Dentist Money: Why Your Practice is Like a Pencil – Episode 5

Does the idea of paying someone else to handle things like accounting, marketing, collections, and practice management put a bad taste in our mouth? After all, you’re smart enough to do it on your own without shelling out a bunch of cash. But is the Do-It-Yourself approach really saving your bottom line? In this episode of the Dentist Money Show, we discuss the most common reasons dentists decide against outsourcing, the difference between effective and useless outsourcing, and how to get the most out of your consultants and contractors. We also follow the incredible journey of a pencil from tree to Scantron.

Podcast Transcription:

Reese Harper: Welcome to the DentistMoney Show. I’m your host, Reese Harper, here with my co-host, Ryan Isaac.

Ryan Isaac: We are going to talk about pencils today, Reese. This whole podcast— just pencils.

Reese Harper: That’s what I used back in elementary school. Is that what I type with, a pencil?

Ryan Isaac: Remember your Scantron? They were very specific. You’d be stressed if you forgot your No. 2 in your backpack.

So we’re going to talk about pencils. Everyone has probably heard this pencil story. How do you make a pencil? Have you ever thought about this before? If you were going to make a pencil, where would you start? What do you think you would do? It seems easy.

Reese Harper: I would probably grab some wood and chop it down. My wife would not let me chop down any of our trees, so I would probably have to hike up Big Cottonwood Canyon. I would head to the top where the big boys were at and chop it down.

Ryan Isaac: Then how are you going to get out of there?

Reese Harper: I would probably bring a large truck. So I need some kind of a saw; I would probably use a DeWALT. I’ve got to have a hand sander or some kind of a sander to make it smooth.

Ryan Isaac: What’s the shape of the pencil? Is it a hexagon?

Reese Harper: Yeah, how do you sand that? Now I’m lost. I don’t know how you get it that shape, probably some kind of factory I would need.

Ryan Isaac: So you need a factory now. You need to haul the lumber, drills to drill the hole in the pencil for the led. And I say led with floating quotation marks. You know why?

Reese Harper: Because it isn’t led, it’s graphite. Because you’re not supposed to get graphite in your body, or is that led?

Ryan Isaac: No that’s led. I actually do have the tip of a pencil from third grade in my palm still. I’ll show you later. So I hope it’s not led, but this was the 80s.

But it’s graphite mixed with clay. So you have to mine the graphite. This is getting more complicated. Then there is the eraser—which is just pieces of rubber, except it’s not. There is a mineral, it’s an oil mixed with sulfur chloride. This is all just off the top of my head by the way. I’m not reading this anywhere. There is a chemical mixture called factis that’s mixed with the rubber—that’s actually what erases the pencil, not the rubber. The rubber acts as a binding agent.

And then the metal ring at the top by the No. 2 which is actually zinc and copper, so you’re going to have to mine and shape that, too.

Reese Harper: You’re telling me in this analogy that came up that I don’t have what it takes to make a pencil. I don’t have all the gear.

Ryan Isaac: The point of today and the illustrious pencil story and the factis is that there is a lot of moving pieces, and it doesn’t always make sense to do it all yourself. Today we are talking about outsourcing and why dentists do or do not outsource certain things and why they should or should not.

We’ll start with the question: Why don’t dentists typically outsource certain things that maybe they should?

Reese Harper: Well we’re talking about accounting, marketing, practice management, real estate, investment management, legal work. Those are the areas we are generally talking about, and my guess is that people generally don’t want to pay for things that they feel like they can do themselves. I’ve been there. The first month of business you’re about to do $10,000 in collections, you’re a little hesitant to go out and hire a consultant. I get it. You kind of turn into a DIYer. That’s when I remember telling you, “Hey man, can you just be the web designer?”

Ryan Isaac: I remember the phone conversation when you asked if I had Adobe Dreamweaver skills. “Do you know Adobe Dreamweaver, Ryan?” I said, “I don’t know, but we can Google it.”

Reese Harper: You should have seen the first job description. It said: We need you to be a PhD in finance and sit at the front desk, plus develop websites, do sales of some kind. Can you trade? Do you know anything about investing?

Initially, you kind of turn into a DIYer, and I think most people are in that camp. I was just on the phone yesterday with a guy, and I was thinking about how this is a perfect example of someone getting in the habit of being a DIYer, and you’re sixty-two and still a DIYer. You have DIYed for so long and you’ve retained it. You’ve learned almost every skill. I think bottom line is that they don’t want to pay for things they can do themselves because they’re DIYers, but you miss the opportunity to deepen your knowledge in other areas that are more important than the defined tasks that can be paid for. I think second, they’re worried they will get taken advantage of. People are worried that someone else is going to hose them for good reason. I can do my contracts, figure out how to do marketing, do my own books; I know how to do this finance stuff. But at the end of the day, you need to remember that you’re worth $500-$600/hour when you’re working as a dentist. And usually it’s not worth your time to do things that can be done by somebody else who probably could do it better and faster at a much lower cost than you. So if you’re saying you can do it in between hours, in between patients, after hours, or before work then you should be using your extra time to figure out ways to fill in those gaps with a fuller schedule. Or you should listen to our last podcast and not burn the midnight oil so you can be ready for your patients that need you to have that energy. Don’t burn the oil at the expense of relationships in the name of hard work.

Ryan Isaac: Right, so point number one: let’s talk about the whole purpose of outsourcing. Why should a dentist outsource? What’s the point?

Reese Harper: For me, it’s all about maximizing your time and productivity while you’re at work. When you are there, you need to be efficient and use your time to do the highest revenue-producing things you can. You need to leverage the skills and expertise of other people so you can do that and get better results in the work that you are doing.

Ryan Isaac: So working on your Facebook marketing or day trading between patients is probably not that important?

Reese Harper: I think the question you need to ask yourself is: can anyone else do this? We will get to that a little bit later. But I think the simplest way is to ask if anyone else can do this.

Ryan Isaac: For a lower cost and more efficient.

Reese Harper: The most successful dentists get to the point where a lot of things they are doing can be done by somebody else. I think they do that so they can free up more time. They get more life balance, they make more money, and they service more patients. This improves the quality of service. Sometimes people choose not to do more volume, but they choose to have higher quality service and have better margin or charge more. I think you can’t get there until you have gotten things off your plate.

Ryan Isaac: So that would be the purpose of outsourcing?

Point number two: as you mentioned, most dentists have outsourced to some extent. The savvy, successful dentists will tend to do that over time. But chances are, and this is the whole point of today’s show, is they might not be tapping into the full potential of these resources.

Reese Harper: There are areas that we listed off: accounting, marketing strategy, consulting, and a few others. Let’s just hit each one and talk about them a little bit. You’re a big fan of this accounting idea. So the easy part of doing accounting is getting your tax returns done and completing your books. That’s the task. And when you say, “outsource your accounting,” a lot of people are going to say, “well my taxes are being done, and I’m outsourcing my bookkeeping.” So you got that part done, or maybe some of you are still doing your own books or having someone in your family do your books. The hard part is, how accurate are your financials? Can you use them to make decisions? Are they being compiled in a way that lets you see where your money is actually going? Are your payroll expenses lumped into a line item of $472,000 under the category “Payroll?” Or do you know how to segregate between front and back office cost and can you see where your hygiene expenses are vs. any associates you have? Are your financials organized well enough to be able to see that kind of information? Anything else you like about accounting?

Ryan Isaac: I think it’s important to point out what we’re going to be talking about. We’ll list a few of these things and discuss the easy part of it and then the hard part that is maybe missed.

Reese Harper: Let’s talk about marketing strategy a little bit.

Ryan Isaac: The easy side of marketing strategy is getting some mailers out and throw up a Facebook account and get a website. It’s not hard to get a website anymore. There are free ones. You can do some gifts or have someone drive around and drop off some cookies.

Reese Harper: There are activities, but most of these, the hard part is the analysis. With the financial side of it, which we’re kind of deeper into, on the bookkeeping it is: what are my books telling me? On the marketing side, it’s similar: what is my marketing telling me? Where are my new patients coming from? Am I replicating the most successful marketing activities based on new patient acquisition? If I am getting fifty from this source, what is each one costing me? There’s a lot of deep dive that you can do in marketing that people don’t get to because they are tied up with any number of these other things.

Ryan Isaac: Crossing tasks off the list. We’ll touch on these later, but it sounds like you are talking about having good data.

Reese Harper: The third one I’m thinking of is the idea of consulting. You hired someone to help you; that’s’ the easy part. But a lot of people rotate through consultants very infrequently, or they will have someone their entire career. That might be okay in some cases if the consultant is varying the kind of work they are doing within the practice. But a lot of clients need to rotate through people that are giving them practice management advice because they need to target specific parts of their practice that need adjustments, not just broad help but really isolate things that are wrong with the practice. If you have an associate transition problem, that’s very different than scheduling or compliance and HR vs. digital marketing or location research. The hard part is identifying people who can help you in a specific area.

Ryan Isaac: Which might mean multiple people in the same category. You might have multiple consultants in a practice helping with various specific targeting things.

Reese Harper: One other thing that’s interesting is that you can write a big check—that’s easy. I know it’s painful, but it’s literally easy to write a check. It’s much harder to take time to know which check to write then it is to just write a check. The real work of a business owner is analyzing the information, and the real work of a dental practice when it comes to marketing or consulting is analyzing the right fit. People don’t like to do a lot of research; we talked about it when it came to hiring a financial advisor a few podcasts ago. People just don’t like to spend the hours required, and that’s why outsourcing is so important. You really do need to budget a certain amount of time in your week for analyzing what’s going on. That will help you hire the right consultant.

Real estate. Talk about that a little. What’s the easy part about real estate?

Ryan Isaac: Just going and looking at something. You can look online or drive around.

Reese Harper: In a lot of ways, I think it’s easy to just get a space and buy it. But the hard part is the analysis of determining the ideal size, flow, demographics research, own vs. lease. Is multitenant best? Should I do a condo or retail space? What kind of lease agreement should I have? That’s complex.

Ryan Isaac: You’re talking about multiple people that have different expertise in these different areas to actually help out with that, just on real estate alone.

Reese Harper: Yeah, and I think the reaction that most people have, if you’re like me when you start your business is, man there’s another thing on my plate to do. And you just want to get it done.

Ryan Isaac: The person that helps with space optimization and equipment flow is different from the person that decides the financial ramifications of lease vs. own, and there’s a different person that decides if this is a good location with high traffic and growth in the area.

Reese Harper: I just think it’s really important for people to find relationships that have specific expertise in areas that they are lacking.

Let’s touch on personal finance and corporate finance—like your 401K and your personal financial planning. It’s easy, in my opinion, to invest in a mutual fund, put money in an investment, or to get someone to give you a 401K. It’s really hard to determine the mix between how much you should have in your 401K vs. in your emergency fund or taxable account. It’s really hard to know if you should sell an investment at a particular time in the year to pay a capital gains tax that is lower than it will be if you wait. Tax management is also really hard within your investment planning. For me, that’s a challenging thing; I do my own stuff, and with your help you pretty much do my own planning. I think the hard part is determining the amount of funding that should go into each account and the frequency and the tax that you are going to take or not take out of each account. That’s more complicated. Those are general hard/easy comparisons I want to make of what’s easy about outsourcing and what’s hard. Most people just stop at the easy.

Ryan Isaac: Point number three: what can do we to make sure that we outsource in the right way? How do we know we’re doing it right?

Reese Harper: Before you hire any internal employee or engage a contractor, you’ve got to know the ultimate result you are trying to accomplish. A lot of dentists will say something like, “I’ve got to have a website.” So they go out and pay a developer thousands of dollars to build a website, but the website doesn’t do any good unless it accomplishes a business objective. Going into it—instead of saying, “I’ve got to have a website,” the mindset of the dentist should be I need more patients from local searches, or I need to generate awareness of my practice in the city that I’m in. The website is just a thing that’s easy to get, but the strategy and the analysis becomes a means to an end.

Ryan Isaac: It’s the “why” behind it.

Reese Harper: You’re trying to get more patients. You’re not just trying to get a website up. So where you live, the density of your city and the demographic of who you’re trying to go after in your practice. How are you going to be able to track those people through the website? That’s the better way to deploy a website than just throwing one together.

Ryan Isaac: You just reminded me, we were talking about retirement accounts. It’s really common to hear a dentist say, “I need a retirement plan at the office.” Or they will say they need a 401K or a simple IRA. There are a dozen different kinds to choose from, and knowing why you need this and what the ultimate thing you’re trying to accomplish is important. Is it maximization of dollars? Is it keeping costs down inside the practice while still providing a benefit? Does it have to do more with the benefit given to employees and how they will perceive it? There are a lot of questions you need to ask behind those things. You can go online to have someone set it up, and it’s done.

Reese Harper: Yeah, that’s the easy/hard right? Once you have identified who the right person is that you’re going to try to outsource to, because you have to determine the right fit in a given area. Ask for a lot of references, look at a lot of different people to compare pricing and services, and then reach out to their references to gauge how they work, what kind of style they operate with, if you get along with them, how proactive they are at communicating, how much they focus on results vs. just getting something done for you. I think that’s important.

And the last thing on that is in my opinion, a good consultant will always provide recommendations based on data that drives improvement. They’re not just there to do a task. They are really focused on results, and you want them to be focused on data. That’s our bias, because we see a lot of people running around doing jobs. At the end of the day you’ve spent $75,000—what did you get out of that? Or you spent $42,000—where did it go? There’s really good consultants out there that add a ton of value. There are good marketing consultants; there are good CPAs; there are good attorneys and real estate professionals. There’s a ton of services dentists can engage, but some people are really focused on outcomes, and some people are just focused on sales and getting in. You will notice in the fee structure, too. I just think it’s important to have that perspective. You have got to hold yourself accountable for picking the right person, and you need to hold the service provider accountable for work that they are going to deliver to. You can’t just be a lemming and let your whole career pass and not make changes when something is not up to par.

Ryan Isaac: Let’s recap then and summarize what we’ve learned today. Number one is don’t try to DIY everything forever in your career. Now is there a point early on where that’s reasonable?

Reese Harper: Yeah, I think there’s a place where you mow your own lawn when you don’t have the money.

Ryan Isaac: Because I feel like some people are going to listen to this and think, yeah sounds good I would love to just pay people stuff I don’t want to do.

Reese Harper: You have to start small and not in massive increments, and you have to prioritize. I really would prioritize anything that increases collections as a starting point. Then I would work on things that take up my time that I can eliminate, and you don’t outsource everything all at once. You do it at a reasonable percentage of your collections. If I am doing $500,000 in collections, my total budget for marketing is different from legal and for accounting and finance. You have to determine based on the size of your practice; that’s how you determine what you can afford.

Ryan Isaac: And that kind of goes into point number two: you have got to know the result you’re after before you just start going after checking off tasks on a list. Know what you’re trying to get after. And like you said, if it’s really in your career, your focus should probably be increasing collections and making the practice more profitable.

Reese Harper: I would clarify between those things—there’s a big difference between being profitable and growing collections, and what you want to do initially is just try to get new patients and grow, grow, grow.

In my opinion, a lot of people don’t spend enough on marketing. Sometimes they will spend a lot on what they think is marketing, the easy part which is writing checks. But if marketing dollars are being spent effectively, it really will help protect you. I’m surprised by how many people are stuck at $750,000 and they want to get at $850,000 or they are at one million and they want to get to two million, or they are at $300,000 and they want to get to $500,000. Wherever they are at on collections, it’s amazing to see how they think they are marketing, and then I look at their budget for outsourcing anything and it looks like they’re doing nothing in their practice except for hoping that people keep coming in, and they’re spending less than one tenth of one percent on your sales.

Ryan Isaac: Number three would be: ask for references.

Reese Harper: Totally. We’ve hit that. I’ve beat that over the head; I think that’s important.

Ryan Isaac: Yeah, don’t say anything more. Please. I was hoping you wouldn’t.

Reese Harper: just have good data. We’ve talked about this a lot—we’re big fans of making decisions based on good data. It takes the emotion out of a lot of things.

Reese Harper: A good consultant doesn’t simply check things off the list. They really are going to make decisions based on data.

Ryan Isaac: Well, one more question: how many pencils will the average tree produce? Act like you don’t have this on the paper in front of you.

Reese Harper: Like ten.

Ryan Isaac: Oh, good guess, Reese. Almost but not quite.

Reese Harper: The average tree? This number really does surprise me—170,000.

Ryan Isaac: I wouldn’t have guessed that either.

Reese Harper: That’s a lot of factis.

Ryan Isaac: That’s a lot of Scantrons too for all the Scantroners still out there.

Reese Harper: Keep your No. 2s close, people. Keep them on hand.

Ryan Isaac: Thanks for listening today. As always, please leave us a review on these podcasts. It gives us good feedback. If you want more information go to our website. It’s dentistadvisors.com. You can sign up for our free newsletter on there. And if you would ever like to chat with us, give us a call; the number is on the website or you can click on a link at the top to see our calendar and schedule a time to talk to us.

Reese Harper: Carry on.

 

Practice Management