Business Administration for the Aspiring Practice Owner

As with any subject worthy of its own alphabet soup degree, we cannot hope to cover the breadth of topics covered by

the term “business administration” in this article. Rather, we will hit the highlights of things young professionals do wrong (or totally fail to do) most often. These issues include staffing, patient coordination, inventory control, accounting and fraud prevention, and various personal and professional financial issues.

Gretchen Lovelace

Practice Staffing

Total compensation for your staff will vary depending on

the cost of living and m a r k e t conditions w h e r e you locate. Regardless

of location, all forms of staff compensation should not exceed 25% of the gross income (this excludes the dentist or asso-

Preston Lovelace

ciate and includes payroll taxes for the staff). Any additional increase in staff costs directly affects profitability.

Employment discrimination laws limit the type of questions you may ask potential employees. Even

Business Fundamentals Business Administration For the Aspiring Practice Owner

Gretchen Lovelace and Preston Lovelace

ADS Transitions

innocuous questions like “do you have children?” or “how old are you?” can establish the basis for an employment discrimination lawsuit. When hiring for a given position, have a set list of questions to ask candidates with an idea of the ideal responses. Ask questions related to the job, and avoid questions regarding: race, color, sex, religion, national origin, birthplace, age, disability, or marital/family status. Having a consistent set of questions for all applicants can help you avoid many of these interview pitfalls.

If you have to fire an employee, inform her in mid-afternoon with only one witness present. During termination, deliver the required termination letter or pink slip to the employee. Explain, but do not debate, the reasons for termination. Do not argue with the employee. The things you say during a termination can help establish the basis for a lawsuit, so the less you say, the better. State employment laws vary considerably, so contact your state employment commission for guidelines or consult with an attorney BEFORE firing the individual.

Never have a meeting with any staff member of the opposite sex behind closed doors. Always have another staff member present if the door will be closed.

Pay your employees on the first and fifteenth of each month, not every Friday. Pay all payroll taxes that same day either

online or on the phone. Waiting to pay payroll taxes until they are due gets many dentists into financial trouble.

Inventory control

Inventory control is easier and cheaper if you consolidate supply orders. Try to keep between one and three months of supplies on hand (depending on storage space). A large order takes the same amount of time and labor to place as a small order. Your staff labor is your most costly commodity in the practice, and making repetitive tasks less frequent gives them more time to do other things.

Patient coordination

All new patients need an initial examination by the doctor, not the hygienists. By law, patient diagnosis is the dentist’s job. It is also the dentist’s first opportunity to interact with the patient and make a good impression.

The treatment plan is the road map for the staff to follow after your diagnosis. In order for the office to run smoothly, the treatment plan must contain all of the following components:

1. Treatment to be performed 2. Appointment number at which

treatment will be performed 3. Time required for each appointment broken down into producer and non- producer time units (usually 10 minute blocks) 4. The fee (if different from the stan-

dard fee) Most dental software packages allow you to chart the needed dentistry and generate a partial treatment plan. The doctor must then sequence the treatment and add the producer and non-producer times for each appointment.

The two-part patient consultation follows the treatment plan. The first part of the consultation is an explanation of the procedures by the dentist (preferred) or assistant. The second part, performed by a staff member, covers all financial arrangements. Financial arrangements include: reviewing the office financial policy with the patient, providing a written copy of the treatment plan with fees to the patient, and establishing a payment amount and method for each appointment. Finally, the staff should schedule all of the patient’s appointments.

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If the treatment plan includes producer and non-producer time for each appointment, scheduling for efficiency and productivity becomes possible. By staggering provider time in one operatory against non-provider time in another, an office can keep the doctor busy with minimal down time. The idea is to never have the doctor in two places at once and to never have the doctor standing idle.

Track supply stock on a spreadsheet to

make reordering easy.

Accounting & Fraud Prevention

The financial aspects of practice management are some of the most neglected areas of the dental education. While accountants are still needed, dentists must have some knowledge of accounting and record keeping in order to be successful and prevent fraud.

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Personal and business accounting software packages are now web-based and will interface with your bank accounts to track deposits and pay bills. These same programs allow you to categorize and track your expenses to protect your business from fraud. In addition to good accounting practices, a number of controls must be put in place to prevent financial irregularities from occurring.

First, set the user access in your practice management software to appropriate levels. Only the doctor should be able to void or adjust any transactions. This is a hassle for the doctor when authorization is needed, but sharing high-level access with subordinates is a recipe for disaster.

Secondly, all deposits must be checked and tracked. Get a notebook or ledger and list cash and checks together and credit cards by issuer. All credit card companies charge a discount or fee to allow use of credit cards in your business. Make sure your credit card companies deposit the full amount and take their portion (discount) separately. Do not allow them to deposit the difference because it becomes impossible to reconcile your deposits. Never take any cash out of the deposit. All deposits must be made daily and

match the dental software deposit slip each day, even if deposits are not taken to the bank daily.

Match your written ledger against the deposits in your accounting program each week. If the deposits do not match exactly, investigate with your staff and bank. Do not abdicate your financial due diligence to your staff or your CPA. Your spouse is acceptable. Sign all checks or pay bills online or with credit cards. Inspect the “Profit and Loss” or “Income Statement”

Finances: Debt, Negative Amortization & Other Traps

every month to assure the total income on your accounting program matches the income on the dental software package. Check the percentages of overhead on a monthly basis and year-to-date basis to watch your percentage of overhead. If it seems high, investigate.

Insurance

Life insurance and disability insurance are required in order to borrow money to purchase or start a practice. Do NOT purchase any form of an annuity unless you

are uninsurable because of a chronic condition and you cannot get life insurance any other way. Annuities pay the highest commission to the seller and are often pushed by insurance companies. They work well for people who are mentally and physically incapable of ever handling their own money. As a dentist, you do not fall in that category.

Some finance companies and equipment salesmen state there is NO prepayment penalty for the loan, and NO amortization schedule. Unlike normal loans where part of each payment reduces the principal and part is interest, these companies get all of the interest for the entire length of the loan out of the first payments. If $30,000 is the interest over the life of seven year loan for $100,000, these lenders will take the $30,000 first. If you attempt to pay off the loan at eighteen months, you may owe $104,000 instead of $90,000. If a lender does not give you an

1. Life Insurance: Purchase straight TERM life insurance. If you can

get a “guaranteed” premium for ten years, purchase that policy, but make sure to conduct price comparisons. 2. Disability Insurance: should be “own occupation.” Check with your

amortization schedule which shows your principal balance reduced with each payment, beware of borrowing money from that company.

state dental association to locate their endorsed carrier because the organization usually shopped the cost or cut a deal for the endorsement. 3. Malpractice insurance: Malpractice insurance should be less than $2000 per year. There are two types: claims made and occurrence. Again, check with your state dental organization for the endorsed carrier. Many states have a patient compensation fund to limit liability. If your state has this, definitely participate. 4. Health Insurance should have a high deductible to be cost-efficient.

This article should assist you in realizing your areas of weakness in business administration. Managing your business is like a second job on top of your clinical work, and you will be tempted to neglect it after a long day of dentistry. Resist this urge and try to learn as much as you can of the business side of dentistry. Feel free to contact your ADS representatives if you need assistance or have questions on practice management, affiliations or practice acquisitions. ■

Preston Lovelace, J.D., M.S. is the vice

president of ADS Lovelace and Associates in Baton Rouge, LA. He specializes in practice

transitions, appraisals, practice management, and associate placement in Louisiana and Mississippi. He is a member of both the Louisiana State Bar and U.S. Patent Bar. He may be reached at 225-927-8015 or PLovelace@gmail.com Gretchen Lovelace, MS, CFP, CPM is the

The best financial advice is to service all debt as quickly as possible. There are no “truth in lending” laws for business. When making business loans, lenders are

not obliged to explain the pitfalls of the loan to young dentists. It is the dentist’s responsibility to request the terms of any loan before he/she signs for the loan.

president and founder of ADS Lovelace and Associates, Inc. She has 30 years of practice

Beware of “lease purchase” agreements and pre-payment penalties for all loans. An amortization schedule of a loan shows

management experience and has been a guest lecturer at the LSU School of Dentistry for the past 18 years. She is a member of The Financial Planning Association, the Institute

the balance and interest paid to date for each payment of the loan. For a seven year loan, the amortization schedule will show your balance after each of the 84 payments. All companies should give you an amortization schedule when you borrow money or purchase equipment.

of Business Appraisers, a licensed realtor in LA and MS, notary, and a member of ADS. She may be reached at 225-927-8015 or

GretchenL@adstransitions.com.com

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