[MASTERY] Phase III: Manage by the Margin

MANAGE BY THE MARGIN

In our practice management technology, VALUOCITY, Step III is 'Manage by the Margin.' The history of dental practice and what most consultants typically promote is management by 'Income Statement.' In these times, we work with our clients to manage by the 'Balance Sheet,' not the Income Statement.

When double digit growth was the norm, it was easy to manage by focusing primarily on income generation. Increase daily production, manage highly effective scheduling, deliver more procedures that produce higher returns, expand duties of hygienists and assistants to increase revenues, add products for additional revenue (i.e. toothbrushes, home bleaching), buy a CEREC machine to deliver same day crowns; the list goes on and on. None of these are bad are wrong. But what if for the next year, or maybe a lot longer, your income growth is stymied by the economic conditions? What then?

Sure, many of you watch your overhead. But, watching and actively being engaged are two different matters. In my presentations around the country, when I ask how many have a real, active budget, a budget they manage and set goals with, few audience members raise their hand.

As a business, you need to deal with the realities of today, not the hopes of tomorrow or the fond memories of yesterday. Right now, double digit growth for most practices isn't going to happen. So how do you maintain your income? You manage by the margin, not just by the top line.

First, we ask our clients to determine their real bottom line. We ask them to use a budget. If they are former Schuster, Pankey, Cain Waters, Pride, Knutzen or Mercer clients, they probably have budget instruments that are sufficient. Unfortunately, many don't use them. If they don't have one, we supply a budget we designed for this purpose. After the budget is developed and they understand the categories and line items, then we go to Step 1 of Managing by the Margin.

Step 1, we ask the clients to figure out their Financial Floor (FF). We define Financial Floor as the minimum level of revenue required to keep your doors open and not change the current structure of the practice. Those revenues that are needed to meet the basic financial obligations enabling the practice to remain intact without changing days of operation or laying off key staff. That means eliminating benefits, perks, new purchases, etc. - squeezed down as hard as you can. What is your financial floor?

Once the Financial Floor is established, we ask our clients to define the Management Projection (MP). This is the revenue number they can expect based on their experience that will satisfy a tight, but workable, budget, a budget that is grounded in reality. What is your MP?

Now in the 'old days,' the revenue number that was possible to produce and collect was a number substantially above the MP that we term Ownership Projection (OP). The OP was a revenue number that would be your "go for it" number. Strong solid growth, increase in new patients, more crown and bridge, the stuff that consultants always talk about.

The difference between OP and MP is 'the margin.'

The game was always straight forward, grow the OP to increase the margin since this is where you as the owner make your money and capitalize your future.

But what happens when OP decreases - so does the margin.

So what is there to do? Lower the MP to sustain your margin. That means you'd need to reduce your budget requirements even further, tighten expenditures, be very rigorous in your spending.

Now how do you manage your MP so it is under strict control and expenses can be managed in such a way that it becomes a constant focus of the practice. We employ our Mastery Cash Flow Management System which we will present in our next eNewsletter. But the point here is as an owner, your metric for success is the margin. As an owner, how you make money is the margin. So knowing your FF and MP and knowing what to do to move your MP closer to your FF without harming the practice is one of your accountabilities as an owner.

VALUOCITY; A Fable for Dentists

What? You haven't ordered VALUOCITY yet? What are you cheap? Come on, for 12 bucks you can't lose. PREORDER NOW.

I loved VALUOCITY! As I was reading it the light kept dawning. This is all just such honest, transparent behavior that is so easy to access, yet we make our lives so much harder by searching for secret techniques and innovations. VALUOCITY is basically right inside of us, we just have to get real with everyone and expect them to get real with us. I found myself realizing that, although this book was meant for dentists, it applies to anyone, in any walk of life, that wants to have a better life.

-Linda Zdanowicz

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