Practice Management Midterm

Variance

planned - actual = variance

Accounts Receivable

- A/R - consist of money owed to your small business by others for goods or services rendered - these accounts are labeled as assets because they represent a legal obligation for the customer to pay you cash for their short-term debt

Cash Flow Projections

- Future business decisions will depend on your educated cash flow projections. To plan ahead for upcoming expenditures and working capital, you need to depend on previous cash flow patterns. These patterns will give you a comprehensive look at how and when you receive and spend your cash. This info is the key to unlock informed, accurate cash flow projections.

Variable rate

- In these loans, the interest rate changes depending on some agreed upon economic indicator. If the economic indicator rises, the loan's interest rate goes up. Conversely, if the indicator drops, the loan's rate decreases. This protects both the bank and the borrower (but especially the bank) from locking in unfavorable interest rates.

Dunning Messages

- Most offices place "dunning messages" on statements. A "dun" is a repeated or insistent request for payment. Computer programs allow you to place ever more insistent messages on statements, depending on the age of the account. - Accounts that are thirty days old receive a polite reminder for payment. - Accounts that are sixty days old receive a not so gentle reminder. These messages are somewhat effective for people who have simply forgotten to pay their bill. They are not effective for people who have intentionally not paid.

Principal

- The principal is the amount that you borrow - does not include interest

Competition Based Fee Setting

- The third major method that can be used to set dental fees is based on what the competition charges. This is the method that is traditionally used by dentists when they "casually discuss" fees. With the addition of third party payers, competition-based pricing becomes more complex. The basic problem with this system of fee determination is in verifying the source of information about other dentists' fees.

Collection Techniques

- The best way to collect and overdue account is to never let it become overdue. Communicating your policy to patients and staff helps to prevent patients not paying in a timely manner. If your efforts fail and an account becomes overdue, there are several methods of collecting, each with advantages and disadvantages. - Letters: Personalized letters are more effective than messages on monthly statements. With the use of in-office microcomputers, the receptionist can generate word processed letters personalized with the individual patient's personal information and payment history. - Phone calls: Telephone calls from the office staff are the most effective method of collection. Unfortunately, they are also the least enjoyable and least liked by the staff. They will find all sorts of other tasks to be done first, and many valid excuses for not having made collection calls. - There are several things to keep in mind when having yourstaff make collection calls. Have the staff person find an areaaway from the patients to make collection calls. Presentpatients waiting to make an appointment don't need to hear acollection call in progress. Be sure that you have accurate records and that the caller reviews the chart and account before contacting the patient. A collection call is worthless and destructive if the patient has sent payment as required, but the caller discovered this fact too late. Be truthful. Don't say you will do something if you won't do it. For example, if you say you will send an account to a collection agency if you do not receive payment by this Friday, then do it. Idle threats are illegal and unwise. Show concern and understanding for the patient. There are times when people lose jobs or have illness or other personal life difficulty. Arrange new payments if truly needed. Be persistent. It's an unpleasant job, but keep it up. If patients know that you will give up, they will expect it. Note any required follow-up on the financial record. For example, if payment is promised and not completed, call back on the day of promise. Let the patient know that you haven't forgotten. And finally, there are many laws that govern how you can conduct telephone collection calls (Fair Debt Collection Practices Act). These are described in the section on legal considerations. When you do make the collection call, most responses fall into one of three categories. The most commonly given excuses are: 1. It was an oversight. The most frequent response is "The check's in the mail." Often, in fact, the patient quickly writes a check and the payment comes in the mail in several days. If it doesn't, follow up immediately. 2. There is a temporary financial problem. This happens from seasonal jobs, illness or other reasons that limit cash flow. People often won't call to tell you that they are not making payment. They just don't make it. Work out a new payment schedule, if required. 3. The patient is unwilling to pay. Often this is because they are dissatisfied with the work you have done. At this point, you should try to satisfy the patient by making the work right. You can then continue to press for payment or you can back off. The decision rests on how sure you are that the work is proper, and how willing you are to face a potential malpractice suit. (The single largest cause of malpractice claims is continued collection effort.) Some states have one year statute of limitations. This means that the patient has one year, from the date of discovery of a problem, to initiate a lawsuit. If you wait 366 days to initiate aggressive collection efforts in these states, you should be safe. Check with your lawyer to find the statute of limitations in your state.

Credit Bureau

- a business that gathers, stores, and sells credit information to other businesses

Budget

- a statement of how you have spent money in the past, how you how you plan to spend money in the future - a target for day-to-day financial living - can help coordinate savings and improve living standards and identify areas of waste - they are based on historical evidence

Cash Flow

- amount of operating cash that "flows" through the business and affects the business's liquidity - cash flow reports reflect activity for a specified period of time, usually one accounting period or one month - maintaining tight control of cash flow is especially important if your small business is new, since ready cash can be limited until the business begins to grow and produce more working capital

Credit Policy

- determines who must pay for services at the time of service, and who will receive credit from your office

Amortization Schedule

- shows installments, and the amounts that they allocate to principal and interest within each payment

Lien Holder

- the company or individual that holds a security interest in collateral to ensure a contract repayment

Benefits of Dentistry

1. Relief of pain 2. Gain a pretty smile 3. Prevent inconvenience & pain 4. Improve function 5. Maintain health

Signature Loan

- A "signature loan" is guaranteed only by your signature, guaranteeing to repay the loan. It is obviously in your best interest to repay so that you can borrow again with an unblemished credit history. The banker can still take you to court to satisfy an unsecured loan, but if you have no assets (or have lost them all), the bank probably could not collect. You may use signature loans to pay tax bills or other short term obligations, if you are short of immediate cash.

Bank Note

- A bank note is the normal type of credit extended to professionals for business purposes. Bank notes are generally based upon compound interest and amortized as in other compounded loans.

Intangible Asset

- A business asset that is non-physical is considered intangible. These assets can be items like patents, goodwill, and intellectual property.

Cosigner

- A cosigner can secure a loan by pledging specific assets (for example their house, stocks or bonds) or may take on general obligation, by signing and personally guaranteeing that you will pay the loan. (The banker will obviously investigate the cosigner carefully before doing this!) Young professionals may not qualify to borrow money by themselves, but may gain financing if a parent or other relative cosigns the loan, often pledging specific assets. If the loan payment goes as planned, the cosigner has no cost from cosigning the loan. On the other hand, in the primary borrower defaults on the loan, the bank can (and generally will) institute legal proceeding to ensure payment from the cosigner.

Lien

- A creditor's legal claim to the collateral pledged as security for a loan is called a lien.

Liabilities

- A liability is legal obligation to repay or otherwise settle a debt. Liabilities are considered either current (payable within one year or less) or long-term (payable after one year) and are listed on a business's balance sheet. A business's accounts payable, wages, taxes, and accrued expenses are all considered liabilities.

Cash

- A patient may make a payment in cash. Cash is actually a problem in the office. It is difficult to track, and therefore easy to steal. In the unlikely event of a robbery, cash can be easily spent, checks and credit card slips can't. If you often have patients who pay with cash, you must have extra cash on hand to make change. You know that cash won't "bounce" like a personal check might, but you also must be very careful to accurately account for all cash in the office.

Professional relations

- Professional Relations is the second important part of your external marketing effort. You need to let other professionals in the area know where you are and what you can do for them regarding patient referrals. This usually takes the form of announcements to physicians and other area dentists when you open your practice. Be sure to join local study clubs to learn and share special procedures. Agree to take emergency "call" for local established dentists, being sure that their patients return to the dentist of record for follow-up treatment. Specialists appreciate referrals from generalists and often refer different patients to the generalist. Don't be afraid to get on the phone and ask for help if you run into a particularly difficult problem. If you refer regularly, the specialist will usually be glad to help you out. Many dentists give a bonus to their own staff who refer patients and send gifts to the staff of their referring dentists.

Public relations

- Public Relations often involves speaking to groups. It is important that you identify who you will be speaking to and what you want the outcome to be. Is your desired outcome a better educated group? Or do you want to generate three patient referrals from the presentation? Depending on your desired outcome, your talk will have a different orientation. Public relations efforts often involve brochures ornewsletters. You may write these yourself, or you canpurchase them already written (prefabricated or off theshelf). (As a word of caution, making your ownnewsletter involves a significant amount of time thatmight be spent more productively doing other tasks.)You can purchase prefabricated newsletters from manydental form and stationery companies. You can then have your name printed on them to customize the look

Social Media

- Social media can generate patients for the practice. However, it comes with a cost. You will need to keep all social media information up to date. That can take a considerable amount of time. Be sure to not include patient photos or other information without their consent. Be very careful of what you post. What is OK for a personal site may give the wrong impression on a professional site. For all of these reasons, many professionals have very limited (or no) social media contacts for their practice.

Installments

- A typical loan is paid off, or amortized, over time in a series of regular, equal payments, called installments - an amortization schedule shows these installments, and the amounts that they allocate to principal and interest within each payment - during the initial payment portion of the loan, most of the payment satisfies the interest needs rather than principal - as the borrower moves through the lifetime of the loan, they apply a higher proportion of the payment to the principal

Statement of Financial Position

- AKA BalanceSheet - shows what you own (assets) and what you owe(liabilities) at a specific point in time - "snapshot" of your financial position at a specific time - bankers and financial planners like to examine changes in your Balance Sheet to learn how well you are doing financially. (Your total Net Worth should be growing.) - Along with three other reports relating to the financial health of your small business, the balance sheet is essential information that gives a "snapshot" of the company's net worth at any given time. The report is a summary of the business assets and liabilities SFPB = spring for peanut putter

Interest Rate

- All loans and other lending instruments are assigned interest rates. This is a percentage of the principal amount charged by the lender for the use of its money. Interest rates represent the current cost of borrowing.

Financial Statements

- An integral part of the loan application process is furnishing information that shows your business is a good credit risk. The standard financial statement packet includes four main reports: the income statement, the balance sheet, the statement of cash flow, and the statement of shareholder's equity, if you have shareholders. - Lenders and investors want to see that your business is well-balanced with assets and liabilities, has positive cash flow, and will have capital to make expected repayments.

Fixed rate

- An interest rate might be a fixed rate. This means that the percentage charged during the loan will remain fixed, throughout the loan. If the borrower negotiates the loan for 6%, then 6% it will remain. Lenders have often lost money by charging fixed rates for their loans. For example, if your loan is at 4% fixed and the inflation rate climbs to 8% per year, the bank is losing money by lending it. If they could, instead, offer that loan to someone else, they would now get 8%, or twice the interest they are presently charging. - The fixed rate loans usually carry a higher nominal interest rate, to protect the lender from the possibility of rising rates. You need to consider all the loan factors, not just the interest rates, if the bank offers a choice of fixed or variable rate loans.

Collateral

- Any asset that you pledge as security for a loan instrument is called collateral. Lenders often require collateral as a way to make sure they won't lose money if your business defaults on the loan. When you pledge an asset for collateral, it becomes subject to seizure by the lender if you fail to meet the requirements of the loan documents.

Assets

- Anything that has value—whether tangible or intangible—and is owned by the business is considered an asset Examples: - cash on hand - accounts receivable - buildings - equipment - inventory - and anything else that can be turned into cash

Payment Plan

- As previously stated, you can offer patients credit for unpaid balances, and require restrictions as a condition of offering credit. Your office plan should detail this by amount of credit extended, payment expectations, interest charged and type of service. This arrangement should be written, not verbal. - Good dental office management software allows you to set up various payment plans for patients. Most will also print out a set of payment coupons for you to give the patient as a reminder of the payment due. They also have Truth-in-Lending forms, interest calculators and other requirements if you charge interest.

Private Banking

- At larger banks, most professionals work with a special internal group called "private banking." The private banking section manages small business and other special banking concerns. Large banks may have people within their private banking group that manage only professional (or even only dental) practice loans. These people are very knowledgeable about practice financing issues. You will generally need to establish all of your professional (and often personal) bank accounts within the private banking section. However, itworks well, since the banker will know you personally. Small banks often don't have private banking sections. Instead, you may need to educate the banker about the specific problems faced by dental practices.

Branding

- Branding is an internal function with large external implications. Your brand is the image of your product in the marketplace. It is how you are perceived by consumers to be different from other similar providers in the area. Their information and expectations about their dental experience should be the same as their actual experience. If so, you will be seen as both relevant to solving their problem and unique in that ability. Branding involves all of the intangibles that drive consumer perception of your business. These include your logo, stationery, advertising, office décor and ambience, staff training and attire, and web site. These shouldallbeconsistentandofferconsistentmessagesaboutthevalueoftheserviceyouprovide. Ifyou are able to establish a strong brand image, then you have more freedom in pricing and other management decisions that lead to increased profitability.

Credit Unions

- Credit unions are similar to banks and savings and loans, except they serve a specific clientele (teachers, public employees, dental association members). Their loans are usually for smaller personal purchases (autos, boats etc.), rather than for business purposes. Credit unions often offer better interest rates than traditional bank loans.

Apparent Fee

- Dental consumers are concerned with the apparent, or out of pocket, fee for a service. A third party payer decreases the patient's out of pocket expense. If a patient has dental insurance that reimburses 50% of a procedure that costs $800, the apparent cost to the patient is $400. Patients are not particularly sensitive to the price of dental services, but they are sensitive to payment options and other forms of credit. (See the chapter on Credit and Collection Policies.) A patient will balk at an $8,000 treatment plan the same as at a $9,000 treatment plan. Using the same principle as automobile leasing, if you can make the monthly payments affordable, the cash flow price for the consumer becomes tolerable. Dental consumers are also more concerned with and knowledgeable of frequently "bought" procedures. Many patients know when you raise the prices of a "Recall" exam by $1, but are oblivious to a $25 increase in the price of a crown.

Information for patients

- Dental patients want information to make health care decisions. They want information both about dental issues and general health concerns, so many dentists provide brochures about these topics. (For example, "What is a root canal?" or "How can I stop smoking?") Many also have video / DVD presentation about dental care topics that they can show to patients. This helps in educating patients about complex procedures, helps in the informed consent conversation, and decreases the time that the dentist spends in direct patient conversation. People who use dental services preventively usually have a preventive health lifestyle that shows as other healthy lifestyle habits and procedures. They also exercise more, smoke less, eat healthier foods, and use seatbelts more than those who don't use dental services preventively. This preventive lifestyle group especially values health information. They appreciate and recommend you because of it.

Direct mail

- Direct mailings can reach potential patients in an inexpensive way. These can be targeting to the ZIP codes or areas near the office or other target groups. You can purchase brochures and mailing packages from marketing firms or develop your own. Direct mailings are especially effective for a "blue collar" or working- class neighborhood, especially when they include a coupon or other saving enticement. If you use these direct mailings, use them for at least three to four months to imprint your name on the minds of those who receive the mailings. Another form of direct mailing is to send current patients of the practice newsletters or other information about the practice. When you purchase a practice, the outgoing practitioner often has a bank of patients that have not been active (seen in the practice) for one to several years. Sending a letter to these people is a very cost-effective way to generate additional patients for the practice.

Value of a new patient

- Each new patient is worth a certain dollar value to the practice. That value is the average amount of dentistry that you perform on new patients = (total collections for dentistry done on all new patients)/(total number of new patients) - that dollar value is compared to the average amount spent on marketing per new patient - if the dollar value of the patient is higher than the amount spent to generate the patient, the marketing program was worth while. If not, it wasn't - cost of performing the dentistry should also be allocated to the new patient to determine profitability - The issue here is if there are "slack resources" or empty chair time - If you have NO slack resources (your chairs are all completely booked): then all of the costs of the office should be divided and allocated to all patients - If there IS empty chair time: cost of seeing an additional patient is only the variable costs associated with production (dental supplies, dental lab and office supplies). The rent and utilities have already been paid, staff have been paid (they are sitting around filing their nails), and you are doing the crossword puzzle in the morning newspaper. Your only costs for seeing another patient are small - the additional costs associated with lab and material for doing the dentistry.

Small Claims Court

- Every county has a Small Claims Court. The purpose of these courts is to adjudicate civil claims that are of relatively low value (generally $1,500 or less). The court is informal. There is some initial basic paperwork that needs to be completed. Anyone can sue or defend themselves, or you can bring an attorney. No juries are used by Small Claims Court. A judge listens to both sides of the story, views evidence brought by the parties, and renders a decision. Some dentists use Small Claims Court to try to collect money that patients fail to pay. If you have evidence that the service was rendered appropriately and that the patient owes the bill, you will probably receive a judgement in your favor. However, you may also not get paid then. A judgement is a legally enforceable court order, but you are still responsible for collecting your money (which is why you are there in the first place). You may need to return to court to get a garnishment of the patient's wages (if they are employed) or an attachment of personal property. Post-judgement collections can be difficult, time consuming and tricky. You might even need an attorney to collect your judgement. Some dentists swear by Small Claims Court. Others find that their time is better spent in the office doing dentistry or on the golf course relaxing. You can send staff in your place to present your case in court, but you then have the added expense of the staff salary, with still no guarantee of collection.

Recourse

- Fair Credit Billing Act allows a consumer to withhold payment on any damaged or poor quality goods or services purchased with a credit card, if they have tried to solve the problem with the merchant - if a patient is dissatisfied with your service that they purchased with a credit card, they can withhold payment to the issuing bank for that service - After investigation and attempted resolution, the bank has the authority to debit your account the amount in dispute. (This is the patient's recourse.) - doesn't happen often, but is a possibility

Market Penetration

- Fees may be set at a low level to attract new customers or "penetrate" into a new market - low price will lure initial buyers who will then remain as patients - often used for such services as initial exams, cleanings, economy dentures, or even orthodontics. - once a patient load is established, the retailer may adjust fees upward to approximate those of other dentists in the area - especially effective for cost conscious dental consumers. These groups include families with lower discretionary income and poorer insurance policies - much less effective for consumers for whom cost is not a significant decision factor. - may be used by groups who are competing based upon price and are willing to accept low profits to build a presence in a particular market

Practice Profitability --> The greatest part of a dental practice's costs is ___ (variable or fixed)

- Fixed! - Once this fixed cost component has been met, then additional revenue becomes almost pure profit

Third Party payers

- Insurance and managed care companies --> may write you a check to reimburse the cost of care for a patient --> insurance portion decreases the patient's portion, but you need to be certain the amount both the insurer and patient are due to pay Traditional = indemnity type dental insurance: - contract between the patient and the insurer -dentist has no legal responsibility in the contract, although most practitioners help patients by completing insurance forms and often allowing the benefits (payments) to be assigned or paid directly to the dentist - If you agree to accept the assignment of benefits (i.e., have the insurance check sent directly to you) you speed your cash flow, but have more complex record keeping. If you do not accept assignment of benefits, then the patient must pay the entire amount and get reimbursed from the insurance company. The problem comes when you offer the patient a payment plan, then they spend their insurance reimbursement check on something else (a big screen HD television) and do not have enough to pay you. They can then become a collection problem. - You must decide if you require patients to pay their portion of the fee at time of service, or if you will wait for the insurance to "clear" and then charge the patient the difference. The first method speeds cash flow, but you need to be involved in the insurance process so that you accurately determine the estimated insurance benefit, and, therefore, the patient's portion. The second method slows cash flow, as you wait for the insurance to process your claim before billing the patient, but is more accurate, as there are no under or overpayments to worry about. You must also decide if a patient's account is current if you are waiting for insurance payment. Managed care: - contract does involve the dentist and there are legal obligations for the dentist to fulfill - require you to offer discounts to their members as a condition of being a provider - if you offer any of these discounts, it is a good idea to require payment in full at the time of service for the patient's portion. After all, you have already reduced your return by offering the discount. To require the remainder to be paid in full is both reasonable and appropriate. Handling managed care plans is an important and complex function that has become a constant office function.

Interest

- Interest is money that the lender charges the borrower to borrow its money. Interest is usually expressed as a percentage, which represents the annual rate of borrowing. Every payment made to pay off a loan has a portion allocated to the principal and a portion allocated to interest payment. Higher interest rates result in larger regular payments, all other factors being the same. Interest rates are typically quoted on an annual basis. If your payment is monthly, then divide this rate by twelve to determine the monthly interest amount. For example, a 12% per annum loan is 1% per month. When compounded monthly, the rate is actually closer to 13% per year.

Internal marketing

- Internal efforts focus the attention on the existing patients of the practice - Internal marketing efforts are thosethat dentists have traditionally called"professionalism." These efforts caterto the existing patients, with the hope that they will stay with the practice and bring in additional new patients. - Existing patients - Current patients of record - Traditional "Professional" - Existing office resources - Less costly Top Internal Marketing Strategies: - Keep an ACTIVE recall (recare) system - Telephone patients to reactivate inactive or previously presented treatment plans - Ask for and reward patient referrals - Telephone patients after surgery / major procedures - Conduct a patient survey (current and former patients) - Use a telephone "on hold" message - Increase information to patients (printed / video)

Loan Committee

- Large banks may have people within their private banking group that manage only professional (or even only dental) practice loans. These people are very knowledgeable about practice financing issues. You will generally need to establish all of your professional (and often personal) bank accounts within the private banking section. However, it works well, since the banker will know you personally.

Unsecured Loans

- Loans that are not backed by collateral are called unsecured loans. These types of loans represent a higher risk for the lender, so you can expect to pay higher interest rates and have shorter repayment time frames. Credit cards are an excellent example of unsecured loans that are a good option for small business funding when combined with other financing options.

Discounts

- Many practitioners offer cash discounts, as marketing plan or payment incentive (patients make a cash payment ahead of service and get a 3% to 10% discount) - speeds collections and cash flowing through the practice - saves you money through decreased billing costs - Marketing discounts = encourage patients to come to your office - 10% senior citizen discount to those seniors who pay cash (or check) in full at the time a service is initiated. - professional courtesies such as physicians, optometrists, etc. --> "You scratch my back, I'll scratch yours"

Owner Financing

- Many professional practices are transferred with some portion of the cost being financed by the previous owner. If the bank is unwilling to lend the entire amount, then the owner may need to finance the remainder of the purchase price. They do this by allowing you to pay part of the price over time to the owner, rather than the lending institution. Owner financing carries additional risk for the owner over simply getting the entire purchase price as cash up front. If you run the practice into the ground, or become disabled, or die or are unable, for any other reason, to pay off your loan, the owner may not receive the entire purchase price. Generally, the bank will require a "first lien" position on all tangible (hard) assets of the practice, which means that they get to sell the assets to satisfy their loan. So the owner may be left holding an empty bag. This may be the only way that the owner can sell the practice for the price that they want. If so, then expect to pay the owner a reasonable interest (comparable to a bank rate) for the portion that they finance.

Repetition

- Marketing means repetition. Dentists, who are used to the scientific method, believe that if something works once, then it will work always for all similar circumstances. When sending your message to people, you have to tell them over and over again. People hear your message when they are ready to listen, not simply when you are ready to tell them. Someone may drive past your office every working day for five years, but it is only when they decide they need to find a dentist will they notice your sign. For the same reason, Proctor and Gamble constantly advertises Tide laundry soap, so that when you are ready to buy laundry soap, you will think "Tide." This "top of the mind awareness" means that you may not see an effect of your marketing efforts in the first week, month or even several months. Repetition is required of even a good marketing message. While this appears to increase the cost of the marketing effort, it also increases its effectiveness and therefore its value.

Media (Radio/TV)

- Media Use is the most frequently thought of external marketing effort. Advertising is intended to keep you on the top of the public's mind for the time that they do need a dentist. If you use radio, TV, or magazine advertisements, you should use a media or advertising consulting firm that will help to develop ads and place them in appropriate media slots. The cost of poor or misplaced ads is very high. Many chain or franchise operations find that they can use the mass media more effectively than an individual practitioner, since each of the locations receives the benefit of a media advertisement.

Payment Plan Policy

- Most dental offices have different payment plans depending upon the amount of service billed. For example, you may require payment at the time of service for any amount (including co-payments) under $100. Amounts under $1,000 may be paid over 3 months (with a defined payment time and amount). Any amounts over $1,000 must be financed through a third party bank financing plan. In addition, you might require a minimum portion (e.g., 50%) as a down payment before starting the procedure. - As previously stated, you can offer patients credit for unpaid balances, and require restrictions as a condition of offering credit. Your office plan should detail this by amount of credit extended, payment expectations, interest charged and type of service. This arrangement should be written, not verbal. Good dental office management software allows you to set up various payment plans for patients. Most will also print out a set of payment coupons for you to give the patient as a reminder of the payment due. They also have Truth-in-Lending forms, interest calculators and other requirements if you charge interest.

Consumer/Patient Fee Sensitivity

- Most people shop for certain goods based solely on price. This is the basis of selling many commodity type goods, such as generic soap, paper products, or dental amalgam. Some people also buy dental services solely based on the professional fee. The patient who calls the dental office and asks about the price of an extraction or denture is "shopping" for services, and will buy primarily based on price. Some dentists are very concerned about attracting these people, and desire to use a low fee or penetration fee strategy to make them "regular customers." You should be aware that people who shop on price are often looking for specific, not comprehensive, dental care. Therefore, they may not represent a large potential source of income. Since the patient originally was "won" on price, he can just as easily be "lost" because of price. If he finds a dentist who will do dental services more cheaply, he may leave the practice and patronize the new dentist. Therefore, the use of a low fee strategy often does not result in the establishment of a stable patient pool for the dental practice. It may, however, generate an initial patient pool that can be used as a referral base. Additionally, some of those people who were initially won by price can be converted to buy dental services based on factors other than price. While not a frequent occurrence, they may become loyal patients.

Signage

- Office visibility is crucial for your success. The public needs to know that you exist and where you practice. Where you locate your office is very important in this regard. The most visible location is on a busy arterial feeder street where thousands of cars pass every day. If you have a visible sign on such a busy road, your location will be known by thousands of people a day. Keep the sign simple. The " 40 - 40 rule" says that a person should be able to read your sign from 40 yards away at 40 miles per hour as they drive past. This does not mean that they will all come to see you, but when they decide to see a dentist, you will be one of the group of dentists that they consider. You should "cut through the clutter" of other signs in the area. If all businesses have 20 foot wide neon signs, your one foot black and white sign simply won't be seen. Internal lighting makes it viewable at night. If you locate your office in a site that is not easily visible, then you will need other forms of marketing to make up for the problem location.

Market Skimming

- Skim pricing occurs when a business prices goods or services so high that only a few consumers can afford them. In the automotive world, Porsche and Bentley autos are sold on this basis. Dental practices that make large profits from a few patients by charging high fees employ skim pricing. A paradoxical value of high fees is that consumers may use them as an indicator of quality. A patient who perceives the quality of dental care as high is not as concerned about the cost of that care. For these patients, treatment decisions are based on non-fee considerations, such as aesthetics, image, treatment outcome, or personal interaction with the dentist and office staff. Often then, high fees paradoxically may lead to higher patient satisfaction. Market skimming has limitations for use in a dental practice. The number of patients who will buy dental services without regard to the price is not large. Only a few practices in an area can use this skim pricing. Each of those practices must offer something unique for which the patient is willing to pay a premium price. A practitioner must be sure to differentiate themselves from other dentists in the area. In that way, a patient who becomes dissatisfied with the fee will be less likely to leave, since they have no (or few) other substitute or comparable providers. Patients with dental insurance may question a procedure fee when their insurance carrier notifies them that the charged fee exceeds the carrier's UCR (Usual, Customary, and Reasonable) fee schedule. When other practices in the area discover these higher fees, they may provide similar services, market the service similarly and charge fees similar to the practice that originally adopted a market skimming strategy.

Interest Only Payments

- Some loans require interest only payments for a certain period. Bankers often offer this to professionals and other new business owners. The bankers realize that it may take several months to get the business (or practice) up and running, producing enough cash to pay the bills and the start-up loan. To solve this problem, you can probably negotiate to pay the interest portion of the normal payment for the first several months to a year. You still eventually pay the entire principal, but put it off until you are, hopefully, better able to afford the cash flow needed for the entire payment.

Account Aging

- The Account Aging Report from the office computer system gives a listing of all the patient accounts that owe you money, categorized by the time since the last payment (i.e., an "aged" account report). Your front office staff should use this report to make follow-up telephone calls and letters to patients who are late in their payments. Often the "30 day" accounts are waiting for insurance to clear before making the final payment. The 30 to 60 day accounts are the ones that your staff should aggressively pursue so that they do not become older, harder to collect accounts.

Consumer Price Index (CPI)

- The CPI (Consumer Price Index ) can be used along with estimates of disposable income as indicators of how much change in demand there may be in response to dental fee adjustments. If the CPI is increasing, then the public is generally aware of higher prices and will accept increases in dental fees as a matter of course. If, on the other hand, prices (i.e., the CPI) are stable, then the public expects slight (or only moderate) increases in dental fees. Whether or not people can pay these higher fees will be influenced more by their disposable incomes than the CPI. If income is going up faster than prices, people will have more money to spend on discretionary or optional services, such as routine dental care. They will be less sensitive to increases in fees. If the price index is rising faster than incomes, then people will have less money to spend on such services and will be much more sensitive to increases in dental fees.

Collection Agency

- The most common method that dentists use for pursuing overdue accounts is a collection agency. A collection agency really can't do anything to collect an account that you can't do in your office. They should not be a major source of income, if you and your staff are doing your jobs correctly. They do know the system and have access to credit reports that you may not. Collection agencies take a percentage (generally about 50%) of the amount they collect from patients as their fee. (Some also have annual membership or retainer fees.) Therefore, it is not worth much of their time to work a $50 account. They usually spend time with larger accounts so that their return is better. You have the satisfaction of knowing that the delinquent patient knows they are subject to a collection action. The collection agency should put a notice in the delinquent patient's credit report, so the next time they try to buy something on credit, theywill at least have a problem. In selecting a collection agency, be sure that they have the proper credentials, that it is licensed and bonded in your state. Ask for a list of dentists and other health professionals in your area who use their service. Contact several of them to see if they are satisfied with the results. Have the agent tell you the exact sequence or steps that they use when attempting to collect. Find out what they do with accounts that don't pay. Poorly handled collection efforts reflect badly on your practice. They may result in angry patients and even lawsuits if accounts are handled inappropriately.

Bates and O'Steen vs Arizona

- The rise of consumerism and a revised legal and ethical climate in the profession have increased marketing in dentistry. In years past, the profession, the ADA Code of Ethics and many state dental practice acts described advertising to be an unethical and illegal act. In 1977, a court decision (Bates and O'Steen vs. Arizona) effectively ended professional prohibitions against advertising. This case stated that a professional must be allowed to advertise the services that they provide, as long as the advertisements were not false or misleading. Simultaneously, consumerism was beginning as an underlying trend in America. This trend advocates for more information for consumers to use while making informed decisions. According to this tenet, a consumer should differentiate among dentists. Dentists must be able to tell the public how they are different from others. Some professionals have a problem with this notion. The public agrees with it.

Performance

- The single most important trait of a dentist (according to public opinion surveys) is quality of care delivered. Quality care is the basis of the "product" that you provide. Quality dentistry is necessary for a successful practice. But quality dentistry alone is insufficient to guarantee a successful practice. Your performance of the technical side of dentistry is an assumed trait by the public. If you violate that assumption, the patient will be dissatisfied and probably leave your practice. It is not even your actual performance that the patient judges, but rather the patient's perception of the performance compared to the patient expectation of your performance. Patient expectations then become crucial to their satisfaction. If the patient's expectations were not met, they will be dissatisfied with the service, even if their expectations wereunrealistic in the first place. (To their mind,they were realistic!) Even if you do the mosttechnically perfect procedure, if the patientdoesn't like it (or the way it was delivered),they will be dissatisfied. If you buildpatients' expectations with slogans such as"special care," "painless," "low fees," or"cowards welcome," then you better deliverwhat you promise. The worst thing you cando is to gain someone's trust to come toyour office, and then not deliver promised services. Other examples of influencing patients' expectations include promptness, pain control, availability, and amount of health information provided.

Net Worth

- This is an expression of your business's total value, as determined by your total current assets minus the total liabilities currently owed by the business Assets - Liabilities = Net Worth

In-house Collections

- Typical dental practices show about 1/3 of their collections in payments at the time of service, 1/3 received from insurance and other third parties, and 1/3 from accounts receivable from patients - the BEST method to collect money owed to you is to collect it at the time of service --> don't worry about sending a bill, uncollectible amounts or accounts receivable --> patients are free of worrying about paying later - many dentists are reluctant to have their staff ask for payment

Payment Schedules

- When a loan is decided, there will be a schedule to make the payments. These payment schedules take any of several basic forms. There are, of course, hybrids and combinations of the basic forms. As a rule, borrowers must make monthly payments, unless specifically negotiated otherwise. If you make additional payments (or payments that are larger than required by your loan contract), the extra amount should go toward the reducing the principal. Make certain in your negotiation that this is the case.

Account Guarantor

- When starting a new small business, lenders might want you to provide a guarantor. This is an individual who guarantees to cover the balance owed on a debt if you or your business cannot meet the repayment obligation.

Interest on Unpaid Amounts

- You are allowed to charge interest for any unpaid amounts. If you do charge interest, you must be sure to meet the Truth-in-Lending Laws. These laws state that you must make complete disclosure of all financing costs to the borrower, you must calculate the annual percentage rate, and the borrower must sign a statement containing this information. You need a computer system and software designed for this task. Fortunately, most of the major dental management software contains this option. Many dentists find it easier to charge a nominal "billing charge" (such as $5 per month) to all accounts that have aged more than 60 or 90 days. This monthly charge is not intended to make you money, but rather to induce patients to pay. Since there is no interest charged, you are free of the Truth-in-Lending Law requirements.

Truth-in-Lending Laws

- You are allowed to charge interest for any unpaid amounts. If you do charge interest, you must be sure to meet the Truth-in-Lending Laws. These laws state that you must make complete disclosure of all financing costs to the borrower, you must calculate the annual percentage rate, and the borrower must sign a statement containing this information. You need a computer system and software designed for this task. Fortunately, most of the major dental management software contains this option. Many dentists find it easier to charge a nominal "billing charge" (such as $5 per month) to all accounts that have aged more than 60 or 90 days. This monthly charge is not intended to make you money, but rather to induce patients to pay. Since there is no interest charged, you are free of the Truth-in-Lending Law requirements.

Credit Check

- You can require a credit check as a condition of offering a person credit. If you are a member of a credit bureau, you can order the FICO, or credit rating score, on an individual. (You use their Social Security Number and receive a FICO score that ranges from 400 - 800. The higher the score, the better is the person's payment history for previous loans.) You can set any credit rating limit you are willing to accept - You can legally make a credit check (order a credit report) on any patient who makes a financial commitment to you. In practice, this is expensive and impractical for all but truly large amounts. What is a "large" amount? That is up to you to decide. $1,000 for one doctor may be appropriate; another won't bother with amounts under $10,000. You can join a Credit Bureau. The cost is several hundred dollars per year. Additionally, Individual credit histories cost about $35 each. The report doesn't give you a "yes / no" reply, but rather describes the person's history of payments on credit cards, loans and mortgages. It's up to you to interpret that information and decide if you want to extend credit. To run a credit check on someone, you must have their social security number. If they won't give it to you, you can refuse to offer credit.

Delinquent Accounts

- You define when an account becomes "overdue." - Many practices use 120 days, others 180 and some 90 days. - older the account = the more it costs you and the lower chance of collecting the account at all - value of these accounts decreases significantly as they age - two purposes in collecting delinquent accounts --> get the money owed to you--> retain the patronage and goodwill of the patient. That patient may have future work to be done, they may refer patients to the practice, or they may have friends or family members who are patients of the practice. If you are too aggressive, you risk angry or embarrassed patients, counter claims, suits, malpractice suits and adverse publicity - be SURE your work is above reproach before aggressively pursuing a delinquent account

Banks

- Your local bank is the most common source of funds for new practice loans. Bankers are in the business of lending money to people that they think will repay it. So you will need to convince the banker that you will repay the loan. You may need to develop cash flow projections and other financial models to show the banker that you understand your business. You may also need to develop a complete Business Plan for your banker. These are not simply hoops to jump through. Your banker must take your loan application to the bank's loan committee, a group of senior executives, to gain approval. Since your banker must speak for you at this meeting, give them as much "ammunition" as you can. Listen to your banker. Maybe the banker doesn't understand professional practices or your particular arrangement. More than likely, they do. If they do not believe that you can finance a practice at a given price and make it work, seriously reconsider your potential arrangement.

Credit Cards

- a bank establishes a deposit account in your name, often the bank in which you have your office checking account - bank then deposits any charges that patients make to that account. --> withdraw money from that account whenever - speed cash flow - encourage patient payment - bank retains approximately 4% of the amount charged - in the long run, probably saves you money if you send these people bills at the end of the month RECOURSE - Fair Credit Billing Act allows a consumer to withhold payment on any damaged or poor quality goods or services purchased with a credit card, if they have tried to solve the problem with the merchant - if a patient is dissatisfied with your service that they purchased with a credit card, they can withhold payment to the issuing bank for that service - After investigation and attempted resolution, the bank has the authority to debit your account the amount in dispute. (This is the patient's recourse.) - doesn't happen often, but is a possibility

Operating Statement

- a financial statement that gives operating results for a specific period - same as: earnings report, income statement, profit-and-loss statement

Amortization

- a loan being paid off over time in a series of regular, equal payments (installments) - an amortization schedule shows these installments, and the amounts that they allocate to principal and interest within each payment

Mortgage

- a loan secured by a large fixed asset

Statements

- a printed report sent to the patient that details the status of their financial account. Computerized accounting systems allow you to customize the process, choosing who to send statements, when to send them, add special messages and account charges. Often the program will allow any of several types of statements, depending on how you want the statement to look. You should be sure that your statement contains a return envelope. You want to make it easy for people to pay. Most offices set a minimum amount to bill. If a patient owes two dollars, it's probably not worth the trouble to send the bill.

Term of the Loan

- banker's way of stating how many payments (or how long a time) you have to pay until the loan is paid off - most dental business loans have terms of 5-7 years - home mortgages commonly have terms of anywhere from 15-30 years - longer term = each payment to be less, but the total of all interest payments to be greater - you want a shorter term, so that you will pay off the loan sooner, however, you may not be able to afford the higher regular payment required of the shorter term loan, and may need, instead, to lengthen the term of the loan in order to decrease the payment to a manageable amount - The term of the loan then has a large impact on cash flow. Many corporate finance managers will match the term of the loan to the expected life time of the asset purchased. This allows you the lowest safe cash requirements to pay off the loan before the asset completely depreciates, increasing the amount of cash that you have freed for other purposes. (You generally want to be sure that the term of the loan is no longer than the lifetime of the asset so that you are not paying for the asset when has no more value.) So the loan decision then is a balancing act between the interest rate and the term to keep the payment amount (cash flow) within the budget. Since interest rates are less negotiable, many people extend the term of the loan to get the payment down to a level that fits the budget. The problem with this approach is the higher cost of the debt though increased total interest payments.

Prime

- banks use the "prime interest rate" in determining the specific variable rate for business loans. - "Prime" is the rate charged by the biggest banks to their best customers (Ford, General Electric etc.). - prime rate is published daily in the business press and in the business section of most metropolitan newspapers - banks often charge an additional 1.5-2% above prime for a new professional's loans - usually re-compute the rate monthly - Mortgage companies, banks and other lenders often provide variable rate home mortgages as well. They generally index these to other economic indicators (such as the rate of certain Treasury bills) but behave similarly. They usually set the interest rate on these loans annually. There are often limits to the amount of increase or decrease in the rate that they can apply.

Financial Policies

- consists of two elements, a Credit Policy and a Collection Policy. - Poorly designed financial policies cost you money in several ways --> lose the patronage and goodwill of a patient --> patient may never pay you the amount that they owe you - longer a bill is outstanding --> less likely you are to collect it and more it costs you to collect - one of the most important methods of increasing case acceptance, and therefore, productivity. - must be aware of community norms, especially as a beginning practitioner - As you build the patient pool, you can tighten the credit and collection policy - You would use a looser credit policy when you want to stimulate demand for your services (ex: deteriorating economy) - you may offer special incentives as part of a marketing plan (e.g., six months to pay for a complete set of veneers).

Collection Policy

- defines how you will attempt to collect money owed you from patients who have not paid

Cost Based Fee Setting

- dentist determines total office cost per hour, time required to do each procedure and then computes the required fee for each procedure based on the time needed to complete the procedure and any additional costs (e.g., lab) - normal or desired profit (personal income) can be added to the overhead cost to decide the fee to be charged - this type of fee planning is particularly important if you participate in managed care or contract dental plans. In this instance, it is critical for you to know how much a given procedure will "cost" the practice to produce --> Since the practice receives a predetermined fee for any given procedure, you must know the cost structure of the practice to figure out if you will be making or losing money by participation in the program - A capitation plan may decrease the fixed costs of a practice (by supplying a monthly fixed revenue amount), but not pay a high enough fee to recover variable practice expenses - If the managed care plan fee will not cover at least variable expenses, then it literally costs you money to participate in the plan and treat patients covered by the plan - leads to a satisficing fee strategy - not an aggressive fee strategy - does not lead to the maximum profit, or income for the practitioner - reduces dissatisfaction of involved parties - involves considerable calculation work - can also lead to the dentist who is clinically faster being compensated less than the slower dentist

Elasticity of Demand

- describes how much "give" or "flex" will occur in purchase amounts because of a change in price - Demand is elastic if there is a large change (either increase or decrease) in the amount purchased because of a price change. An example is the purchase of soda drinks. If your favorite brand of cola raises its price, many consumers will switch to a competitor's brand - Demand is inelastic if there is not a large change in the amount purchased because of a price change. An example of inelastic demand is the purchase of pharmaceuticals. If a particular drug gives relief of symptoms, a person will purchase the drug at virtually any price - Dental services appear to fall in a midrange of elasticity. That is, patients are not very sensitive to changes in price (fee). Increasing dental fees causes some (but not all) potential patients not to purchase the service - Elasticity of demand for dental services varies considerably with socioeconomic and demographic factors - People who have higher disposable incomes are less sensitive to changes in prices or economic conditions.

Satisficing

- economic idea that emphasizes attainment of a desired level of something without maximization of anything - ex: Ford Motor Company - structures its fees so that everyone is "fairly happy." - practice meets current expenses and allows the dentist to live comfortably and to reward the staff adequately - this perception of satisficing behavior helps the practitioner to earn a reputation of being fair and equitable - Studies on dental consumer satisfaction suggest that the attributes of professionalism, quality, and reputation are significant determinants for consumer selection and retention of a dentist - Patients who perceive that their dentist is satisficing rather than maximizing may assume a higher level of satisfaction in the doctor-patient relationship - cost of care alone does not lead to satisfaction, but can be significant in exacerbating patient dissatisfaction - satisficing fee strategy is a helpful component in developing patient satisfaction

External marketing

- external efforts focus the effort on people who are not present patients of the practice - New patients into practice - Target group - Non-traditional methods - External resources, media - More costly Top External Marketing Strategies: - Name the practiceIncrease sign exposure - Have a yellow page exposure - Start a web site - Develop a practice brochure - Biographical information sheet for the office - Reward referral sources - Send targeted mailings - Speak to groups --> Professional (study clubs) --> Consumer

Annual Percentage Rate (APR)

- interest rate that is different from the note rate - commonly used to compare loan programs from different lenders and is especially important when looking at consumer loans, such as home mortgages - supposed to include all of the "hidden" cost of a loan, including origination fees, appraisals and title searches - Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate - published along with the nominal rate - designed to measure the true cost of a loan - creates a level playing field for lenders by preventing lenders from advertising a low rate and hiding fees - Unfortunately, different lenders calculate APRs differently! So a loan with a lower APR is not necessarily a better rate. - Many lenders do not even know what they include in their APR because they use software programs to compute their APR's. - It is possible that different lenders with the same fees using two different software programs may arrive at two different APRs! - use the APR as a starting point to compare loans - APR is a result of a complex calculation and not clearly defined - represents the yearly real cost of a loan including all interest and fees - when shopping for the right loan for your small business, you should know the APR for the loan in question - can be very helpful in comparing one financial tool with another since it represents the actual cost of borrowing

Assignment of Benefits

- patient's written authorization giving the insurance company the right to pay the physician directly for billed charges - have the insurance check sent directly to you - If you agree to accept the assignment of benefits (i.e., have the insurance check sent directly to you) you speed your cash flow, but have more complex record keeping. - If you do not accept assignment of benefits, then the patient must pay the entire amount and get reimbursed from the insurance company. The problem comes when you offer the patient a payment plan, then they spend their insurance reimbursement check on something else (a big screen HD television) and do not have enough to pay you. They can then become a collection problem.

Pro Forma Statements

- projected statements - the essential element of a pro forma is that it is your guess of what the statement will be at a given time in the future - if you are preparing a pro forma Income Statement for the practice, you need to estimate numbers of patient visits, average charges, numbers and pay rate of staff and many other items of expense - a pro forma statement is only as accurate as your educated guess about the future - often, banks will ask you to develop a pro forma cash flow (to assess whether you have adequate cash to meet expected expenses) and an income statement (to determine your expected income and tax situations)

Profit and Loss Statement

- same as "income statement" - one of the four most important reports lenders and investors want to see when evaluating the viability of your small business - reports how much the business has earned and spent over a given period of time - either a net gain or a net loss PIL

Demand Based Fee Setting

- set a fee is based on consumer demand for a service or product - "Charge what the market will bear." - dentist will charge the highest fee at which enough people will buy the product or service - infers that some people will be dissatisfied with the price or fee and go elsewhere to purchase their services or simply not purchase the service at all - infers that the other people who value the good or service will pay the price - technique used for specialty and image-based goods and services (ex: luxury automobiles, designer clothing) - could sell more products or service at a lower price, but not enough more to make up for the income lost from lowering the price - optimize profit, rather than maximizing the amount of goods or services produced Example - dentist could "sell" 30 gold crowns a month at a fee of $800 each. If they raised the fee of a gold crown to $1,000, some people would not buy a gold crown that would have previously purchased crowns at $800 - dentist could now "sell" only 25 crowns at this higher fee - Which fee would result in a higher income for the dentist? "Selling" thirty crowns at $800 results in collections of $24,000 per month (30 x $800). Selling fewer crowns at the higher price results in a higher collections of $25,000 (25 x $1,000). If costs remain the same (disregarding the lower lab bill from fewer crowns), the dentist has increased income by selling fewer crowns at a higher price.

Personal Checks

- should be made out to your name, or the name of the office or practice - stamp each check "For deposit only" and gives your bank and account number. - You may refuse to take a personal check anytime - From your perspective, you want to ensure that a person's check is "good." - From the consumer's perspective, they need to be sure their personal information is protected - states have passed laws governing what you can and can't do regarding check verification --> CAN require and record name, address and phone # on a check --> CAN require a driver's license or other form of photo identification --> CAN'T require a consumer to show a credit card or authorize payment to a credit card as a condition of accepting a check - some banks have a verification process which allows you to be sure there is enough money in the account to cover the check before you accept it

Cash Flow Statement

- summary of the actual collection of revenue and payment of expenses for your business - should reflect activity in the areas of operating, investing, and financing

Balloon Payment

- type of payment schedule - borrower pays the entire principal at the END of the loan period - often you must still pay interest monthly - allows the borrower to keep the payments as LOW as possible, although there is additional risk at the end of the term that the borrower cannot make the entire balloon payment

Loan Security

- when the borrower pledges, or promises certain assets or things of value if the borrower defaults on the loan --> "collateral" - "signature loan" is guaranteed only by your signature, guaranteeing to repay the loan --> in your best interest to repay so that you can borrow again with an unblemished credit history --> The banker can still take you to court to satisfy an unsecured loan, but if you have no assets (or have lost them all), the bank probably could not collect. You may use signature loans to pay tax bills or other short term obligations, if you are short of immediate cash - A loan may be secured in several ways --> borrower may pledge certain assets as collateral --> a cosigner can secure a loan by pledging specific assets (for example their house, stocks or bonds) or may take on general obligation, by signing and personally guaranteeing that you will pay the loan

Several points to remember when developing a payment plan policy

1. Get an initial payment large enough to cover any lab bills. That way, at the least you won't lose money if someone doesn't pay their bill. 2. Billing should not extend beyond three months after treatment has been completed. If the payment period extends further out than this, patients often "forget" to complete their scheduled payments. 3. Have a written payment plan for each patient. It should be signed by the account guarantor. This doesn't make the debt any more legally binding. The patient owes you for the service regardless of whether or not they signed a piece of paper. It does place in the patient's mind the idea that they have signed an agreement to pay you for the service. They think that it is more binding to see it in black and white. 4. Require a down payment of 33% to 50%, even especially if there is laboratory work. This is a difficult balancing act. Higher down payments tighten the credit policy. Fewer people will be able to afford your treatment suggestions. But you certainly don't want to be left with a laboratory bill for a case a patient did not pay.

Competition

1. dentists compete against each other for their share of the available patient pool 2. dentists compete against other forms of spending for the consumer's dollar (travel agents, home remodelers, big screen television salesmen, and fine dining restaurants)