Income Forecasting & Monitoring is an essential management tool for any dental practice to ensure that income is sufficient to cover all the day to day running costs of the practice and leave enough profit for the owners to make a living, pay business taxes, pay off any loans taken out for the business and invest in growth.
First stage is to work out the overall level of income your practice needs to generate over the next year. You can safely use last year’s turnover as a starting point but remember this will then need increasing to take into account increased overheads including supplier bills, interest charges, wages and any plans for investment or recruitment.
Overheads can generally be increased by 2% or 3% plus any new costs which you know about e.g. new staff, service contracts, equipment leases.
Be aware that any increase in overheads over and above last year will need a much greater increase in income if your profit is not to fall – this is because a large proportion of increased earnings are immediately lost through increased payments to associates, materials and laboratory bills (known as direct or variable costs).
Typically a dental practice might work on a gross margin of 65% and a quick rule of thumb is that an increase in overheads of say £10,000 would require an increase in turnover of £10,000/65% or £15,384. This figure would increase if your are expecting your associate to deliver all the increased turnover. Principals keep a far higher proportion of income as they don’t have to pay 40%-50% of earnings away to associates.
Bear in mind that your estimated increase in turnover can, and should, come from a combination of an annual FPI/plan price increase and an increase in FPI earnings from new and existing patients.
Always remember to put your fees up by a small amount each year rather than leaving it for 3 or 4 years by which time profit has already fallen and your patients have become used to what have become “low” prices. Small annual increases are anticipated and understood by most patients.
Monthly gross earnings are easily calculated by dividing annual forecast income by 12 but is best done more scientifically by using last year’s figures and your own knowledge to make allowances for quiet periods around Christmas, New Year, Easter and the Summer Holidays. Different figures for different months is far more realistic but don’t forget to check that they add up to your required annual figure.
If you want to monitor weekly, divide the annual estimate by 50 to allow for public holidays and other normal working days when the practice is closed
Now that we know our income expectations for the year, it is time to divide this out and see where it will come from – again, making sure that the final total is equal to your required annual income:
- NHS based on your UDA contract and delivery expectations
- Membership plans based on your existing monthly income and planned growth for the year
- Fee Per Item/Reception Income (excluding NHS payments collected from patients which is already allowed for in the annual UDA figure)
We can now use this last FPI figure to realistically estimate what each part of the business needs to deliver – typically:
- Principal Dentist earnings
- All Associates
- All Hygienists/Therapists
- All Specialists
- Sundry/Stock sales
As with any objective, the split should be
Specific (specific target earnings)
Measurable (monitored weekly/monthly)
Attainable (reasonable given experience and patient base)
Relevant (within the clinicians ability)
Timely (daily/weekly, monthly time periods)
Always check that you have SMART objectives before agreeing them.
The next stage is to split out the FPI earnings to individual clinicians i.e. divide the Associate earnings plan between Associates, Hygienists plan between Hygienists, using the same SMART criteria to ensure they are fair, realistic and achievable.
If you would like to monitor your clinicians weekly, divide their annual plan by 46 weeks to allow for holidays and training days.
Monitoring of results and performance can be semi-automated to display red, amber or green traffic lights to identify any shortfall either via a graph or on the spreadsheet itself.
For support and guidance with calculating your annual income plan and creating an easily managed monitoring and reporting pack for your practice please contact Your Dental Manager