Leverage Your Success

By Sam Martin, MBA (TAX), CFP, CPA

Leverage your success

In almost all cases, your practice represents the financial engine enabling you to achieve your long-term goals. Integrating your practice planning with your personal financial planning can create great leverage in your financial life. Further, recognizing just how dependent your personal financial goals are on your practice success can be highly instructive and motivational.

If you don’t already have a practice financial statement or report that is measured on a regular basis (2-4 times per year) against your goals, it‘s time to get one. If this seems daunting, it shouldn’t. Yes, it takes some time to set up the first report, but after that, not so much. Alternatively, if you are not already working with a dental CPA—consider it, as this is the very sort of planning that most dental CPAs seek to provide.

There are a variety of ways to compare your operating overhead; for example, a solid mature practice might just compare year-over-year. Another way to compare is to similar sized practices in your area. This of course requires access to a survey and can be used as shown on the chart to the right (chart 1).


This method of comparison shows where we are doing well compared to our peers and where we are spending more than our peers. In this example, the largest two potential problem areas are staffing and facility. Staffing we have some control over; however, generally we do not have much control over facility costs (rent, utilities, etc.). Further, it has been our experience that the vast majority of the time, when staff costs are higher than ideal, it is not overstaffing or overpaying, but rather a failure to hit the level of production and collections that justify the current staff configuration.

In our chart 1 example, rather than attempt to cut costs, it might be much wiser to focus attention on establishing new production/collections goals that will bring staff and facility costs into alignment. More on this later.

As part of a comprehensive financial plan, the quantification of major financial goals is a key component. The most common funding goals are retirement accumulation and children’s higher education. In addition, funding the payoff of current (and contemplated future) debts is also a common element. You may have additional funding goals—a vacation home perhaps (chart 2, below).

Chart 2 tells us that we are living on $173,000 per year after tax and also after funding $35,000 to retirement. Now, let’s dovetail this with our personal planning in chart 3.Web

Chart 3 (opposite page) is the result of determining current lifestyle and related needs and quantifying funding goals. We see our subjects have an annual deficit of over $46,000; an amount that seems daunting at first; but perhaps it isn’t.

If you were working with a typical financial planner, he or she may not be able to offer much help on the top line of the plan ($173,444 in this case). Your options might be to spend less, set lower sights for retirement income, save less for college, or work longer than planned. None of these options excite me much.

However, if you are capable of doing this sort of work yourself or if you work with a dental CPA and dental financial planner—you may have additional options.

We need $46,556 per year, or let’s say $4,000 per month after tax. With income taxes (you would need to add in your state income taxes if applicable), and ignoring FICA taxes (we assume use of an S Corporation to control FICA taxes), we assume the 33% income tax bracket—with stealth provisions, let’s figure 35%. Divide our target ($4,000) by .65 (1 – the marginal tax bracket) and we determine that we need to increase the bottom line by $6,200 per month.

If we practice an average of 15 days per month, then we need to increase net

production/collections by $413 per day. Let’s say your adjustments run 10% (just to pick a number) and again, using just about the only algebra I can recollect, we would divide $413 by .9 (1 – adjustment percentage) for a goal of increasing gross production by $460 per day.

Now, $46,556 is a somewhat daunting number, but I would hope that $460 per day is a number that you can easily get your mind wrapped around. We are talking two bite-sized procedures per day, or a small increase in our efficiency in making sure all appropriate films are taken when due, or taking a coding class that makes our billing more accurate. I can think of at least 10 things that most practices can do better and without a whole lot of effort—just better discipline and focus, that should obtain the results required and maybe a whole lot more, but that is a subject for another day.

Now, let’s look at our practice after implementing steps to increase collections by $413 per day [chart 1(b), below].

Assuming no change in overhead expenses (and that might not be entirely fair—but most likely overhead expenses would only increase modestly with a small increase in non-lab procedures), we not only accomplish our financial planning funding deficit—but we have also dropped our overhead percentages not only in line with, but slightly superior, to our peers.

Practice integrated planning provides another dimension to comprehensive financial planning. Dovetailing the practice and the personal financial plan provides you with tremendous ability to make better and more holistic financial decisions. This is not rocket science—if so, I would be out of a job. But it does require a little conscious effort to plan your future and optimize your practice—for profitability and quality of life. Write it down, it just may happen.

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