Four Priorities for a Successful COVID-19 Recovery
Roger P. Levin, DDS
In light of the COVID-19 pandemic, the dental business may be forever changed. Judging from past recessions, with patients wanting to reign in their outlay of precious finances, practices can expect to experience some degree of lost patients, rejected cases, and low hygiene production. Additionally, the need to address patients' significant safety concerns will be heightened.
The good news is that there are fundamental strategies dental practices can use to effect a business turnaround. These tactics coupled with knowledge from lessons learned from previous economic downturns can help practices recover successfully.
The Great Recession of 2008-2009
An examination of the impact of the 2008-2009 recession can perhaps help forecast potential outcomes for dental practices post-COVID-19. Prior to that recession many economists believed dentistry was a recession-proof business. However, as the longest and deepest recession in US history, it was also the first recession that actually directly affected dental practices.
According to my company's data center, during that recession, which officially lasted from December 2007 to June 2009, 75% of dental practices declined in production, annual growth in implant dentistry dropped from double digits to less than 3%, many patients never returned to their dentist because of financial challenges, and case acceptance, especially for larger cases, declined.
The stark realities that impact dental offices following recession demand that practices alter their course. Practice management during and after a crisis must be approached from a business turnaround standpoint, which is very different than normal day-to-day management under typical circumstances. After COVID-19 it will be important to identify and adhere to several high-priority and measurement strategies that will assist dental practices in their recovery.
Critical Factors for Practice Recovery
For practice recovery to be successful, dental practices should consider the following four critical factors:
Revenue.Revenue may be the most important factor in a recovery. Every practice should analyze revenue weekly and identify the break-even point where all expenses have been paid. If the practice can generate enough revenue to pay expenses, it has by definition survived; if the revenue exceeds the expenses, it now has profit. This may seem obvious and simplistic, but it is the key element underlying a business turnaround or practice recovery.
Practices should take steps to generate as much revenue as quickly as possible. This could include offering expanded office hours, decreasing staff vacation time, scheduling the most productive cases as early as possible, and focusing on a higher volume of smaller cases. Specialists should have a strong focus on referrals to create a stream of patients to generate revenue.The faster revenue increases, the sooner the practice can accumulate cash.
Cash.The old expression, "Cash is king," is absolutely true. When businesses have cash, they operate from a position of strength, which helps makes them successful. Based on my company's data center's survey of practices during the COVID-19 crisis, it appears that 90% of dental practices had less than 1 month of cash on hand to cover expenses if no new revenue was generated. Fortunately, some practices were able to access government loans. A practice should always have 4 months of cash available. This cash should be placed into a separate reserve fund so it does not appear as
part of the practice operating account and may be taken as income later if it goes unused.Practices with cash will have the resources to survive the downturn in production that occurs during a crisis and which may occur during the pent-up demand following the crisis.
Expenses. During this current crisis, many practices have tried to keep expenses as low as possible. This makes perfect sense when practices are shut down. However, in a turnaround, businesses need resources in order to grow. They need to be able to buy the necessary supplies and hire the right employees to execute systems, fill schedules, complete procedures, and collect fees-everything needed to increase production, build revenue, and accumulate cash. This will not happen if expenses are continually cut to minimum levels.
In the 2008-2009 recession many practices massively cut expenses and after 12 months were able to demonstrate higher profit than they had had in previous years. While this seemed good to many dentists, the problem was that businesses can only make enormous cuts once. By throwing everything out of the lifeboat, so to speak, many practices soon began struggling as production declined, and the strategy of simply decreasing expenses was not enough to make up the difference.
Of course, any wasted expenses should be eliminated and systems streamlined and simplified. However, key staff should be retained and retrained to focus on the highest priorities, such as scheduling patients, reactivating overdue patients, collecting money owed to the practice, properly tracking and managing dental insurance, and following up on incomplete treatment or cases that were accepted but not scheduled. Functions that have to do with prioritizing business turnaround or practice recovery should become the focus of every team member.
Advisors. The COVID-19 crisis has been unprecedented, and most dental practices have needed assistance from outside resources to get through it and will likely continue to need help. For example, CPAs were invaluable dealing with the government loans offered during the crisis, a process that was confusing for many practice owners. Labor law attorneys were critical in understanding the best options to terminate, furlough, or retain staff and handle unemployment. Consultants were key in recommending what to do prior to reopening and in the three phases-pent-up demand, decreasing production, and recovery-that are expected to follow. Financial advisors were vital in realigning portfolios and projecting gains and losses as the stock market, bond market, and most other financial indicators fluctuated. Moving forward, professionals such as tax accountants and tax attorneys will be essential as taxes inevitably increase.
Advisors can play critical roles as practices make their way through the recovery. Reopening cannot be approached with a "business as usual" attitude. Practices will benefit from knowing how to navigate weekly measurements, prioritize payments, negotiate expenses, handle insurance plan options, prioritize patient scheduling by production, understand expanded financial options for patients, and a host of other factors.
COVID-19 recovery will not be business as usual. Never before have dental practices been forced to shut down, nor has a recession ever occurred that included both health and safety concerns and deep economic challenges. In the end most practices will rebound, but in the interim, practices need to rethink how they view dentistry as a business. Focusing on the four critical factors outlined above will help practices implement high-value strategies, track results on a weekly basis, gradually increase cash and profitability, and ultimately survive. Also, clinicians may visit the author's practice management company's COVID-19 Recovery Resource Center at levingroup.com to learn how to create a one-page COVID-19 strategic recovery plan.
About the Author
Roger P. Levin, DDS
CEO and Founder, Levin Group, Inc. (levingroup.com), a practice management consulting firm that has worked with more than 30,000 dental practices