One of the joys of owning your own business is deciding what to do with the collections of that business.
Many years ago, while working in a Dental Office as an associate Dentist to the Principal, I had a patient remark to me:
“Dentistry is the last bastion of free enterprise”
And these words are even truer today than I believe they were back then, in 1984 or 1985. [I’m not sure exactly which year it was].
I’ve written previously about the suggested mix or percentage breakdown of what to do with collections, but in reality, as most dentists know, because Dental Offices are primarily owner occupied businesses, the Dentist is really free to do whatever he dang well wants with his collections.
And most of the time, that’s what he dang well does!!
Just this week I was discussing a Profit and Loss sheet [P&L] with a client, and it seems to me, just by the very nature of the layout of a P&L, that its format lends itself to an allocation of collections that is not in the best interests of the Owner Dentist.
Allow me to explain:
A traditional P&L for a business, any business, begins by listing a collections total and then proceeds to list an arrangement of various expenses and expenditure that summarily arrives at an amount at the bottom of the page of money left over.
Yes, the amount of profit that your business has generated.
And usually that’s the number that we as Owner Dentists look *BACK* upon, and wonder, after personal expenditure, where abouts all that profit actually went?
And that’s because, as owner operators, we can, because we can spend every long last penny any way we really want to simply because that’s exactly what we are entitled to do.
After all, it’s our business, and we own that business!!
Right or wrong, this is the way that Dental Offices have traditionally been run.
In my discussions with my client about his own personal P&L, I suggested to him that there was another way he might like to present his Profit and Loss figures that might be more appropriate in looking at the Dental Office as a business, first and foremost.
And my reasons for suggesting this view to him were simple:
While ever a Dental Office considers a traditional P&L a valid means of presenting data, there’ll always be a confusion as to what the true worth of the business is, because of the blending of what should be separated results into one homogenous figure on the bottom line.
Because in a traditional P&L, the bottom line is inclusive of:
- The dentist’s commission for being a provider of dental services to patients
- The dentist’s remuneration for his hours spent managing the non-treatment aspects of the Dental Office
- The outright profit that the Dental Office generates as a stand alone business as a dividend for its owner investors.
And although, in most cases these three components of the bottom line end up in the pockets of the Business Owner Dentist anyway, it’s an interesting exercise to look at the derivative of that healthy bottom line, and exactly where each dollar actually came from.
The major benefit of separating the bottom line is that it allows the Dental Office to remunerate the Dentist Owner firstly for providing the Dental Services.
It’s my suggestion that all Owner Dentists should pay themselves a Market Value percentage of fees collected, just as they would also pay an associate dentist.
In essence, a day’s work for a day’s pay.
There’s no reason an owner dentist should be leaving his own compensation to “what’s left over”.
Rather, the owner dentist should be drawing down on a weekly, or even daily basis, a commission for his work as a dentist, and physically transferring that money out of the business account and into his own private or family account.
With what remains in the bottom line, the Owner Dentist then needs to remunerate himself for his administrative duties of running the Dental Office, in the same way he would have to pay someone else to perform those duties, if he were absent from the Dental Office for any significant period of time.
Finally the bottom line needs to be respectful that it is indeed a dividend or reward to the owners of the Dental Office, because at the end of the day, so to speak, the Owners do have equity in the business and it is their duty to make sure that they are being compensated for tying up their money.
Otherwise they’d be better off investing that capital in another investment.
Because why else would you tie up that sort of capital?
In your right mind, as an investor, wouldn’t you be better with that money in another vehicle, making you a healthy return?
It is so important to look at the Dental Office as an investment and be remunerated as an investor.
But at the end of the day, if we choose to blow our dividends on whatever we feel like it, that’s our own choice too.
Because we can.
Not really wise to do that.
But heck? Who knows really how long we’ve got left?
With knowledge comes clarity. Hopefully….
The Ultimate Patient Experience is a simple to build complete Customer Service system in itself that I developed that allowed me to create an extraordinary dental office in an ordinary Sydney suburb. If you’d like to know more, ask me about my free special report.
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