Sally McKenzie, CEO McKenzie Management Printer Friendly Version

Everything’s Going Up—Including Payroll

I know, you know, we all know that the cost of everything is going up. Just like you, your staff is paying more for life’s essentials, food, gas, electricity, and on and on. So when Rita pops into your office and spreads her financial worries all across your desk like the morning newspaper’s depressing headlines, you’re immediately feeling the pressure to try to help… again.

C’mon, what’s another buck-fifty an hour? Right? You start silently talking yourself into it immediately. “She’s a loyal, hardworking staff member trying to raise two kids on one income.” Or perhaps you’re worried that Rita is going to bolt if you don’t pay her more. “She has the computer system down pat. If I ask for a report it’s on my desk within the hour. Trying to replace her is not something I want to deal with.”

Of course, when an employee approaches you for more money, there may be many good reasons to award it and you may genuinely want to give the raise. But before you let those highly impulsive altruistic tendencies of yours take total control, take a deep breath and spend 10 minutes conducting a salary review..

Here’s why: Every increase in salary, no matter how seemingly small and insignificant has a direct impact on your overhead. A salary review enables dentists to quickly and clearly determine how much of a raise your practice can afford while keeping your total salary overhead in line with the industry.

Don’t fool yourself into thinking that any raise could be so small its impact won’t be felt. Soon this little raise here and that minor increase there will come ripping through your profits, and I guarantee you’ll be stunned by the thundering impact.

Employee salaries should account for no more than 22% of your total overhead, not including benefits, which will run an additional 3%–5%. For example, if your staff salaries for January were $14,300 and your average monthly collections are $65,000, you are within the recommended industry range of 19%–22% of monthly collections. The salary review enables you to determine exactly how much more money you’ll need to collect each month to cover that “itty bitty” increase.

Your team may be utterly and completely deserving of a raise, but if they want to make more money the practice must also make more money, and every employee plays a vital role in accomplishing that. Start by taking a close look at those areas that directly impact your practice financials. Have you developed new strategies to boost hygiene production and treatment acceptance? What steps will you take to increase collections? Is rent going down anytime soon? What about equipment repairs?

Take a close look at collections. Make one employee accountable for collecting money, generating accounts receivable reports and following up on delinquent accounts. Your financial coordinator should achieve daily collections of 45% or higher. If you don’t already have one, establish a collections policy and follow it. Expect full payment at the time of service for all procedures under $200.

Monitor your money monthly. Review the aged accounts receivable report every 30 days. It should list each account with an outstanding balance and the date of last payment.

Total all monies over 90 days delinquent. The percentage should not exceed 12% of your total accounts receivable. If it does, delinquent account calls need to be accelerated.

Reinforce recall. Delegate responsibility for the recall system to the patient coordinator, and expect her/him to:

• make a specific number of patient phone calls each day in a specific amount of time

• schedule a certain number of appointments

• ensure that a definite number of patients complete treatment

• schedule to ensure that the hygienist achieves a predetermined daily or monthly financial goal—at 3x her/his daily wages

• manage a specific number of unscheduled time units in the hygiene schedule per day

Consider your fees. They should be increased 3–5% each year. Overlap patients during just the first 10 minutes and last 10 minutes of each appointment. This will increase income even before fees are adjusted.

If you feel strongly that you want to raise employee compensation, by all means do so, but conduct a salary review so you know exactly how much it will take to cover the additional expense and have a plan to offset the increase.

Interested in speaking to Sally about your practice concerns? Email her at sallymck@mckenziemgmt.com.

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