If you engage in financial analysis for your dental practice, you may have spent time poring over a variety of financial reports, ratios, and performance indicators. Today, let’s take a step back from these granular processes and consider a big-picture concept: financial performance.
Financial performance isn’t represented by a single data point or ratio. Rather, this term refers to a more comprehensive evaluation that’s made possible by all of the individual metrics and processes that financial analysis involves.
Considering financial performance—and how to improve it—is useful for bridging the gap between financial analysis and the day-to-day activities of your dental practice. In the sections below, we’ll define financial performance and discuss four strategies for improving it at your practice.
Understanding Financial Performance
Financial performance refers to how well a business uses its assets from its primary operational activities and turns them into profits. For a dental practice, financial performance encompasses revenue, expenses, profit margins, and return on investment.
Put more simply, financial performance is the general well-being of a company, based on its financials.
The metrics you might use to track financial performance include:
- Profit margin: measures how much money your practice is making after subtracting for costs; may be calculated as gross profit margin or net profit margin
- Operational efficiency ratio: measures operational efficiency in terms of revenue generation
- Patient acquisition cost: the per-patient cost of your marketing efforts
Using these metrics to monitor financial performance will keep you tuned into your practice’s overall well-being, growth potential, and the effectiveness of your financial management strategies. Evaluating financial performance keeps you honest with yourself—your practice might be busy, but is all that hard work paying off?
Strategies to Improve Financial Performance
Improve Operational Efficiency
Operational efficiency directly impacts financial performance. Any process that currently takes more time or resources than necessary represents an opportunity to improve efficiency, and thus, financial performance.
This includes everything from dental procedures to patient intake to vacuuming the floors at the end of the day. The goal isn’t to rush or skip over anything but rather to refine operations to remove wasted efforts.
Operational efficiency improvements are often achieved by reviewing and adjusting your current methods of operation. This may involve extra training for your staff, seeking input from your staff, or using data to review metrics such as task completion time. Efficiency improvements may also be gained by making full use of your practice management software to automate more of your administrative workload.
Implement Patient Retention Strategies
Patient retention is another area that offers dentists an opportunity for improving financial performance. It’s generally easier and more cost-effective to keep an existing patient than to gain a new one. However, patient retention isn’t automatic—it takes more than great care to foster patient loyalty.
Communication is key for maintaining a high patient retention rate. To keep patients from slipping through the cracks, send well-timed reminders and appointment follow-ups. An effective communication strategy benefits from automation—use your practice management software to deliver messages via text or email, reaching out to each patient at regularly scheduled intervals.
Foster Relationships with Dental Insurance Companies
Invest effort in your relationships with dental insurance companies. Develop a cooperative relationship with a company as a whole as well as with the individual employees that you interact with. Doing so can result in more patient referrals and smooth, timely payments.
Practice Prudent Financial Management
Rethinking your practice’s approach to financial management is another way to improve financial performance. This may involve adopting processes like budgeting, financial analysis, and advanced financial reporting. The insights gained from hands-on financial management lead to a more disciplined, informed approach to spending and saving.
The Role of Financial Professionals in Boosting Financial Performance
If you’re committed to boosting financial performance at your dental practice, work with financial professionals. Depending on your specific goals, you may benefit from teaming up with an accountant, a financial planner, or a business coach.
Financial professionals help dentists use a data-driven approach to financial decision-making. This may involve analyzing financial metrics, creating reports and projections, and creating a new money management strategy.
When is it time to expand your contracted financial services beyond basic tax prep? You might choose to do so if your practice is struggling, if you’re looking to expand, or if you’re approaching retirement. However, it’s never a bad time to partner with a financial professional who can help improve your practice’s money management and decision-making.
Get More Financial Insights for Your Dental Practice
At Duckett Ladd, we’re a team of advisors and CPAs dedicated 100% to the dental industry. Contact our team today to discuss a tailored approach for boosting financial performance at your practice.