4 Ways Job Descriptions Benefit Your Practice
By Sally McKenzie, CEO
Team members can make or break your practice. A strong team will help move your practice toward success and profitability, while a weak team will do nothing but hold your practice back. That’s why it’s so important to not only hire the right people, but also give them the direction they need to excel.
One of the best ways to do that is to create detailed job descriptions. I know what you’re thinking. Sally, I don’t have time to create job descriptions for every employee. Besides, they’re all experienced hires – they know what to do. Unfortunately, they don’t. It doesn’t matter how much experience they have working at other dental practices. Without guidance from you, they’ll feel lost. They won’t be nearly as efficient, or effective, as they should be – costing you money and leading to extra stress.
Trust me, creating job descriptions is worth any time and effort you put in. Still not convinced? Here are four ways job descriptions benefit your practice.
1. Job descriptions reduce staff conflict. When there’s conflict among team members, it leads to stress and misery for everyone in the practice – and that includes your patients. The gossiping and eye rolling creates a negative environment that makes employees dread coming to work each day. You sense the tension but choose to ignore it, convincing yourself they’ll work it out on their own. They don’t, and your practice is damaged in the process.
Creating job descriptions will help make conflict less common in your practice. How? Issues often come up because team members aren’t clear who is responsible for which tasks. Job descriptions eliminate that confusion. Everyone knows exactly what’s expected of them. Tasks are completed properly and team members are much more efficient.
2. Job descriptions are good for team morale. Yes, job descriptions help reduce conflict, but they also help make team members more confident. They don’t have to play the guessing game – they know exactly what’s expected of them. This makes them much more confident and efficient, which can lead to improved practice productivity and a boost in revenues. Happy team members also have more positive interactions with patients, helping improve your retention numbers.
3. Job descriptions make team members accountable. When team members take ownership of their systems, they’re much more effective. The problem is, it’s difficult for them to do that if they’re not sure exactly what systems they’re accountable for or how they’re expected to perform. That’s where job descriptions come in. If you include specific performance measurements in every job description, team members can focus on making improvements to their systems. They know how they can help move the practice forward, making it much easier for them to contribute to practice success.
4. Job descriptions help ensure you hire the right people. Creating job descriptions before you start the hiring process can save you and potential candidates a lot of time and heartache. I know you’d much rather avoid the hiring process all together, but job descriptions help make it a lot less stressful. Job descriptions outline exactly what skillset the role requires as well as your expectations. That means candidates can bow out early if it’s clear they’re just not the right fit.
You can also use job descriptions to guide you through the hiring process. Taking the time to craft a job description makes you think about exactly what you’re looking for in a new hire. If resumes don’t include those particular skills, you can quickly move on to find ones that do.
Creating Job Descriptions
Now that you’re ready to put together job descriptions, you’re probably wondering how to go about it. Job descriptions should include a detailed definition of the job. Ask yourself what you need the person in that role to do each day. Include every responsibility and task. It’s also critical to include the necessary skillset. List every skill required, no matter how small it might seem. Remember, if the person you hire doesn’t have the right skillset, he or she won’t be effective, leading to problems among team members and ultimately damaging your practice.
You also should list job responsibilities and duties. Be specific. Don’t just say the Patient Coordinator is responsible for calling and scheduling past due patients. Make it clear you expect this team member to contact and schedule at least five recall patients a day. This leaves no doubt about what your expectations are and how performance will be measured.
Another tip? Be sure to get your team members involved in the process. Their input will help ensure job descriptions are complete, and including them shows you value their input.
Developing detailed job descriptions will help strengthen your team. They’ll be much more productive and confident in their roles, doing their part to move the practice forward. Sit down with team members to craft job descriptions and your practice will reap the benefits. Need help to get started? Feel free to contact me.
Sally McKenzie is CEO of McKenzie Management, a nationwide dental management, practice development and educational consulting firm providing knowledge, guidance and personalized solutions that have propelled thousands of general and specialty practices to realize their potential.
Interested in speaking to Sally about your practice concerns? Email her at email@example.com or call 1.877.777.6151.
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Earn-out Plan: A Win-Win Strategy to Pay A Seller for Potential
By Thomas L. Snyder, DMD, MBA, Director Henry Schein Professional Practice Transitions
Most buyers do not want to pay for potential when negotiating a sale price, but sometimes there may be a valid reason to consider it – especially if a recent event has negatively affected practice performance over the past year or two. For example, the value of a practice can sometimes be adversely affected by unforeseen circumstances, such as the loss of a key dental associate, illness of the owner, or other scenarios that may cause a decline in revenue and/or net profit. In these situations, most buyers offer a lower purchase price than what the seller expects. However, there is a reasonable solution to consider which addresses these circumstances. The solution is called an “earn-out”. An earn-out is designed to increase the total sale price over a specified time frame if certain revenue goals are met post sale.
A properly designed earn-out plan allows the seller to receive additional
income based on a formula that also ensures the purchaser is receiving a reasonable profit after an earn-out payment. If the earn-out revenue goals are not achieved, no additional payments are paid to the seller. Earn-outs are usually achieved over a 1-3 year period. To design an earn-out plan, the following steps need to be taken.
Step 1. Prepare a Practice Breakeven Point
An earn-out only makes sense if both seller and purchaser benefit from certain targets being met. The simplest way to measure the economic impact of an earn-out is to first calculate the practice’s Breakeven Point. The Breakeven Point (BEP) is calculated by the following formula:
BEP = Fixed Expenses + Owner Compensation
1 – Variable Expense Factor
Fixed Operating Expenses are all practice related expenses such as Facility Expenses, Staff Expenses, General Expenses (i.e. bank charges, advertising, professional fees, computer expenses, licenses/permits, and practice acquisition loans). Variable Expenses are expressed as a ratio of revenue and are collectively termed the Variable Expense Factor. Variable Expenses are office expenses, dental and implant supplies and lab expenses. They fluctuate directly with practice production.
Once the Breakeven Point is calculated, you can then project the economic impact of an earn-out by estimating the additional profit the buyer will realize after the earn-out payment has been made to the seller. Here’s an example for calculating a Breakeven Point which serves as a baseline for an earn-out payment. To begin the calculation, list the appropriate expenses and revenue for the most recent year. The purchaser’s desired compensation, however, is not just based on the prior owner’s income, but also what the purchaser reasonably needs to pay his/her taxes as well as living expenses and dental education debt.
Practice Revenue: $1,200,000
Fixed Operating Expenses: $636,000
Variable Operating Expenses (20%): $240,000
Purchaser’s Desired Compensation: $300,000
(BEP = $636,000 + $300,000 = 936,000 divided by 1 - .2)
$936,000 divided by .80
BEP = $1,170,000
In this case, the Breakeven Point for this practice is $1,170,000. Therefore, every dollar produced in excess of this amount will only cost the practice 20¢ (Variable Expense ratio). This gives the owner a net profit of 80¢ for every dollar produced in excess of the BEP.
The earn-out payment can be the difference between what the seller wanted as a sale price compared to what the purchaser actually paid. In some instances where an illness or other event occurred (for example, a flood closed the practice for a period of time and caused a reduction in revenue and profit), the earn-out payout may be greater than a sale price differential. The number of years for the earn-out payment is ultimately determined by the differential in sale price.
Step 2. Determine a Percentage of Dollars Earned in Excess of the Earn-out Amount to be Paid to the Seller
You can allocate 20-25% in excess of the earn-out revenue goal that will be designated as the earn-out payment for a given year. Again, this percentage is based on the results of the breakeven analysis. Here is an example of how an earn-out payment would work.
Seller’s Asking Price: $840,000
Actual Sale Price: $780,000
Earn-out Payout (if revenue goals met):$60,000
Annual Earn-out BEP: $1,170,000
Time Frame: 2 Years
Earn-out Payout: 25%
Actual Year 1 Revenue (after sale): $1,300,000
-$1,170,000 (earn-out BEP goal)
X 25% (earn-out %)
$32,500 Earn-out Payment Year 1
In this example the practice exceeded its BEP goal by $130,000, assuming it cost 20% (Variable Expenses), which translates into $26,000 of Variable Expenses to generate this excess revenue. Therefore, the purchaser has a gross profit of $104,000. $32,500 will be paid to the seller as the first year’s earn-out payment. The purchaser will net an additional $71,500 plus the $300,000 compensation already built into the BEP model. The purchaser will receive a total of $371,500 in year one.
Remember that when applying this calculation, the practice acquisition debt is already built into the BEP. If the earn-out payment is made over two to three years, the Breakeven Point goal has to be recalculated annually, based on the prior year’s expense history and revenue.
For an earn-out to work, trusting the purchaser to accurately track revenue is critical. To counteract any manipulation of financial data, we structure our earn-out agreements so the seller, at his or her own expense, can retain an accountant or consultant to ensure the earnout calculations are made correctly.
In summary, earn-outs are a great solution when sale price and practice potential come into play. They provide an economic win for both parties if the earn-out goals are achieved!
If you would like additional help, email Dr. Snyder at firstname.lastname@example.org
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