Here are some questions to think about.
Do you know the profit margin on:
- each product that you sell?
- each service that you provide?
- each surgery that you operate?
- each fee-earner that you hire?
Based on experience, the majority of readers will answer “no”.
In 20 years of full-time dental business coaching and over 2,000 clients, less than a dozen have ever had sufficient Management Information (MI) to identify the profit margins mentioned above.
Yet the calculations involved aren’t that difficult.
A decent set of management accounts, an Excel spreadsheet, some thought (maybe a bit of advice from a business coach) and off you go.
I have a sneaking suspicion that there is another reason for financial abdication – that you don’t want to know the numbers because you suspect there will be bad news.
I can think of some examples of “moments of truth”:
- identifying that a client was losing money on the activity of 3 out of 4 associates;
- demonstrating that a Groupon campaign was driving a business into an early grave;
- an analysis that a new “shag pile and chandeliers” practice development plan would require levels of production that were simply unrealistic;
- calculating that, after funding the inflated purchase price of her proposed acquisition, it was going to be impossible for a wannabe new Principal to reach an acceptable profit target.
They teach you all about the danger of poor margins at dental school.
It’s shame they don’t devote an afternoon to a discussion of profit margins.
It has always struck me as odd that professionals study their area of expertise and have to pass exams to ensure that they do no harm to their clients/patients and yet they are then allowed to “pilot” a business and all of its passengers without flying lessons or a pilot’s licence.
Equally odd that a bank will give a 90% unsecured loan to a customer whose qualification for running a business is knowing how to drill teeth.
Operating cost per surgery per day + lab cost + material cost + clinician cost + target profit margin = target production per day.