3 Things Every Dentist Should Ask Before Buying New Equipment

Posted by Brogan Baxter on Fri, Jan 10, 2014

xrayThe call of a new piece of equipment can be alluring. It could be that it opens up new procedures to your practice, or just that the other dentist in town has something and you feel the need to keep up. But splashing the cash on that new equipment may not be the best financial decision for you – at least right now. There are three things you should ask before making the purchase.

Where am I currently financially?

Before making a large purchase you need to know how much money you have. That seems like common sense, but many times the whole picture doesn’t come into play. Are you making what you want right now, in terms of take-home pay, or are raises needed? Is the practice running efficiently enough to be able to afford the purchase? Will there be any other significant outflows of cash in the next few months? This all needs to be determined.

Unless there’s an obvious dire situation, you should think about a hierarchy of needs before making a major purchase. Prioritize between yourself, your staff, your practice, your patients – every expense you can think of needs to be considered. Is the new equipment still at the top? If not, the time isn’t right. Eventually it will work its way up as other expenses are taken care of.

Why am I buying it?

There are good reasons and bad reasons to make a major purchase. Is it to increase the efficiency of your practice, and boost your earning potential? If so, you’re probably in good shape. But what if you’re buying something just because it’s newer than what you already have? Are you just trying to keep up with the Joneses, or to be the first dentist in town with the newest technology? Your pride is not enough to make a purchase worthwhile.

Even if you think it will boost efficiency, you need to ask yourself if it’s worth it now, rather than another time. What’s the payback? When will you break even? And how long will it be useful to you before it’s outdated? How much time and effort will be needed for training on this new piece of equipment for it to be utilized efficiently, and are you willing to legitimately put in the appropriate level of time and effort needed for the training process?

Finally, if the primary reasoning is to get tax benefits – which is often touted by salespeople – you’re making a horrible business decision. The tax benefits do not outweigh the cost, and unless you actually need the equipment you will lose money on the deal.

How do I get it?

Depending on the answers to your other questions, different methods of getting your hands on your new equipment may be better. Should you purchase it in a lump sum, finance it, or lease it? You need to make an educated choice here based on knowledge of your practice’s unique cashflow situation, where your cash accounts stand, and where your debt currently lies.

If you choose to finance, you need to choose the length of term and interest rate combination that’s most cost-effective for you. If a lease is your best option, it’s more complicated. The end of the agreement needs to fit your situation, and you need to know whether you can get out early. Are there penalties for paying off the lease early? What’s the interest rate? All of this should go into your decision.

In short, a smart dentist does the legwork to figure out which option – purchase, financing, or lease – is the most cost-effective over the long term.

Consider all of your options and all of the implications of your purchase decision before you buy (or finance, or lease) and you’ll be less likely to ruin your cashflow by adding equipment you don’t need, or equipment you’re not ready for. You’ll be sure to make the best possible decision for your practice.

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Topics: dental technology, dental financial planning, dental accounting, Financial Planning

Analyzing the Investment in Dental Software

Posted by Four Quadrants Advisory on Thu, Dec 19, 2013

icebergThis guest blog post was written by Andy Jensen, an expert in dental software who's been in the field two decades.

“How much does it cost?” That’s the first question most dentists ask when investigating a new or replacement software system to manage their practice. If only the price tag told the whole story! Unfortunately, most of the cost is below the water line. When the great ship Titanic made its maiden voyage, the “unsinkable” boat found out very quickly that what is beneath the water may be substantially more dangerous than what is visible above the water. The consequences were tragic.

What We Can Learn from Icebergs

Icebergs are large frozen masses of water. When they freeze, the volume increases and they are slightly less dense than the surrounding water. From Wikipedia, “Any object, wholly or partly immersed in a fluid, is buoyed up by a force equal to the weight of the fluid displaced by the object.” That’s why they float. It also means that, given the density of water vs. ice, most of the mass of the iceberg is found below the water, out of site, but just as real. Dental offices that don’t consider the costs found “below the water line” can also face unforeseen and undesirable outcomes. A holistic perspective and analysis is required to ensure positive ROI on any technology implementation.

What Lies Beyond the Sticker Price?

Gartner Group, a widely respected national re-search group conducted a study and found that across all industries, for most client/server installations, the software price represented just under 10% of the total cost of a system. Of course, these are not dental industry specific numbers, but anything remotely close to these numbers warrants significant consideration when you have so much on the line.

The sticker price never tells the whole story. There are always additional considerations with any purchase. This is especially true of technical purchases like dental software. Software license fees usually don’t include most of the cost items associated with implementation, use and maintenance of the system. For example, there are typically additional charges for things like:

  • Implementation fees.
  • Data conversions.
  • Initial system training and upgrade training.
  • New staff training and re-training costs.
  • New hardware.
  • Hardware upgrades required to run the software.
  • Hardware upgrades required to support an upgrade (like new video cards, additional memory or faster processors).
  • IT staff expenses for installation, configuration, and upgrading.
  • IT services costs for system maintenance, database repair, and overall database health.
  • Data backup equipment/software/tapes, and staff time to manage it as well as IT support time to setup and maintain appropriate scripts and processes, then update those processes with each software upgrade.

With a little time and thought, the list can become quite long. These undocumented fees can easily in-crease the cost of a typical dental software system by double or more. One IT Professional that specializes in client/server dental installations indicated that his clients will spend between $500 and $700 per month on his services (that is in addition to the cost of equipment and vendor fees). You can find out what you spend quite easily. Just ask your accountant what the average IT spend is over the last year. My guess is that you will be quite surprised. It all adds up really quickly.

How to Spot Lost Production

Even given the long list presented above, there is one cost item that is intentionally passed over by many vendors—because they don’t like to talk about it. It’s a very easy item for software reps to just ignore and forget about. For some offices it can become the most expensive cost item on the list. It’s the cost of office downtime and lost production required by most vendors for things like computer installation, configuration, upgrade installation, staff training, etc.

Any time the office has to be shut down when it would ordinarily be open, there is massive cost to the practice (and the practice owner).

Most firms suggest “on-site” training. Sure, it’s more convenient for a trainer to come to your office and spend 3 to 5 days in a row, but how much does that cost? They will quote something like $1000 or $1500 for the training but that’s just the check you write. What about the check that isn’t being written by your patients during that week of training? That’s where the real cost is. And think about how productive your staff is being when you have an IT guy running from workstation to workstation installing the latest bug fix. It isn’t hard to see that much of the cost for a traditional dental software system is really hidden beneath the water line and is not taken into account in the typical client/server software sticker price.

Analyzing Web-based Solutions

Web-based solutions inherently include more of the costs in their published price. Most of the items that require office downtime are not required. For example, in a Web-based solution, the installation is done on the web-hosted server located in a hardened network operating center. Nothing is installed in the dental office. There are no CD’s to plug in, no server to configure, nothing to load on workstations, etc. With a web-based solution, once the system is provisioned, the dental office receives a URL, a username and a password. All that is needed is a web browser. The result is no hidden costs for installation, configuration etc. Same thing goes for updates. Nobody has to come to your office and take precious and expensive office time to do an upgrade. You just log in the next morning and the upgrade is installed.

Training is much the same way. When using a web-based system the training is most effectively done on-line. It will be presented in short, one-hour sessions that can be handled during normal office breaks and down time. They don’t require you to close the office for several days. The result is no lost production time for training and implementation.

Finally, there is the general maintenance cost for a client/server system that requires hundreds of dollars a month for an IT guy’s time. We’re not saying that you won’t need the IT guy anymore, but you will only need him about half as much. So, whatever you paid last year for IT services, you can pretty much cut it in half for a web-based solution. When you buy a car, you know that some models require more maintenance and use more gas. Some are really reliable and just sip fuel. Obviously, the sticker price is just part of the equation.

Avoiding the Apples-Oranges Comparison

One common mistake that many offices make is to assume that the product and services received from a client/server system are equivalent to the product and services received from a web-based system. This assumption will result in a gross error that can cost the dental office thousands of dollars. The monthly subscription fees paid to a web-based vendor typically include many services that are not included in most traditional software vendor quotes. Many offices find that the additional services required with a client/server based system end up costing as much or more than the total monthly subscription fee of a web-based product.

Thus, it is vital that a total and honest comparison is performed before simply accepting the sticker price as the whole price. Any return on investment (ROI) analysis must include not only the simple software fees, but also the system related fees that are not included in, but are required to run the software. Additionally, the analysis must include the costs associated with office downtime and disruption. Failure to include these hidden costs is simply ignoring the truth.

Conclusion

When a dentist is considering a new practice management system, all costs should be included in the analysis. It’s very easy to ignore some of the most expensive parts of a system. Expenses not paid to the vendor, such as server configuration, software installation, backup systems and process scripting need to be considered. Additionally, the very significant costs of lost production associated with on-site training and computer software installation must be factored in. It is widely recognized that a typical client/server software price includes just a fraction of the total cost. Web-based systems improve the ROI from several perspectives. First, they totally eliminate some of the most routine expenses; secondly, they incorporate in the price many products and services that must be added to a client/server based system; and finally, they represent a hassle free implementation eliminating the hidden costs of lost production.

Andy Jensen has been in the dental software business for nearly 20 years, directing the marketing activities for DENTRIX, Easy Dental, DentalVision, and now Curve Dental. You can reach Andy at andy.jensen@curvedental.com or by phone at 801-851-5175 x1002.

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Topics: dental advisor, dental technology, dental software, Financial Planning, dental computing

Can Dental Lab Fees Lower Overhead and Increase Profits?

Posted by Four Quadrants Advisory on Thu, Dec 19, 2013

toothThis guest blog post was written by Larry M. Guzzardo, author and expert in practice management solutions.

Are you frustrated by the balancing act between achieving your best restorative result and making a fair profit on procedures? Do you feel you have to compromise on esthetics because you can’t afford the lab that knows how to provide the very best quality? Tired of “eating” the cost when you go ahead and do it anyway or when the lab fee turns out to be higher than you expected? Every dentist I know is exhausted by the strain this creates between them and their lab technician.

Create options and flexibility

If you are doing prosthetic dentistry and participate with insurance plans that force you to discount your fee, the options are few beyond looking for a lower priced lab. But then you’re caught in the “you get what you pay for” syndrome. However there is still a way to decrease overhead expenses and increase profits all while utilizing your choice of the best technicians. Consider billing patients a separate fee for their laboratory expense. Now get up off the floor! This is not as unusual as it may seem. There is no other area of medicine that pays the lab service for their patients or includes this amount in their fee. Explore the possibility that your hands will no longer be tied. Options are now available to you and your patient that could not be presented in the past.

” . . . You now have the flexibility to do what you want without risking a clinical compromise or financial loss.”

Immediately increase operating profits and lower overhead expenses 10%-14%

This concept may be new to all of us in dentistry; however we have to recognize this is a standard practice in almost every other industry, particularly medicine, for years. To mention a few, lawyers have always done it. Mechanics, banks, contractors, and hotels do it. Now even the airlines do it too. Not to mention delivery services who add on a surcharge when fuel prices go up. All of them have discovered the increased flexibility and profitability achieved from charging one fee for their initial service and a separate fee for anything extra. They never have to lower their quality of service or put their reputation at risk. I say it’s time we catch up. How much longer can you continue absorbing additional costs without it affecting your bottom line?

Every dentist I know understands how important it is to maintain a healthy working relationship with their laboratory technician. They realize the vital role the technician plays in the final result so they also expect to pay a premium for the very best.

An excellent technician makes you look like an artist and an average one makes you look just like everybody else. Let me show you how this can be done and still show a profit.

Because this is so widely done in other industries we need to learn how to feel good about it too so we can eliminate this significant overhead expense. And give ourselves the flexibility to choose a laboratory technician that can provide the best result for your patient at the same time.

Why not just select a fee that includes every expense and allows for a fair profit margin? First of all, your fees would be constantly changing depending on the lab you selected or procedure you needed and second, psychologically, it is easier (as all retailers have found) for the patient to comprehend when the total is divided in two. Charging separately for the lab will make your fee for the procedure sound competitive with other dentists in town.

Presenting this fee to the patient is easy:

“Ms. Patient, to complete your treatment as I have described, the fee will be (x) and the approximate laboratory fee to achieve the result we are looking for is (x).”

Get familiar with the fees charged by your laboratory so you can estimate the fee slightly higher than you expect, so when the case is completed, the final fee will likely be lower for the patient.

Bookkeeping and accounting is even easier. Lab charges are posted to your accounts payable system as you do right now and, instead of billing the patient for their lab fee through your practice management software, their lab invoice is generated through your accounting software as well. When patient lab payments are collected, this amount is credited against the amount posted. When this occurs (+$250.00 posted and -$250.00 collected) the result equals zero. Eliminating this expense completely from your practice and immediately increasing your operating profit!

I realize this may be a difficult concept for some because not only does the doctor have to embrace the idea, so does the rest of the staff. Take your time by starting with a small case so the excitement for the idea can build and before you know it, you’ve created a routine. Clients I’ve worked with who have implemented this concept have not only become better at managing the business side of their practice, they’ll tell you that having the freedom to work with the lab of their choice, they enjoy dentistry more than ever.

Larry M. Guzzardo who has co-authored two books, “Powerful Practice” and “Getting Things Done” conducts in-office practice management consultations exclusively for dentists to enhance trust, create organization, increase profits, and to develop patient relationships that last. Larry has presented numerous workshops including, “Winning Patient Acceptance,” “Business Communication Systems,” and “The Leadership Challenge.” Larry can be reached at 800-782-5770, www.larrymguzzardo.com and by email at Larry@larrymguzzardo.com

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Topics: dental advisor, dental technology, dental financial planning, Financial Planning

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