Budget is one of the main reasons dental practices sign up with Zen. A single place for all distributors provides a better platform to manage the budget. Therefore that's one of the questions we ask and the answer can be anywhere from 2.8-12%. To be honest, when I hear anything more than 7% I tend to think it's primarily due to wrong budget allocations. So I decided to ask my good friend Jake, who is VP of Business Intelligence at Flagship Dental Group and works along the side of Dr. Mark Costes, to help me out on this one. I asked Jake proper allocations, sample form and what targets practices need to look for. Hope you enjoy it.
Tiger Savarov: You and I went on this back and forth several times, and I still keep coming back to it, I guess, until, with your help, I want to write a solid piece on my blog about budget allocations and the details of the budget allocations. So I do want to take maybe 10, 12 minutes of your time to go into this because you have so much perspective, you have so many clients coming to you.
Tiger Savarov: I'm just going to fire up some questions at you and let's go into the details.
Jake Conway: Sure, go ahead.
Tiger Savarov: Okay. So, first of all, when people come to you before they join the DSI and mastery group, what are the percentages that you see that people spend on supplies?
Jake Conway: Oh, the percentage of the supplies. So once we sift through the missed allocations and get a true percentage, I'd say it's between 6% and 8% on average before they come to us.
Tiger Savarov: Okay. We will get to the missed allocations. What do you think drives that 6% to 8%? What's your gut feeling? What's the number one reason?
Jake Conway: Just not knowing, just unaware of what they're spending, unaware of their ordering processes, and unaware of their inventory, so just overall general unawareness of those three, I guess, three underlying issues in the practice.
Tiger Savarov: And then when you sit down with them, what's the number one thing you tell to do? When you see that high percentage, what would you say that would help them to get pretty quickly to a lower number, at least cut a percent out?
Jake Conway: I would say start by looking at what a budget would be. So yeah, we can look at percentages, but what's that dollar amount look like and what are we currently spending per month?
Tiger: Take your last month collections (or as Jake suggested net production) and multiply that by 4%, that’s the dollar amount you are looking to spend per month
Jake Conway: Once we find out that dollar amount, then we can start looking at how our ordering processes work to start, who's in charge, how does that work? Is anyone in charge? I guess alongside that is to get a handle on who you're ordering from. So, looking at ways you can shave two, three, five, 10, sometimes 15, 20% off of each item line and kind of start there to see how we can start shaving and kind of get a spreadsheet going or a list of the supplies you're currently ordering, who you're ordering from, and then start the negotiation game there.
Tiger Savarov: Got it. So why are you doing budget off of the collections? Because I know you and I and Mark talked about this extensively. Why not productions or net productions? Why do you always go by collections?
Tiger: This is where I have my own point of view. I like to spend what’s on the bank for the last month. I see that net production is a more accurate way to plan for supplies. However, this is just my POV. In the end, we are talking about minor difference.
Jake Conway: Sorry, I meant to say ... did I say collection? I meant to say net production.
Tiger Savarov: Okay.
Jake Conway: I mean, ordering is based on that and, of course, you have ebbs and flows in the collections. So it is based on net production just because that's what's driving the ordering. It's not collection.
Tiger Savarov: So now let's look into the missed allocations. What are some missed allocations have you seen?
Jake Conway: Oh man, a lot of implant material. We actually have a lab/specialty item line and that's where we allocate implant supplies. I see a lot of like BioHorizon, which is I think along the same lines. Some Ortho lab cases will go into supplies (Invisalign), and equipment as well. Equipment is a big one. If the accountants or CPAs don't know if it's a Henry-Schein order or something like that, even like a chair repair or whatever, a lot of equipment gets snuck into supplies as well, which actually should go in facility equipment.
Jake Conway: So between facility equipment, lab, and supplies, there's a lot of misallocation between those three item lines.
Tiger Savarov: Okay. Would it be possible if you share how you do the allocations, like a spreadsheet or a screenshot, of what you suggest?
Jake Conway: Yeah, I can actually send you a ... I have a 2019 allocation cheat sheet that breaks all that down every category.
Tiger Savarov: Awesome, awesome. So under supplies, you're just going to have dental supplies, and then you have a lab bill or the lab line item, and under the lab, you're going to have the implants and ortho and stuff like that, right?
Jake Conway: Yes. That will fall into a lab and what we're calling this year labs/specialties. That way we can discern the difference between the two, lab and what true supplies are.
Tiger Savarov: Got it. And what are you shooting between ... So what's your goal for supplies when it's properly allocated and what's your goal for the lab/specialty?Jake Conway: Good question. So ultimately, we want to get our supplies to 4.5% or lower and lab, we want to get that to 7% or lower. So between the two, it's 11.5%
Tiger Savarov: Okay. Where have you seen people putting CAD/CAM?
Jake Conway: Supplies. A lot of times it goes in supplies. I've seen it in office supplies as well, but that should be ... it should be facility equipment.
Tiger Savarov: Well, what about the blocks? If we look at the ... like if people are buying ...
Jake Conway: Oh, the blocks themselves?
Tiger Savarov: Yeah.
Jake Conway: Yeah. That usually goes to supplies, which should go into the lab.
Tiger Savarov: So that would be lab/specialty?
Jake Conway: Correct.
Category Sub -Category "Overhead Goal %"
Facility & Equipment
Rent
Facility/Equipment Repair
Equip Lease
Storage
Real Estate Tax
Landscaping
Alarms/Fire Protection
Building Insurance
Cable/Utilities
Computer Hardware/Repairs
Dental Supplies 4%
General Dental Supplies
Ortho Supplies
Lab Fees/Specialties 7%
Implant Materials
Crown and Bridge
Ortho (Invisilign)
Specialty Supplies
Tiger Savarov: Okay, got it. So I've talked to some of the offices, probably the last question. I've talked to some of the offices, right, and some of them are very successful, and you and I both know people that run at 2.8%, 2.9%. Obviously, the reallocation plays a huge role, right?
Tiger Savarov: They would put separate items in the lab/specialty separate in supplies, but one of the things that I hear from some of my offices, they say, "Look, I want to put implants as part of the dental supplies because if we start doing implant cases, our collections are going to go up or the net production is going to go up. So we want to make sure that it's in one category so that the budget is there if it goes up and down based on the net production that we're doing for the implants." What's your take on that?
Jake Conway: I mean, you could track that in a lab. If you have a big lab spike and overhead in general spikes, there are a few things that could come out of that. Either we're not collecting and collection percentage drops, maybe the treatment of customers is going down, whatever the case may be, but the bottom line is if, if we see a spike in the lab or overhead, then we can look at the different contributing factors to that. So I would say that's a mute point because either way, you can track that.
Tiger Savarov: But technically it doesn't matter. As long as they know where they're tracking it, they can put it under supplies, right?
Jake Conway: They could, but just know that that's going to obviously fluff the supply category.
Speaker 1: Have you seen people, and again, we'll look at your sample. Once you share it, I'll include it in the article. Have you seen people doing these allocations within the supply category? Like they will have dental supplies, and under dental supplies, they'll have a subcategory as they would do in QuickBooks?
Jake Conway: Yes, I have seen that often. In fact, so I've had actually some of the clients request in our reporting where we break out implants under lab, so we can track that stuff like implant supplies and so forth, or like Ortho sometimes we'll break out Ortho Sub Category. So I do see that, especially if it's like a big specialty office with GP/Specialty, we will just have like a blended reporting where we do break out like specific item lines out. So we can track those separately, but ultimately it does fit the bottom line of either supplies or lab when it comes to that, so, to answer it in short, yes.
Tiger Savarov: Would you suggest startups or the growing private practices to start doing it from the get-go?
Jake Conway: I mean it's nice to have that broken out for sure. If, your plan is to be a specialty of multi-specialty office or if you really want to push, you know, big cosmetics or whatever, you know, I would say that it might be a good, a good idea to go ahead and break those up just so you can track that as you grow with it. You know, if it's sort of built in, you can see the impact of not only production collection, but the cost associated with that.
Tiger Savarov: Got It. Anything else you would add to this question? What you've seen, anything that I missed that I should've asked you?
Jake Conway: I would say to make sure we're tracking on an accrual basis because sometimes that will definitely jack with the numbers month to month. So, accrual, what I mean by that is let's say you get, you know, a lab or dental supply bill, we're going to record that bill when it comes in rather than when we pay it because that's the truth, you know, the true nature and the true performance of the practice itself.
Jake Conway: So when you're trying to, you know, for dentist's office, they are trying to nail down their budget. I've worked with your CPA to get accrual basis going on the expenses side and make sure that's in place so you can get a truly accurate representation of the expenses coming in.
Tiger Savarov: So meaning you got the bill from your lab April 15th and even though you have been at 30 and you're gonna pay it May 15th, you need to record as the April 15th bill?
Jake Conway: Absolutely. That's exactly right.
Tiger Savarov: Okay. Awesome. Well, I hope this would be one of the pillars that we don't need to go back and forth on, too because I've been asking you this question probably like 55 times, and I really appreciate you finding the time for me to do it to answer these.
You can contact Jake directly for a more detailed template for budget allocations and consulting on your financials - Jake Conway jake@custompracticeanalytics.com