Evolving your business systems into 2023 and beyond—Part 1: Finances

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Dental consultant Chris Barrow is advising dental professionals to raise their treatment prices sooner rather than later in order to stay profitable in the current financial situation. (Image: Khakimullin Aleksandr/Shutterstock)

Thu. 1 December 2022


I am delighted to have been asked by Dental Tribune International to share my observations and thoughts about where we are heading over the next few years and how this affects the way that UK dental professionals run their dental businesses. There has never been a period of such disruption, not just in dentistry but for all of us—and it is against that backdrop that I want to help plan for a secure future. In this article series, I am going to review each of the five basic systems that dental professionals need to have in place and offer my guidance as to how best to prepare. This first part will focus on financial systems in dental practices.

Five basic systems

I am the proud owner of a signed 1999 edition of Michael Gerber’s The E-Myth Revisited—Why Most Small Businesses Fail and What To Do About It. Published four years earlier, The E-Myth Revisited remains a classic, whose message is as relevant today as when first penned and to which I refer all my new clients. Gerber was the first to describe the five basic systems necessary to operate all businesses, and I offer his definitions here with a dental spin to apply them to our landscape:

  1. financial systems (which I will discuss more in this article);
  2. lead generation systems (how we attract new patients and sell more to existing patients);
  3. lead conversion systems (how we enrol people as long-term patients and how we ethically explain and sell treatment to them);
  4. operational systems (how we run the business on a day-to-day basis and remain compliant);
  5. people systems (how we create, lead and manage teams and how we create a work environment in which people want to do their best).

These offer timeless wisdom that I have been interpreting on behalf of my clients in dentistry for a quarter century. However, little could have prepared any of us for the consequences that have unfolded since two unrelated events—Brexit and the COVID-19 pandemic—have changed the landscape in many ways and created dangers for the unwary.

So where are we now?

It would be easy to dwell on the bad news currently circulating in the marketplace; however, in setting the scene for this series, I want to present a balanced view—preferring to avoid doom and gloom as well as false optimism.

Twelve reasons to be miserable:

  1. the continued demise of NHS dentistry (the longest death scene in history);
  2. the recruitment crisis (nobody replies to our adverts);
  3. the retention crisis (my team members are leaving dentistry);
  4. the poaching crisis (my team members are leaving for better money in dentistry);
  5. the wages crisis (I am revising my 20-year-old key performance indicators [KPIs] on team wages from 17.5% to 25.0%);
  6. the pricing crisis (we need to put our prices up by 25% to stand still—how are we going to do that?)—more on that later;
  7. the EBITDA (earnings before interest, taxation, depreciation and amortisation) multiples crisis (the mergers of some of the largest dental groups in the UK, deflates multiples, as does the increased cost of borrowing—some have predicted a 25% reduction in goodwill values before year end);
  8. the exit crisis (more of my clients have their practices up for sale than at any time before—hardly surprising given what I have listed so far);
  9. the energy crisis;
  10. the inflation crisis (the Bank of England suggesting an inflation rate of up to 18%);
  11. the consumer confidence crisis (when all this bad news impacts patients and leads to treatment plans being delayed or not being taken up);
  12. yet another new prime minister and cabinet whose hands are going to be full.

These are enough to make an owner want to sell. I think we need some balance. Here is a list of what I see as the good news among all this doom and gloom.

Twelve reasons to be cheerful:

  1. Correctly utilised, the intra-oral scanner is the single greatest revolution in the delivery of oral health education and advice in a generation.
  2. Similarly, the intra-oral scanner is the single best treatment generator ever invented.
  3. The training of dental nurses registered with the General Dental Council (GDC) and of treatment coordinators in the use of intra-oral scanning allows greater use of the new technology to wow patients and frees up clinicians’ time to generate profitable revenue.
  4. The rise of dental deserts across the UK makes compulsory dental plan membership (and conversion) easier than at any time since 1996.
  5. Over the last six recessions (through which I have lived and worked), the sale of the very highest value and most complex dental treatment has remained robust—the more you focus on the dentistry that most dentists are either too scared or too unmotivated to invest in, the busier you will be.
  6. The effective collection of Google reviews puts automated search engine optimisation within the grasp of any practice and at no cost, thus eliminating the need for the smoke and mirrors of digital advertising.
  7. The GDC scope of practice for dental therapists opens up a whole new world in the provision of preventive maintenance on profitable terms and without the need for principals to be drowning in check-ups.
  8. The ability to grow therapist- and associate-led businesses frees the principal from the shackles of a performance-related earnout on sale.
  9. The effective and responsible use of social media generates new patients more cost-effectively than ever, resulting in decreased marketing costs.
  10. The more corporates and micro-corporates emerge amid the current recruitment and retention crisis, the more the trend towards salaried clinicians and the demise of the broken percentage/hourly rate model will continue, resulting in better profit margin management for owners.
  11. The more practices are gobbled up by corporates and micro-corporates, the less competition there is for independent owners, because corporate dental marketing is almost always poorly designed and executed.
  12. During the 2008 banking collapse, goodwill values dropped by 25% almost overnight—that lasted for 18 months before they were back and beyond their previous highest levels because there is no such thing as a crisis—there are only cycles.

So now you can decide: is your glass half-empty or half-full?

Nine steps to financial confidence

Against this backdrop, I intend to identify winning habits, trends and actions in this article series that are keeping my best clients at the top of their game, despite the challenges they are facing. This is a summary of the nine characteristics of dental practices whose financial systems are excellent and their owners thus confident:

  1. The owners understand their profit and loss statement, they are in receipt of updated management accounts every month (from cloud-based accountancy software) and set aside the time to review the numbers.
  2. KPIs are monitored monthly to spot trends and compare against industry benchmarks.
  3. Every year, a 12-month budget and cash flow forecast are created, and progress is monitored monthly.
  4. The average daily production of every fee earner is closely monitored and compared with industry benchmarks, and fee earners are held to account.
  5. The all-important operating cost per surgery per day becomes a key measure of the profitability of each treatment room.
  6. As a result of which, each fee earner has his or her own profitability measured on a rolling 90-day cycle.
  7. The owners fully understand EBITDA and adjusted EBITDA when it comes to an assessment of the goodwill value of their practice.
  8. The owners know the value of their goodwill and can plan their exit in a targeted manner.
  9. Prices are set accurately and reviewed regularly.

I believe pricing to be the most important of these nine steps in the current climate. I suggested to my clients in the fourth quarter of 2021 to increase their fee per item (FPI) prices by at least 20% in the first quarter of 2022. Like usual, 20% of them went ahead and 80% increased by lower amounts of 5%–15%. Without exception, all my clients reported that their patients did not bat an eyelid.

In the third quarter of 2022, I suggested to my clients to increase their FPI prices by another 20% in the fourth quarter. So far, very few of them—if any—seem to have taken the advice. My guess is that they fear the consequences, or—to put it in other words—they are fantasising about an exodus of patients and/or declined treatment plans. FEAR is Fantasy Expressed As Reality.

Let us set some context here:

  • Before any energy bills cap, energy bills are up 50%–60% this year so far.
  • We all know what is happening at petrol stations and on supermarket shelves.
  • I tried to book a standard-class one-way ticket from Stockport to Plymouth in September, and it cost over £400.
  • Last year, my wife flew premium economy from Manchester in the UK to New York in the US via Heathrow Airport for £750 return—the same journey this year will be £1,500.
  • My Amazon Prime subscription renewed last month, and it is 20% more compared with a year ago.
  • Supply chain delays are affecting every sector of the economy
  • The media are doing a fantastic marketing job for all of us now by highlighting the dental deserts I mentioned all over the UK.
  • The demand for high-value dentistry has historically been very robust in recessions (I am thinking especially of between 2008 and 2010), and the waiting lists for treatment are growing longer as scarcity creates demand.

I am certain that you will have similar examples of everything becoming more expensive, and as an aside, that is why your team members are either asking for more wages or looking around for better pay. To repeat, the KPI for wages has been 17.5% of sales for the last 25 years. I advise my clients that this will be at 25% by the first quarter of 2023 and is likely to stay there. That is 7.5% of your profits gone unless you do something about it. You have two options: first, increase the average daily production of all your fee earners, and second, increase your prices. These are not really options; you must do both and you must start now. Not doing so means less profit, and less profit does not just mean that—it also means less EBITDA in a market that now expects multiples for goodwill valuations to decline. In summary, if you are looking to grow, to sell, to keep your team together or to recruit new staff members—put your prices up.

I want to encourage you to take action, but I also want to remind you that there are four areas where you must be careful about price rises and (the good news) many more areas where you do not have to be.

The four areas of price sensitivity in dental services and products:

  1. the cost of a dental health review (check-up);
  2. the cost of a hygiene visit;
  3. the monthly cost of a dental membership plan; and
  4. your price for Invisalign.

The first three are sensitive to price because they are regular repeats and the fourth is because it is a globally commoditised product, and the public are savvy. In these four areas, you must exercise some caution, but what does caution mean? Up to 2021, caution meant keeping the rise to no more than 5% a year. In 2022, caution means a rise of no more than 10%–15% in my opinion.

For all the other treatment areas, I advise raising prices by 20%–25%. If you did not raise your prices in January, you will still be behind, but will have to catch up over the next 12 months. However, you do not need to wait until next year; nothing is going to become better or easier and more time of low profit helps nobody in your business. Have a look at your FPI price list within the next seven days, revise the prices and start as soon as possible. If there is a price list on your website, you can change it at the start of next month. There is no need to mail your patients unless you make changes to the first three points on my sensitivity list. Your financial ship is leaking profit as you read this article. Leadership requires action. Put your prices up.

In my next article, I will be looking at lead generation systems and the latest ideas on how best to attract new patients, how to sell more to existing patients and—dare I say it—how to avoid wasting money on advertising and marketing ideas that frequently just do not work.

Business Finances Inflation Practice management

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