A budget is merely a measurement of financial success and it’s instrumental in achieving your financial goals.

Too often, dental entrepreneurs don’t evaluate their financial results beyond measuring whether there is money in the bank to cover the bills. If there is a more strategic approach, it is generally in the form of measuring financial results against historical results, typically the prior month or prior year.  

The problem with this is that it ends with the perception that as long as the current results are better than the historical results, it is considered a success.  

“I just want to improve and do better than last year”.

This approach breeds misconceptions of success and can result in dental organizations missing the opportunities available to them that can substantially improve their financial position.

Comparing financial results to other historical financial results only lets dental organizations identify where their performance strays from performance they have already achieved, completely ignoring what their performance should be compared to their peers. This is all living in the past, and lettings your past define your future success.

The next step for successful entrepreneurs is advancing from reporting their history to defining their future, financially speaking. The most successful dental organizations don’t just report historical financials, they plan for their financial future through an intentional budgeting process.

What is the big difference between validating your financial results with historical figures as opposed to forward-looking projections? There are constant changes in constraints in your practice(s), both in your control and out of your control.  

Let’s assume your practice is open Monday-Friday and you are evaluating your March relative to prior March periods. In March 2017, you would have had 23 working days, whereas in March 2018 there were 22 working days and in March 2019 you would have had 21 working days. Having an almost 10% difference in working days between 2017 and 2019 means that comparing the two periods is comparing apples and oranges.

Were the providers less productive over that time? Not necessarily.

Could they have been more productive? We don’t know.

We didn’t set expectations with providers on the hours and days they would be working, the anticipated patient flow, and the amount of patient care we expected them to deliver.

From an expense perspective, if dental supplies are 8% of your collections consistently and you are comparing to historical financial results, you are just evaluating whether those responsible for ordering dental supplies are ordering in a manner that is consistent relative to collections. There is zero consideration given to whether improvements can or should be made through buying patterns and negotiations, or how the company results compare to commonly accepted industry measures.

Results, whether financial or otherwise, are very difficult to achieve without understanding everything that drives those results.  

This is why creating and implementing a budgeting process is critical for the long-term financial success of your organization. It forces leaders to understand all key drivers that lead to financial success.

Starting with Patient Care

In dentistry, budgets start with patient care; the days, hours, operatories, or providers for our practices. Next, we define the resources (people) that will coordinate and deliver the patient care, the facilities in which we will care for our patients, the marketing that will drive patients to our practices, and the various dental supplies and laboratory fees necessary to improve their dental health.

Putting in place a budgeting process forces leaders to think through the key levers that drive the cash inflows and cash outflows of the business.

A budget helps leaders develop an expectation for their team members, and provide a measurement of success to enable accountability in your organization. A budget also allows for a measurement to reward team members for decisions that they make that directly influence and benefit patient care, and ultimately the financial position of the organization.

(We support all Spark network members through the budgeting process with tips and strategies we’ve developed over the years working with dental practice budgets. Click here to learn more about our consulting groups and how to join.)