One of the key lessons we learned after going through the COVID-19 health crisis and the resulting economic impacts is that standard business structures and practices that were true in 2019 are not necessarily true or relevant in 2021. 

This is true of dental functions as well as external businesses that influence your dental organization’s success. Despite the dental industry coming out of the COVID-19 period as strong as ever, there are external forces out of our control that influence the way we do business and the profitability we hope to realize. 

Increasing Costs in Dentistry

The most prominent influences currently are labor shortages and high levels of inflation. In conjunction with insurance reimbursements that continue to tighten, this puts extreme pressure on organizations to maintain or grow their profit margins.

Though it is a highly politicized discussion, part of the labor shortage can be attributed to extensions of federal unemployment benefits, which have challenged the filling of entry-level jobs across all industries. Many organizations have increased their entry-level wages to try to counteract this, which often leads to increased pay ranges at all levels. It remains to be seen if there will be further extensions so at least through 2021, this will be an ongoing challenge. On top of this, we are seeing drastic inflation in the commodities and products we buy every day. Additionally, as companies in other industries increase their wages to counteract the unemployment benefits, they often pass along the increased cost to the consumers as well.    

What Can You Do to Counteract the Effects of These Increases? 

Strong recruiting, onboarding, culture, and retention efforts are crucial for the people portion. Strict dental supply ordering guidelines, making sure to get the very best pricing from your suppliers, and shopping around as necessary are strategies helpful in managing expenses. Maximizing capacity also needs to be a priority, as this typically reaps the largest return. These actions require regular work, guidance, and reinforcement. 

But, there are also one-time efforts that can reap large rewards in challenging key components of your fixed cost structure including:

1. Property Leases 

The biggest opportunity right now is in commercial real estate. Many dental owners own the real estate for the dental practice in a related entity. However, if you lease your practices from a third party, you may have an opportunity to decrease your rent expense. With the recent transition to work-from-home, the commercial real estate market is suffering, and landlords are willing to give huge concessions to ensure tenancy. Is your location ideal and where you want to stay? If so, you can likely negotiate a lower price for a longer period.

Here’s a real-world example: A Spark client whose lease was up for renewal was able to negotiate an 11% decrease in rent and keep it flat for the next 5 years, with two 5-year options to renew after that. This is particularly helpful in that as inflation increases, a very significant portion of the fixed structure will stay completely flat. Even if your lease is not up for renewal, it’s very likely that you can renegotiate your current lease for a cost savings by extending it, which will give the landlord more long-term security.

2. Equipment Leases/Bank Loans

Interest rates are the lowest we've seen in a while and likely the lowest they'll be for quite some time. If you have practice loans or equipment loans/leases that you entered into pre-COVID, they're likely at a much higher interest rate than could currently be attained. 

It’s always worth the discussion to try to renegotiate the debt to more favorable terms reflective of current market rates. If there's no prepayment penalty, talk with your lender. Make sure they know you’re willing to move to another banking relationship that will “refinance” the debt (regardless of whether you're willing to or not). This can really enlighten business owners as to how vested the bank is in your success. Are they a partner to you, or are you a merely a revenue stream for them?

3. External Professional Fees

There are many roles in a dental organization that can be done internally or externally, such as accounting, HR, and marketing. With the move to work-from-home, many organizations realized they didn’t need that individual performing the role to be close to the dental practice. Others found that a professional fee was less than the cost of employment for that individual and outsourced the role. At the same time, there were many organizations that brought elements in house during COVID to save money and realized that they could execute those processes just as effectively at no additional costs. In your practice, take a look at the flexible, non-dental roles to ensure they are as efficient and effective as possible. 

4. Insurance 

Lastly, when it’s time for your insurance policies to renew, ask your broker to check the market. Many organizations become complacent and just renew automatically every year. It’s important to make sure you are paying market rates for the same coverage. The increased rates may not be much in any single year, but they add up over time.

Unfortunately, the new year of 2021 has not brought the relief that many organizations were expecting. We're facing many business challenges that many of us have never faced in our professional careers. In addition, with the change in administration in January, there’s uncertainty in what we can expect to see going forward, so leaders must remain flexible and avoid complacency to ensure that patient care and business operations are impacted as little as possible.