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10 Ways to Deal with Debt
Reduce the stress and limitations of practicing with a high debt burden
Before 2008, most dentists felt confident that they would be able to pay off their debts in a reasonable amount of time. The cost of dental school and going into private practice might have caused some sleepless nights early in their careers, but as their practices grew and income rose steadily, doctors could focus more on dentistry and less on debt service.
Since the Great Recession ushered in the challenging new dental economy, practice owners have become much more concerned about coping with debt obligations. Several years of flat or declining production have forced dentists to contemplate financial scenarios that were once unthinkable.
Here are ten recommendations for preventing debt from creating excessive financial stress, limiting the rewards of a dental career, and even delaying retirement.
1. Add Financial Expertise to the Team
As in so many other aspects of running a practice as a business, the most valuable piece of advice is this: Rely on experts. In this case, that means a dental-knowledgeable accountant and—to address personal money matters—a certified financial planner. They know things most dentists don’t and can have a tremendous impact on the bottom-line results for the practice and for the doctor. It’s important for dentists to be open with them about their individual situation, concerns, and goals, and these experts will almost certainly surprise doctors with ideas and strategies they would never come up with on their own. Typically, payment for their help is repaid many times over.
2. Consider Debt Refinancing and Consolidation
Once a debt is incurred, there is an obligation in most cases to repay the principal as well as interest. Unless someone else is willing to take on the debt, and assuming that defaulting on a loan is out of the question, it is important to examine loan repayment terms. In many cases, a loan can be restructured to make monthly payments more affordable. Multiple loans can sometimes be consolidated into a single, larger loan that requires a lower monthly outlay. While the bank or other lender may suggest such options, there should be no commitment made to a new arrangement without first reviewing it with an accountant or financial advisor.
3. Sell Off Assets
It is possible to reduce one’s debt load—sometimes dramatically—by letting go of possessions acquired when the financial future seemed brighter. Whether it’s an underutilized beachfront condo, a luxury sports car, or a collection of antique dental instruments, anything of significant monetary value that can be comfortably sacrificed should be sold, and proceeds used to reduce overall debt load. If payments are still being made, they can be trimmed from the monthly budget, and if there are capital gains on the sale, they can be applied other loans. In either case, with the help of an accountant, tax ramifications should be calculated.
The remaining recommendations involve improving cash flow to make it easier to meet financial obligations.
4. Create and Follow Practice and Personal Budgets
Those who are not tracking all income and expenditures are most likely either spending too much or using their money inefficiently. Those who are focused on dealing with debt must exercise fiscal discipline through budgeting. It doesn’t have to be sophisticated, but it must be comprehensive, specific, and taken seriously. Business executives who make a budget and then ignore or override it usually fail as leaders. In simple terms, a budget makes it possible to track how much money is coming into the practice (or household) from what sources and to set limits (or at least targets) for how much should be spent, category by category. This enables dentists to see how closely actual spending corresponds to the budgetary plan. The point is to exercise control and get feedback on steps taken so that corrections can be made as needed.
5. Increase Production
The more revenue coming into the practice, the easier it will be to make monthly loan payments. There are many ways to increase production, from getting more referrals and improving case acceptance rates to offering more services and adjusting the fee schedule. Practices that are falling short should use target-driven, step-by-step management systems, training with scripts, and proven marketing strategies to improve performance.
6. Improve Collections
According to the latest statistics from the Levin Group Data Center™, on average dentists are only collecting 94.2% of the fees they are owed. In other words, they are losing more than 5% of what they earn. This may have been tolerable in better times, but in today’s tight market, such a reduction of revenue can wreak havoc on practice finances. Fortunately, there are a number of effective ways to minimize this problem. For example, by encouraging outside patient financing for larger cases, practices can outsource the risk of non-payment (not to mention the time-consuming processes of billing and collections) in exchange for a modest fee. Staff can also use scripting in conjunction with systems to educate patients about payment requirements and implement simple yet effective collection techniques that will raise the collection rate to 99%, the target Levin Group sets for its consulting clients.
7. Search for Ways to Reduce Operating Expenses as a Team
Although dentists may be running their practices, their staff members may well have a better idea about exactly how money is spent and how it can be saved without sacrificing the quality of care or customer service. They can be a tremendous resource for cost-cutting suggestions, that is if their help is sought. A recommended approach is to kick off the process with a special team meeting to brainstorm ideas, followed by reports on implementation and the inclusion of cost-cutting discussions in monthly business reviews and other major staff meetings. This will not only cut costs but is also likely to improve team morale and commitment.
8. Scrutinize Overhead
Spending less to operate the office enables dentists to retain more of the revenues that are generated; therefore, they have more to work with when it comes to making loan payments, paying other bills, and providing more doctor income. Though savings in this area might be incremental, they’re still worth pursuing. This involves going through all practice expenditures, line item by line item. Inventories of clinical and office supplies should be checked to determine whether there’s waste that can be eliminated; consideration should also be given to renegotiating contracts with suppliers.
9. Consider Using Bonuses Rather than Raises
If the practice debt load is making it difficult to commit to pay increases, a bonus system may be the answer. By linking bonuses to increasing production and collections, the practice will be spending more only if it is taking in more.
10. Take Less Out of the Practice as Discretionary Income
Dentists who are highly stressed because practice cash flow can’t keep up with loan payments should consider adhering to a tighter personal budget, at least temporarily. It may hurt less than expected, and if it enables them to whittle away at their debt a little faster, it could relieve their stress, too.
Dentists concerned about debt load should consult with financial experts, involve their practice team, and investigate ways to increase real income while reducing expenses. As a result, they will experience less financial stress and more enjoyment in caring for patients.
The comments in this article are not meant to be taken as financial advice. Levin Group recommends that dentists always consult with their financial planner before making any significant changes in their financial situation.
About the Author
Roger P. Levin, DDS, is a third-generation general dentist and the chairman and chief executive officer of Levin Group, Inc. Readers who want more of Dr. Levin’s advice can attend one of his upcoming, all-new seminars; more information is available at www.levingroup.com/gpseminars. You can also connect with Levin Group on Facebook and Twitter (@Levin_Group) to learn strategies and share ideas.