios and skyrocketing expenses.

Production shortsightedness prevents dentists from dealing with the other crucial numbers in their practices. How can practitioners prioritize production without developing a production blind spot? Below are some tips for keeping a balanced approach to all the essential practice numbers.

• View production goals as ideal objectives, not as absolute requirements. No one can accurately predict whether the multi-implant patient will show up for her appointment or if the weather will prevent a patient from making it to the office. Production is fluid from day to day. Sometimes, it is possible to redeem the lost appointment by keeping a list of patients who are available on short notice. These patients should live close to the office so they can fill the empty spot without causing you to run behind. But when a day’s production evaporates, and no one can fill the gap, make use of the time to attend to other practice priorities.
• Evaluate your office’s scheduling practices. If no-shows are common in your office or treatment plans are gathering dust, it may be time to evaluate the office’s scheduling policy. Faltering production numbers can be an early indicator that scheduling needs attention. If you use block scheduling, ensure you have detailed the contingencies for instances when the block remains empty. For example, if you instruct schedulers to keep a two-hour crown and bridge block open from 2 p.m. to 4 p.m. on Wednesday, tell them when that reserved spot can be released to schedule other appointment types. Be specific in your wishes. Otherwise, each staff member may use different criteria.
• Schedule time each month to intentionally evaluate other office metrics. High production numbers can be a panacea for dental offices. Completed treatment does not always equal money in the door if the bill for services remains outstanding. However, production is only one factor in the income equation. Dentists focusing on production will likely underperform in working on their businesses because they spend too much time working in them. Below are other metrics besides production that need monitoring for improved productivity.

 

Accounts Receivable Aging:

Evaluating your practice’s accounts receivable aging is a significant step toward getting paid promptly for the production of the past. Many offices overlook the necessity of routinely and intentionally looking at how long it takes them to get fully paid for the procedures. Aged accounts receivable are divided into distinct categories. These categories are: 0-30 days, 31-60 days, 61-90 days, and > 90 days. Below are some practice benchmarks

Collections experts report that the ability to collect amounts past 60 days drops from 90% to 70%, so staying active in getting accounts paid within the first 60 days past the service date is critical.

Some offices make the mistake of beginning the aging process from the date of an insurance payment. Avoid this tactic. This aging method improves the look of the accounts receivable aging report but re-sets the timer on the collections process, which results in less cash flow today.

 

Collections:

A careful examination of the company’s accounts receivable aging report is likely to lead to an inspection of its collection practices. According to Watson (2022), 17.8% of people in the United States have medical debt in collections. The Consumer Financial Protection Bureau states that, in 2021, medical debt was the most common debt that appeared on credit reports.

Credit reporting rules have recently changed. The No Surprises Act became effective on January 1, 2022. This federal law protects patients from receiving bills when being treated by an out-of-network provider in an in-network facility such as an emergency room or urgent care facility. This act requires private practitioners, including dentists, to provide uninsured and self-pay patients with good faith estimates of the cost of services before treatment. Fees that exceed $400 of the estimate are subject to the patient initiating the Patient-Provider Dispute Resolution process.

The three nationwide credit bureaus (Equifax, Experian, and TransUnion) changed their credit reporting guidelines in 2022 to support consumers facing medical debt. Effective July 1, 2022, paid medical collection debt is no longer included on consumer credit reports. Additionally, these agencies increased the time before reporting will begin on unpaid medical debt to one year. The agencies will only report on outstanding medical debt that exceeds $500.

Dentists must develop lawful collection practices in their offices that prevent debt from accumulating by implementing policies that help patients understand their financial obligations for treatment rendered before beginning treatment. It is wise to provide detailed treatment plans for all patients, review the costs associated with treatment at each step in the treatment plan process, and set clear expectations for settling accounts.

 

Expense Reports:

The hectic pace of a dental office lends itself to putting recurring purchases on autopilot. It is easy to “set it and forget it.” This philosophy encourages waste and prevents offices from routinely monitoring their subscriptions and monthly orders. As a result, it is not uncommon to have recurring charges mount up over time. Auditing your subscriptions and regular expenses is a great way to increase the office bank balance without increasing production.

Dentists should schedule a monthly meeting to review expenses and plan for any necessary changes in the budget. It is beneficial to schedule a yearly review of the contracts for the office’s credit card processing service, toothbrush ordering, IT services, and other subscription services to ensure that the fees are reasonable and that the service is still relevant to the dental office needs.

 

Insurance Contracts:

Insurance contracts do not always favor the provider. It is not unheard of for a dentist to enter into a contract paying less for procedures than the cost of providing the supplies. This inequitable payment may go unnoticed unless providers schedule yearly insurance payer audits. It is not feasible to tackle every insurance contract yearly. Instead, devote time to examining two or three contracts for unsatisfactory conditions that you have encountered. Contact the company and request a review of the contract terms. If you cannot renegotiate more favorable terms, it may necessitate evaluating whether your office should continue participating with the payer.

 

Managing a dental office is complex. Focusing on production is a daily necessity. However, there are many other critical metrics to monitor. Try to implement a plan for addressing all the crucial numbers in your dental office. You will soon enjoy a more balanced and accurate view of your practice.

 

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References:

Watson, A. M. (2022, November 11). 5 rights you have around medical debt collection. GoodRx Health. 5 Rights You Have Around Medical Bills and Debt Collection Laws – GoodRx

Resources:

Transunion. (2022, March 18). Equifax, Experian, and TransUnion support U.S. consumers with changes to medical collection debt reporting. Equifax, Experian, and TransUnion Support U.S. Consumers With Changes to Medical Collection Debt Reporting

 

 

Business owners have about 80% of their net worth locked up in the business; therefore, only 20% is liquid (Snider, 2023). Owners expect the stockpile of wealth to be unlocked in the future when the business transitions. However, experts tell us that 80% of businesses on the market fail to sell. All that wealth is useless if the company is not transferable! Sadder still is the owner’s dependence on that wealth to live well in their next act. Such owners have come face-to-face with their wealth gap. They must retire with less to live on, which is likely why 75% of business owners “profoundly regret” selling their business 12 months later (Snider, 2023).

What is a Wealth Gap?

A wealth gap is the difference between expectation and reality (Goodbread, 2023). It happens when owners assume a business value that never materializes. It results from adding the owner’s actual assets to a “guess” of their business’s value. Below is an example to consider.

Suppose you have actual assets of $2M. These assets are in your house, cars, IRAs, and other tangibles. The value of the business is not considered at this point because you do not know the actual value you will reap. Suppose also you wanted to have $400K per year in retirement. To live on $400,000 per year for 25 years, you would need $10M.

$400,000/year X 25 years=$10,000,000 

 

Since you currently have $2M, you are $8M short of your goal. In this example, $8M is your wealth gap.

Now is the point at which you begin to factor in the value of the business. In our example, the owner would need the net proceeds from the sale to be $8M to close their wealth gap. If realizing net proceeds of that magnitude is impossible, then the owner cannot close the wealth gap, and lifestyle adjustments are necessary.

Calculating the wealth gap shows how far away the goal is from reality. If the owner in our scenario is retiring, suffering from health problems, or facing other life obstacles and discovers the gap at the time of exit, the expected $400K per year reduces to $80K per year, based on the actual wealth they possess. It would be devastating to realize too late that your retirement budget is five times lower than expected!

This example should reinforce that exit planning is a good business strategy, not something that occurs when the owner is ready to sell. It should also motivate all business owners to examine their wealth status closely now. Fortunately, owners motivated to close the wealth gap can begin a journey to improve the value of their business, which in turn can help make their goals a reality.

To help you design an achievable plan, consult a Certified Exit Planning Advisor (CEPA). CEPAs help owners think about the state of their business throughout the company’s life. They can help owners improve the value of their company by using de-risking strategies like improving operations, guiding compliance, and helping develop written policies and procedures (structural capital), all things that impact the value of a business. De-risking helps owners protect what they have and paves the way for future growth.

Once de-risking is complete, CEPAs can guide owners into improving the profits and value of their business. Owners address their company’s human (people), customer, and social (culture) capitals. Since these intangibles make up 80% of the value of a business, it is easy to see that these improvements can significantly increase the sale price. Through a carefully constructed individualized plan, owners can take control of their companies and gradually implement changes that directly influence their business’s selling price.

Whalen CPAs has two CEPAs who are ready to assist you. Imagine the peace of mind that comes from acknowledging your wealth gap and devising a plan to close it.

Contact Whalen today!

Resources

Goodbread, J. (2023, August 21). Financial planning for business owners [Presentation]. CEPA: 2023 August,  Online.

Snider, C. M. (2023). Walking to destiny (2^nd ed.). Think Tank Publishing House.

Managing accounts receivable (AR) is a fundamental aspect of financial health for any business. A robust AR system ensures steady cash flow, minimizes outstanding balances, and fosters strong client relationships. This comprehensive article delves into AR management, offering ten actionable insights to optimize your receivables processes and drive financial success.

 

1. Effective Data Collection: The foundation of effective AR management lies in accurate data collection. Comprehensive client information, including accurate contact details, lays the groundwork for seamless invoicing and follow-ups. Train your staff to confirm the contact details at every client interaction to maintain communication.
2.  Tailored Payment Term Flexibility: Customize payment terms to suit your business and clients. Offering flexible terms can incentivize timely payments while aligning with your clients’ financial cycles. Upon account set-up, inform clients of your billing policies. If possible, arrange billing multiple times monthly to capitalize on pay cycles.
3. Immediate Invoice Dispatch: When you deliver your product or service, the clock starts ticking. Don’t delay invoicing; immediate issuance improves transparency and signals professionalism.
4. Automated Reminders: Gentle yet persistent reminders significantly enhance collection rates. Implement automatic reminders for approaching due dates, ensuring your clients get regularly reminded of their obligations.
5. Employee Training on Procedure: Educating your staff about AR procedures is vital. From invoicing to communication, ensuring your team understands their role in the AR process bolsters efficiency.
6. Embrace Payment Automation: Automation isn’t just a buzzword; it’s a game-changer. Automated invoicing, reminders, and payment processing streamline the process and reduce human error. Set up online payments so clients can promptly pay invoices. Offering online payments removes a barrier to prompt payment because people may not have stamps available or may not use checks.
7. Streamline Dispute Resolution: Promptly address any disputes that arise. A straightforward and efficient dispute resolution process prevents payment delays and preserves client relationships.
8. Incentivize Early Payments: Consider offering discounts or incentives for early payments. This strategy can nudge clients toward settling their invoices promptly. Discounts of only a few dollars are often attractive to budget-conscious people.
9. Multi-Channel Communication: Communicate with clients through multiple channels. While emails are effective, a mix of phone calls, text messages, and postal mail can keep the bill on the client’s mind. Many older adults avoid using technology, so use methods that reach all clients.
10. Regular Accounts Receivable Check-Ups: Just as your health requires regular check-ups, so does your AR management. Schedule routine reviews to assess the effectiveness of your strategies and implement necessary improvements. Run an accounts receivable aging report monthly and look for accounts overdue by 60+ days. The rate of payment for invoices aged past 60 days drastically drops. Work hard in the first couple of months to secure payment. Offer payment plans for lagging accounts with contracts outlining the frequency and amount of each payment.

Optimizing accounts receivables management in a dynamic business landscape is paramount to financial stability. Implementing these ten insights will streamline your AR processes, bolster client relationships, enhance your cash flow, and pave the way for sustained business growth. If you are struggling with where to start, we can help. Contact Us

Every business owner hopes to harvest the wealth locked up in the business. Unfortunately, most owners over-value their businesses. This has an enormous impact on the success of the transition into life after business because owners who count on the business for retirement can experience catastrophic disappointment. According to Christopher Snider, in his book Walking to Destiny (2023), 75% of business owners “profoundly regretted” the decision to sell their business 12 months after selling.

Sean Hutchinson (2023), Partner of Strategic Development at Ready for Next, says this is because the owners were ready to transition but were not transition-ready. Hutchinson reminds business owners that the most valuable businesses are transition-ready due to their attention to operational excellence that affects all seven value domains of a business. Hutchinson contends that businesses add or subtract value daily due to their actions toward each value domain. The value domains are:

• Culture
• Risk
• Strategy
• Productivity
• Financial Performance
• Leadership & People
• Sales & Marketing

For business owners, the key to adding value begins with viewing the company from a buyer’s perspective. Snider (2023) calls this approach a business attractiveness score. This quantitative scoring process can allow owners to get their businesses in shape before they feel the urge to sell, thus unlocking the best value for their business and preparing for the transition to the next chapter of their life.

 

The value domains can be grouped to provide four factors for business owners to consider in their transition readiness. These factors are business factors, forecast factors, market factors, and investor considerations.

The Four Key Factors That Buyers Consider and Their Value Components

Business Factors

• Leadership & People: Buyers want to buy a well-managed business. This means having a team of experienced and capable executives who can execute the company’s strategy. This also necessitates carefully crafted succession plans that optimize a continuing history of strong leadership.
• Strategy: Businesses that don’t rely too heavily on key managers can withstand changes in leadership without too much distress. Owners cannot be the top producers or salesmen in strong businesses because potential buyers understand they will lose customers when the transition occurs.
  • Intellectual property: Buyers value businesses with valuable intellectual property (IP). This can include patents, trademarks, copyrights, and trade secrets.
  • Location and Facilities: Inattention to the business’s facilities can diminish value because the new owners must make costly repairs and adjustments.
  • Operations: Processes and systems should be robust, documented, and up to date. A prospective buyer will begin factoring in discounts to the sale price if the business operations are weak.
• Sales & Marketing: A solid customer base is another essential value driver. A large and loyal customer base likely to continue doing business with the company is crucial to a successful transition. The customer base should also be broad, not concentrated on a few large contracts. Buyers also want strong brand awareness to build on the company’s reputation.

Forecast Factors

• Financial performance: Buyers want to see a business with a solid financial performance history. This includes factors such as revenue growth, profitability, and debt levels. Buyers will seek a long history of continuous growth and a solid recurring revenue model.

Market Factors

• Productivity: Buyers are also interested in businesses with potential future growth. This can be assessed by looking at factors such as the size of the market, the competitive landscape, and the company’s products or services and comparing these to the current productivity of the business. Businesses maximizing their market and being competitive now will likely sustain that into the future.
  • Industry trends: Buyers also consider the overall industry trends when evaluating a business. This includes factors such as the industry’s growth rate, the competition level, and the regulatory environment.

Investor Considerations

• Risk: Each company has its own risk inherent to its market. Companies with a proven track record of mitigating risk are favorable investments to buyers. Risk mitigation occurs by following documented compliance measures, developing succession plans, and evaluating buy-sell agreements. Competitive companies are those with low legal susceptibility, appropriate insurance coverage, and strong community support.
• Culture: A company’s culture is its lifeblood. Companies with low morale, poor communication and problem-solving, and ineffective management will likely score poorly in attractiveness to buyers. A strong culture is born from ensuring the right personnel are in the right positions within the company. The culture grows as employees see themselves as part of a team that aims to serve the customer base and grow the business enterprise.

Here are some additional tips for business owners who are thinking about viewing their company from a buyer’s perspective:

• Be realistic about the business’s financial performance and operations when self-evaluating.
• Remember that exit planning is a good business strategy because it focuses on value.
• Get professional help from a Certified Exit Planning Advisor (CEPA) at Whalen CPAs.

Businesses can make themselves more attractive by understanding and improving the factors influencing buyers. Thinking about your business as if you were going to sell it will help you maximize the proceeds when you are ready to sell. Maximizing the profit from the sale of your business can help you transition well into the next great chapter of your life.

 

Resources
Hutchinson, S. (2023, August 22). Value Enhancement Process [Presentation] CEPA: 2023 August, Online.
Snider, C. M. (2023). Walking to destiny (2nd ed.). Think Tank Publishing House.

Exit planning, although often only associated with the end of a career, is actually both a starting and end point. It’s not just the final stage. Exit planning is about preparing and implementing systems throughout the business’s life that protect and grow value so that you can maintain a profitable business today and possess an attractive business to potential buyers. Let’s examine the facts about exiting a business and discuss how exit planning is a good business strategy to implement over the life of a business.

Owner Readiness

According to a recent State of Owner Readiness survey conducted by the Exit Planning Institute (EPI), 99% of business owners agreed that a transition strategy is important for realizing future personal and business goals. However, 94% had no “life-after” plan, 79% had no written exit plan in place, and 49% had done no planning at all! Equally disturbing is that 63% of owners planned to transition within the next ten years. The saddest news is that, according to EPI, over 70% of businesses on the market do not sell. This is even true of family-owned businesses; only 30% transition into the second generation and only 12% into the third.

What is Exit Planning?

Exit planning is a process of operating a business through thoughtful planning, effort, and strategy that is transferable due to its strong structural, human, customer, and social capital. This concept interweaves an owner’s personal, financial, and business goals into a cohesive plan that focuses on creating business value today.

What is Value?

When a business is offered for sale, the price of the business is composed of two different parts: the tangible and the intangible assets. Tangible assets are those things that show up on the business’s balance sheet. Only about 20%-30% of a business’s value comprises tangible assets. The intangible assets make up as much as 80% of the value of the business. These intangible assets include the four capitals (structural, human, customer, and social) that manifest as goodwill, management strength, reputation, operations, and company culture. Inattention to intangible assets prevents businesses from successfully transitioning, which is why attending to these important aspects of business is a must to improve the value of a business.

 

Focusing on Value

It should be noted that value and income are not synonymous. Focusing on income keeps some business owners entrenched in maintaining their current lifestyle with little thought of their next chapter in life. Fortunately, focusing on the intangibles that add value to a business are best practices that should generate more income now while improving future value.

Business value improves through a cycle called value maturity. The Exit Planning Institute has developed a Value Maturity Index™ to help owners and advisors move through a value enhancement process called Value Acceleration Methodology™. This methodology begins by identifying the current value of a business, protecting the value by de-risking actions, and building the value through improving the intangible capitals of the business. Once the business value is in a growth curve, the owner can manage the business and further increase value or choose to harvest the value of the business through a transition event.

As you can see, exit planning is a comprehensive endeavor that requires meticulous preparation and a targeted approach. It’s not a step taken at the last moment; it’s a strategy woven into the fabric of your business. In the dynamic business world, where change is constant and the future uncertain, a well-crafted exit plan shields against unexpected storms. The exit isn’t an end; it’s a new beginning. Learn More.