Dentistry Uncensored with Howard Farran
Dentistry Uncensored with Howard Farran
How to perform dentistry faster, easier, higher in quality and lower in cost.
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Apples to Apples - Dental Intel with Adam Smith : Howard Speaks Podcast #50

Apples to Apples - Dental Intel with Adam Smith : Howard Speaks Podcast #50

2/18/2015 10:32:16 PM   |   Comments: 0   |   Views: 1434

Adam Smith, VP of Analytics at Dental Intel, shares his expertise on practice overhead, accounting in a dental office, uncovering embezzlement and more!

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Stream Audio Here:
HSP #50 with Adam Smith Audio

Watch Video Here:
HSP #50 with Adam Smith Video

Links and References from the Show:

Dental Intel was founded by Business Intelligence Gurus with decades of experience helping dentists achieve financial success. Our innovative technology harnesses your practice data to provide a focused look at key performance indicators (KPIs). Then a Dental Data Analyst provides actionable recommendations to improve your practice and accomplish your goals. Dental Intel wants to help you go beyond basic business optimization to achieve a lasting change in your quality of life.

'Dental Chart of Accounts' - click here

Prior Episode with Curtis Marshall of Dental Intel: 
Your Top 4 Key Performance Indicators, Dental Intel with Curtis Marshall : Howard Speaks Podcast #21

Adam Smith's Bio: Although he is not the founder of economics, Adam is just as valuable. Working with dentists to help them understand the story data presents, he and his team are a valuable asset to those that use Dental Intel. At home he is playing the guitar, as his dog Rusty sings along.

Websites, Emails, Phone Numbers and Products Mentioned:


Howard Farran: 

It is a great honor for me today to be talking about something that dentists just don’t want to talk about and that is the financial accounting side of dentistry. 

I’m a dentist, I get it. I mean I would rather do a root canal than play golf. I swear to God the most fun thing I do in my life is try to pull all four wisdom teeth in under five minutes. Always after they’re all numb and ready to go, I always set a timer just because it’s thrilling to get out each wisdom tooth in under a minute. 

I love dentistry and when you come out of dental school and you start a dental office the first week where you’ve got to make payroll, there’s not a dentists in America that even knows how to do payroll. I mean in eight years in college we don’t do payroll, I’ve never met a dentist- I’m fifty-two years old, I’ve never met a dentist that can tell me his return on equity, his return on assets, if they tell their profit margin and you zero down on it and say what’s your labor? 25% I think? And I’ll say well does that include health insurance and FICA matching and payroll taxes and continued education? I don’t know.

 They don’t know. If you put a post up on Dentaltown: Why did this root canal fail? It will get a gazillion views and comments and if someone puts up there and says what should my supply cost be? He might as well talk to himself in the closet. It’s an honor today and you’ve got a big task on you, Adam Smith, how do you get dentists to focus on something that they don’t want to focus on? The business side of dentistry. The accounting side of dentistry. How do you do it? 

Adam Smith: Good question Howard. A lot of times the people that are coming to us are the ones who are really in need. They haven’t focused on it for quite some time and they find themselves in a really tight spot and they realize well maybe I should focus on this because it’s not where I want it right now I don’t really know how to get there so a lot of it comes from need and then there are a lot of dentist that are business savvy and they realize either number one that I don’t know how to do it or number two that they don’t have the time to do it and they don’t want to do it, and those are the other people that generally come to us, so creating a lot of interest. It’s there. If people aren’t making what they want to make, they want to know why they’re not and they want to understand what numbers they need to focus on to make what they want to make. 

Howard Farran: I’ll defend my fellow dentists any day of the week and I think the one problem that dentistry has which is just completely insane and ludicrous is all the practice management software is available, whether it be Dentrix or Eagle Soft or Open Dental or whatever. None of them connect to QuickBooks, Quicken Online. Microsoft owns Great Plains Accounting, Peachtree Accounting, the big one that runs the Fortune 500 is, what’s that out of Germany, GAS or AGS, I don’t know it’s what the all the Fortune 500 use but there’s just no accounting software. 

So the dentist has got the software and he’s got: I need to schedule Adam Smith for an hour for an MOD and I can bill your insurance I can make your appointment I can do all that but then when go to pay my rent, mortgage, equipment, computer insurance sundries all that stuff it’s an accounting software and these two things are not on the same platform, which is completely insanity and if you set up your practice management system and said well how many operatories do you have? Four, and you said okay what are your hours? Monday to Friday eight to five and you could just start assigning costs to all these deals and then if you got the PPO sheet that said we’ll pay you two hundred dollars for a filling and the schedule says oh he takes one hour to do a filling and he knows the overhead, and they say oh doctor it costs you $210 to do a filling, so if you sign up for this plan at $200 you’re losing $10 on every filling. This is just so obvious so your entire industry is invented because of the incompetency of Dentrix, Eagle Soft, Open Dental- go down the line, none of them can do the basic obvious. Isn’t that kind of sad?

Adam Smith: Yeah it is, that’s what we run into all the time. They understand how to use their practice management system, they understand how to put that in, they understand what needs to happen from A to Z in their practice, but at the end of the day they don’t know a lot of time how that’s affecting their bottom line. They can see how it’s affecting their topline with production and collections but they’ve go on a completely different software and they don’t see the effects of what’s happening in the practice management system on what’s happening the financials.

Howard Farran: Right and it’s all their fault. I mean when you go into publicly traded restaurants those guys have management information systems that says hey Adam, it’s 9 o’clock, our store closes at midnight. From 9 to 12 we’re only expected to do three hundred dollars you’re supposed to have 18% crew labor and right now you have six people clocked in so you’re going to run at 27% crew labor so you need to send home two people and the twenty-seven year old office manager punk running a franchise restaurant that does three million a year bulls eyes it because he has some help. 

Here’s a dentist that knows calculus and geometry and trig and physics and chemistry and biology and he might as well be Stevie Wonder. He has no data to work with. It’s just crazy. Don’t get me started on it. 

So you started with basically the Japanese proverb that successful man fall down seven times get up eight most of your new clients it sounds like they kind of fell down, their not sure about the finance, they’re not cash flowing. 

I think the big red flag I hear from dentist saying: I say well why don’t you get a consultant why don’t you get help? He goes well my CPA told me I need to write a check to the IRS for forty-four thousand dollars and I had twelve hundred dollars in my savings account and I knew something was wrong. So you’ve been doing this for over a decade you have over a hundred dental clients, explain to me what a new dentist walking into you looks like. Try to describe the average dentist, what are they walk in there, what they don’t know, how do you help the average guy walking into your front door Adam?

Adam Smith: Great question. Initially we just start with the financial analysis looking through their financials a lot of times they’ve been doing their books by themselves and that takes some cleanup getting it into proper categories so we can compare apples to apples and a lot of people don’t understand this, when their friend says I’m 50% profitable that doesn’t necessarily mean that they’re 50% profitable in the way that you would determine 50% profitable. 

So we want to compare apples to apples before you make decisions on financials. We restructure everything, make sure that things are properly classified, look through and if they are not properly classified we get the details on it and get them into the right categories so that we can give a proper benchmark so that we can say yes, your supply costs are high and we know that we are not saying your supply costs are high when their supply costs are actually in line, but they’ve got some office supplies lumped in with dental supplies so we make sure things are in their proper categories and we say this is where you’re coming in at in all of these ratios. 

This is where you can be and really where you should be and then we look at what we’re going to do after that is pull the practice information in with things that they’ve been putting into their practice management system and say these are properly some of the effects on this number and why it’s not where it should be it could be that you’re paying too much your supplies or it could be that you are ordering too many supplies it could be that you’re paying too much for your lab or it could be that you’re not doing very much lab related work so you have a lower production per patient, but once we figure out what the picture looks like on the financial side, bringing in their QuickBooks things that sometimes people don’t like the look at, then we know where to focus on what direction to send a dentist on what they should be looking at out of their practice management system.

Howard Farran: You know I want to say couple of things of dentists that, by the way I love your name, I mean you’re Adam Smith, I mean that the first book in economics what Adam Smith, the Wealth of Nations and by the way, that’s kind of an interesting, creepy story. 

It was two 32 year old Scots in 1776, one Adam Smith wrote the Wealth of Nations which with free markets and then Thomas Jefferson wrote the Declaration of Independence, which was free people and America was the first time you mixed free people with free markets and it was such an economic explosion that 250 years later we’re still the richest country in the world and your mother named you after that Adam Smith, because she knew you were going to go into dental practice management. 

Your mother just called it the minute she saw you. She said this man is taking Adam Smith to dentistry. Tell your mother thank you for that. 

I want to say a couple of things, when Adam goes into an office and he’s looking at high supply costs- I’ve seen people complain to their supply rep from Patterson, Schein, Benco, Burkhart and they say well my supplies are too high and the nice supply lady is saying well, we have different gloves for you and the two hygienists if we could agree on just one type of glove, they’re like no we don’t want that and she’s like well you use the most expensive bonding agent known to man could we use this one- no! 

So you say I want low supply costs and then when these reps tell you how to do that. You’re just like a two-year-old tantrum throw yourself on the floor and it’s the same thing with labs. So the dentists- you should go price that you sold this, minus your cost equals your profit- dentists doesn’t do that. 

He signs up first for a PPO and then he sends it to the greatest lab known to man so he’s getting paid for a Chevy, sends it to a lab that makes a Mercedes and then he’s mad that his overhead is too high and then I’ll say well you’re the one who agreed to this PPO and for my international viewers a PPO is preferred provider network where they agreed to give you a volume of patients, but you have to do everything for a reduced fee and by the way our viewers- they don’t have insurance and India and China and Africa and Latin America, but anyway so you decide that you’re going to accept seven hundred dollars for a crown, but then you send it to some lab that wants a hundred and fifty, hundred and sixty, hundred and eighty bucks a unit and I’ll say well why don’t you send it to Glidewell? No I think this lab up the street is the best one in the world.

Okay well then cancel the PPO. Go to the market and say hey, we sell Mercedes, Lexus Porsche, we’re treating people who have a lot of money and pay cash, and you say oh no I want to treat the poor. It’s just mutually exclusive ideology you can’t sign up for low cost and then have everything high-priced.

A dentist needs to listen to people like you and say hey, I think your strongest asset is Adam, that you can go to that individual dentist and say dude, I’ve got data on over a hundred docs I know you think that you’re reinventing the wheel but I’ve got data for hundred docs for over a decade, so what decisions are you trying to get these guys to make and you started with- basically it’s silly -dentistry doesn’t have a chart of accounts. 

How come the American Dental Association doesn’t have a standard chart of accounts because you see that at a practice management study club, all these guys are saying numbers I’ve got an MBA I know that nobody has any idea what are talking about and they’re saying oh my overhead is high because I’m 60% overheads and he’s 50% overhead- dude, it will be more likely that you be hit and killed by meteorite at this dinner than any of these guys numbers are correct. I’ve never seen it once any dentist told me what his numbers are and then when I go look myself they’re not even in the ballpark.

Adam Smith: Right. It’s really rare that that happens. So that’s the first thing we’ve got to compare apples to apples don’t make decisions on something that somebody said, without having the knowledge of what was behind what they said and the knowledge of what’s behind what you’re comparing it to.

Howard Farran: Why don’t you post a chart of accounts on Dentaltown?

Adam Smith: We did, we’ll go in and post it again. 

Howard Farran: You did that a week ago or a couple of weeks ago, will you send me that link?

Adam Smith: Yeah, we’ll post it again, and send that to you.

Howard Farran: Yes. Send me that link and I’ll push that on today. So a chart of accounts- sorry, I keep interrupting you, I’m so passionate about this subject, go through and walk through to our listeners what that new guy does and what decisions you help him make and where could he possibly be a year or two later after listening to you guys?

Adam Smith: Initially, like I said we’re getting the picture of the financial. What do the financials look like? If we see that a lot of things are coming in high or higher than where they should be, let’s say that your supplies are 12%, which is much higher than they should be, we look at a couple of things we look at the ratio of implants that you’re doing because implant supplies are typically higher but then so are the production and collections on implants but that can bring it up a little bit and then we start looking into that’s variable cost, so there’s two reasons why that’s out of line, and a variable cost is  something that changes by the number of patients you see. 

Howard Farran: As opposed to a fixed cost, like rent. You just pay rent whether you see one patient or two.

Adam Smith: Right. You don’t pay more for your practice management system because you have more patients, that’s a fixed cost but supplies are a variable cost because you pay that each time you work on a patient you use supplies each time you work on a patient. 

So when we see those are out of line, we’ve got two options, three options actually. Ether you like to use, like Howard said, the Mercedes, the Lexus, those types of supplies. You’ve got your supplies that you cling onto and those are the more expensive supplies. Maybe you’re getting charged too much by the supply company that you’re using or maybe you’re producing off of those patients and you’re not collecting the money so maybe you’ve got an accounts receivable issue that we need to look at and then one that also happens is maybe you’re a conservative treatment planner, meaning you produce less per patient than most people do, which if you’re using the same amount of supplies to produce less your supplier cost is going to be a higher percentage of your production and your collections.

So we look at all those things and we see that out of whack and we’d say okay, where are your accounts receivable days, are those in line? Then we dig into that and we can determine are you paying too much. 

Howard Farran: Can you go over those accounts receivables in line? What is in line, one month’s production? Is that in line would you say?

Adam Smith: Yeah so we always should for under thirty days of production.

Howard Farran: So if you produce fifty thousand dollars a month and your accounts receivables are thirty thousand then you’re average?

Adam Smith: Yeah, so to figure out your accounts receivable days. An equations, is take your production for the last year, you’re going to divide your accounts receivable into that so take your accounts receivable number, if that’s thirty thousand and you produced a million in the last year, you take thirty thousand divided by million which will give you a percentage of your production that’s in accounts receivable and then times that number by three hundred and sixty-five and that’s the days that you have in accounts receivable. We want that number to be below thirty. I’ve seen at as low as- yesterday actually I did an analysis for someone who had the lowest accounts receivable days I’ve seen, it was 13.2 days in accounts receivable. 

I’ve seen around fifteen quite frequently, under thirty is a healthy range. Anything above thirty then we start to look at different time frames of your accounts receivable. You have too much going into 90, you have too much going into 60 to 90 days or did you have a really high production month and a lot of that accounts receivable is now in your current accounts receivable, which in that case is actually fine but then we can determine is this number out of whack because of your accounts receivable or because of the supplies themselves?

Howard Farran: And I just want to say one thing on the money thing: I believe, who knows if it’s genetic, your DNA, how your mom and dad raise you, but some people have no problem- and I’m talking about your staff- treatment coordinator some people just have no problem saying Adam this is what you owe right now, right now and other personnel is just like oh my God, that’s so much money I can’t ask Adam to give me five hundred dollars and it’s Christmas in two weeks and he’s got a family and I just cant do it, and those people, God bless them they’re sweet I love them but they can’t be in charge of presenting treatment and taking money. 

There’s just- I’ve seen it so many times where dentists will trade out that one position for someone who has just no problem telling you Adam, you have four fillings and they’re two fifty each, it’s a thousand dollars and I need this and the patient says okay and so the treatment coordinator and the person collecting the money is probably more important than the dentist.

Adam Smith: I agree with that, while I don’t agree with that they’re more important than the dentist because you won’t have any production without the dentist.

Howard Farran: You can’t say that. I can say it because I’m a dentist. The treatment coordinator could hire an associate dentist to fill the order. I mean she could hire a kid out of school to fill the order but I mean it’s a special skill set, sales, and a lot of dentists when you say well do you sell dentistry they get upset that you even said that word. 

It’s like a four letter dirty word or something. So dentists, if you’re not treatment planning and not collecting it’s just like a football team. If I just saw your numbers and all I see for the quarterback is four interceptions and sixty yards per game, we need a new quarterback and dentists they’re emotionally attached and they say well Margaret has been with me for seven years, well I don’t care. 

You’ve never made the play-offs in seven years so did you go to school for eight years for Margaret? Or does the dental office come first so that’s a tough call. So what other numbers are you looking at? You talked about account receivables, you talked about lab supplies?

Adam Smith: Let me just reflect really quickly back on accounts receivable. 

If you’ve got someone in that position and you’ve got a lot of money in accounts receivable, that’s a bigger deal than a lot of people realize it is because when a dollar hits accounts receivable in most, in all single provider practices and in most practices across the country, you’ve paid either all or a majority of your costs on that dollar already meaning if I have two hundred thousand dollars sitting in accounts receivable that’s right out of my pocket it’s not just two hundred thousand dollars that I may get to keep fifty thousand of that’s two hundred thousand dollars that should be right in your bank account. So it’s a bigger deal than a lot of people realize. So moving into the other numbers. 

Howard Farran: Adam I’ll even say it could be in many offices the highest factor of overhead, the highest factor of overhead. They think they’re paying their assistant too much, they think they’re paying too much rent they think they’re paying too much everything and you’re like dude, it’s just you’re not collecting your money. 

You’re right and if the ADA says that the average overhead is two thirds, so 65% and you can collect three dollars you’ve already paid two dollars of that three dollars in overhead. So if your overhead is two thirds and you didn’t collect two dollars you’ve already pay for that. You’ve got to go produce four dollars of dentistry- six dollars of dentistry to pay the cost on that four dollars to have two dollars freed up to cover the account receivables you didn’t pay -I mean I’ve seen dental offices where if their accounts receivable were right their overhead would drop 10%. 

Adam Smith: Yup. And so if we see a lot of these numbers out of line that’s immediately where we’re starting to look. If we see one out of line it’s probably especially if it’s a variable cost and nothing else is out of line it’s probably that that number either they’ve got something unique that they’re doing there that we like to use different supplies or different labs than other people do, or that with just one number, we usually aren’t having an accounts receivable problem.

If I see four or five of those things out of line, they’re not even close to the ballpark either generally people think I need more patients, I need more patients. What I typically see is that they’ve got patients in the chair they’re either under producing what normally people are doing so not necessarily under diagnosing but under producing per patient and under collecting on those patients as well.

Howard Farran: So the dentist only sees his practice or her practice, you’ve seen over a hundred practices in a decade. Is there any supply companies that you think, you didn’t mention names. Are there any supply companies that are less expensive on average than the others, any labs that you think are less expensive on average than the others? Any names you can drop for that individual, solo practitioning dentist?

Adam Smith: I mean I have seen- I’ve done this for a lot of people, I’ve seen people using every different supply company you can think of. Some not using any supply company uniquely but price shopping everything. You can get this number into the right range with anyone?

Howard Farran: Okay and what is that range?

Adam Smith: Five to seven per cent of collections, like I said, if you’re doing a lot of implants, the majority of implants-

Howard Farran: Let me stop you there because some dentists would say that all those implants parts would go under the lab bill and some dentists, like with CEREC they say well when I used to take an impression and send it to the lab, that lab went to lab bill. So when I have to a $15 CEREC block, that a lab bill. So a lot of dentists don’t have that in supplies so specifically so the fifteen dollar lab block would you put that under lab or supplies, so the $15 lab block, would you put that under lab or supplies and if I bought the $115 dollar Implant implant would that go under supplies or lab?

Adam Smith: Great question. So anything dealing with the CEREC machine where you’d be sending that off to a lab otherwise, we classify like our blocks, your CEREC supplies coming through Patterson or whatever company you’re using. If you’re using a different imaging CAD machine, we classify those under lab fees because it would otherwise be lab related work and if we look at that and we want to compare apples to apples and see is your CEREC machine a good investment, we need to have those classified and we need to see did that lower my lab fees and not wow, my lab fees are 2% now but my supply fees are 14% now.

Howard Farran: So in your expert opinion, what is your view on these new CAD/CAM machines? Do you think they lower lab and supplies? Do you think they increase your net income and you think it’s a wash? 

Adam Smith: It depends on the practice. Really it depends on the practice. It depends on the number of patient that you have, it depends on the number of crowns that you’re doing. To break even on most we’re looking somewhere in the 15 to 20 crowns per month range.

If you’re not hitting that then you’re not going to be more profitable for having that machine. You’re actually going to pay more on the cost of the machine than you would just sending those to a lab. So it really depends on volume. 

Howard Farran: And you think that’s between 15 to 20 units per month for a dentist?

Adam Smith: Yeah that’s typically what we see there. 

Howard Farran: And I’ll throw my two cents on there, is that a dentist obviously makes more money than a dental lab tech and in the old days she was taking an impression, sending it to a lab and the lab tech was making the crown and then they get a CEREC machine and the doctor who doesn’t delegate, press the scan and design and mill and has to do all the things like now you just paid a hundred thousand dollars to be demoted to a lab tech. If you can delegate it and you send your staff over to Sameer Puri at the Scottsdale Center your four assistants get perfect at it then I just numb, prep, leave and then come in and it’s done. So there might be huge factor of are you delegating, but regardless, you think the break even knot is 15 to 20 units a month? 

Adam Smith: Yeah. I mean that’s a big variable that you mentioned, Howard is, if you’re doing everything, you’re cutting a lot of your time out that could be doing other work. 

If you’re delegating though typically in the 15 to 20 crowns per month range, you’re going to be more profitable with the CEREC machine or any sort of CAD machine. 

So like I said those blocks would be classified in lab fees. Implants generally that’s something that you’d refer out to a specialist. You have two options with implants, you can do them yourselves and pay for the supply or you can send them out to an oral surgeon or a periodontist, but really looking at that we classify those as supplies. Implant supplies are generally going under supply cost. 

Howard Farran: Okay you’ve been dancing around a chart of accounts, lab and supplies, but let’s go after the big 4000 pound elephant- labor. 

After you make payroll do you even care what your light bill is? I mean really the light bill is a rounding error on payroll so let’s go after mother. Go after payroll, labor. 

Adam Smith: Sure. Payroll is fun. It’s one that I have to touch very lightly on because like you said dentists are really emotionally tied to the people that they’ve been working with for a long time, but it’s the number that I see out of line. It’s kind of a toss-up with supplies and labor, which one is out of line more often, but where labor is your biggest cost, that’s the one that’s out of line by the most, most frequently.

Howard Farran: Yeah, this is- I have five sisters and my first assistant I hired twenty-seven years ago is still there Jen well, Jen is as close to me as any one of my sisters. She’s like blood family so they come to you every time the Earth goes run the sun they think they need another raise- hey the Earth went around the sun, it’s been a year now time for another dollar an hour- it’s crazy. 

So your job right now, because this dentist only sees her labor cost, you see hundreds of labors costs. Tell them what’s normal, high and low, what’s a red flag and how do you fix it if it is a red flag? If it’s broke, how do you fix it? 

Adam Smith: Great question. So assistants we usually like to stay in the five to seven per cent range.

Howard Farran: Can you abbreviate assistant just ASS?

Adam Smith: I try not to.

Howard Farran: Five to seven per cent for assistants. 

Adam Smith: Five to seven per cent for assistants, generally eight to ten per cent for hygiene and then seven to nine for admin costs, so front office and office manager. Howard Farran: Admin seven to nine? 

Adam Smith: Yup. 

Howard Farran: So what is the total of those three, low and high?

Adam Smith: 20 to 26. 

Howard Farran: 20 to 26, and then let me ask you something because this might be true or not true. 

A lot of dentists say well Adam come on. I have high overheads because I’m in Phoenix, I’m in LA, I’m in San Fran, I’m in Salt Lake, oh you’re in Provo or some small town so we see 117 towns in America with over 100 000 people with about half of America living there and then we have 19 000 towns with the other half and the people are lower cost there but so is the rent and mortgage equipment, so sense, when you’re in Kansas since you’re rent is cheap, your assistant is probably asking for a lot less money than downtown Manhattan. 

But as far as a percentage, are the percentages the same Adam or is it significantly lower percentage and higher net income in small rural America than in the 100 largest cities in America? 

Adam Smith: Great question. The answer to that is typically,  in almost every situation getting the right people is getting the people that have training in the more Metro areas is going to be easier which should provide you with more production, higher efficiency and typically drop you into the right range in those areas as well. 

You have a higher pool of people to draw from. In those rural communities you might get someone that comes in that’s never worked in a dental office but there is not someone that’s qualified for that position that’s worked in a dental office so while you’re paying them less, the efficiencies that are to be had there are also less. 

While you will pay less in rent, you will pay less the fees to your workers, you can get them in line, I’ve seen them in line. I’ve seen them in line in New York. I’ve seen them in line in Phoenix, in Salt Lake, in Provo, I’ve seen them in line really all across the country but I’ve also seen them out of line all across the country and at the end of the day what we need to be looking at is if that’s average for where dental practices can be and should be- I can come up with a lot of excuses why I’m not there and I hear a lot of those and Howard. I’m sure you’ve heard those as well. Why I’m paying my hygienist more. 

Howard Farran: Okay so let’s go through that. I love your range: five to seven assistants, eight to ten hygienist and seven to nine admin. 

So when people are over, are they usually over with assistants or hygienists or admin? Give us some low hanging fruit solutions if it is really over I mean, what do you tell a dentist, what do you tell a dentist if he comes to you and his labor is 28% and he’s had one hygienist, two assistants and two receptionists, what do you tell him?

Adam Smith: Good question and we dig into each of those a little bit deeper. We break them up separately and we’d say okay your wages, your payroll is high and the majority of that comes from whatever it is coming from.

Some people have really high assistants, some people have really high hygiene. I wouldn’t say there’s one that’s typically- if I had to say one was typically higher it would be hygiene but it’s not so clear-cut that I’m going to say it’s always hygiene. It’s whatever you’ve hired for. I’ve seen people paying their assistants thirty dollars an hour and that’s really high, their assistant’s costs are 12 to 15 percent. 

Howard Farran: Adam, what goes into that 20 to 26%?  I mean go through the chart of accounts. Does that include uniforms? Does that include heart insurance? Does that include continued education? What does that number include and what doesn’t not include?

Adam Smith: Great question. So we say anything that is included as what we typically see is a benefit or anything that is paid directly to them. So we look at their salary, we look at their health insurance, their 401(k) contributions, anything that’s going towards…

Howard Farran: FICA matching? 

Adam Smith: Yes FICA matching and payroll taxes and those types of things. The things that we leave out of there are things that are furthering their growth. Uniforms we classify as a business expense if we’re paying for uniforms or paying for laundry or whatever that is. We’re classifying that as a business expense and then continuing education we classify as a discretionary expense. But everything that’s going to pay them or going through their payroll- so their payroll taxes, their health insurance, any retirement contributions and any payroll, that should drop you right in that 20 to 26% range.

Howard Farran: Okay and Adam- a lot of dentists are paranoid that they’re being embezzled from and the embezzling consultants say it’s usually the one that is your favorite or really close to you. If ten new clients came to you or a hundred new clients came to you how common do you find embezzling? 

Adam Smith: We’re pretty close to about 10% of any everyone that comes to us that we are able to identify embezzling. They get pretty creative. 

Just about three weeks ago I had someone come in and do an analysis with us and I noticed a few things that didn’t line up. Their collections as it was coming into their practice management system was about $70 000 higher than what their QuickBooks was showing for the same period, which a lot of times, there is a small discrepancy based on timing, but $70 000 if you’re accounting for things right in your practice management system and you’re on QuickBooks, that’s way too big so I identified that and treading lightly again because I don’t want to just throw someone under the bus that doesn’t deserve to be thrown under the bus. 

So I said, it looks like you’ve got something going on here that you should be collecting- you should be getting a lot more in your bank account than you actually have gotten and she said I’m not surprised to hear that because yesterday I got a phone call from my merchant services company that someone had actually loaded up a gift card for several thousand dollars using her credit card processing machine.

They looked at the time and security and they found out which employee it was and it turned out she did have some embezzling going on and so they get pretty creative so there are some things that for me to catch that on merchant service fees, I might say do you use a more expensive merchant services account because that’s three or four per cent and normally we see that about two per cent but I wouldn’t be able to pinpoint: you’ve got someone loading up a gift card and taking a bunch of money out that way. 

So looking at the big picture we can catch a lot of embezzlement just by bringing the dentists into a more aware state of where things are at financially for them, but there are people that specialize in doing that, that will go far more in depth and catch those types of things that maybe at a glance and with the depth that we’re going into we might miss there. 

Howard Farran: Okay Adam- I always tell dentists, when some dentists say well are these guys any good or whatever I always say dude they’ve been making a living in your industry for ten years. Dentistry is a very small niche market. So it’s like a small town, it’s a very small town.

So you’ve be making a living in this industry and your company has for over a decade. So what do you actually do for a client, and be specific, how much is the consultation, how much of a monthly fee, what you do for them, what do you don’t do and why have you been doing business in dentistry for ten years successfully, why are dentist giving you money each month? 

Adam Smith: Great question. So the value of our services is not only that initial consult, that’s part of the package that everyone’s purchasing, is going through that initial consult and giving them some direction on where to be focusing. 

The most valuable piece of what we do is we actually have a software that’ll tie into several practice management systems and pull out a lot of key performance indicators in different categories and then it also ties into QuickBooks, if you have QuickBooks which is the majority of what people in the United States are using. 

It will also tie into QuickBooks and pull your financials in so that in one snapshot, when you see something that’s out of line you can dig into it and you can go look at all the key performance indicators. 

If you see hygiene rate is out of line, you’d start digging into hygiene and you say okay I’m paying my hygienist 50% of their production which is actually not uncommon which might surprise you because that’s really high but I see people paying their hygienist 50% of the hygiene production. 

Howard Farran: And then you ask the same dentist what is your overhead? Oh about 65%. Okay dude, do you not understand basic math? I want to pin you down to some details first- you’re talking about your dashboard right, what do you call that, your dashboard? 

Adam Smith: Just the dashboard.

Howard Farran: Is it called your company’s name dashboard? 

Adam Smith: Dental Intel dashboard is what it’s called. 

Howard Farran: Dental Intel dashboard. Okay so do you guys have programmers? 

Adam Smith: Yes we have programmers that are consistently updating the software’s that we tie into. 

Howard Farran: So let’s specifically- when you talk about QuickBooks, what accounting do you like? I know there is QuickBooks, there’s QuickBooks Pro, there’s QuickBooks Online, do like any of those more than the other? 

Adam Smith: I personally like QuickBooks Online just because of the ease of accessing it from anywhere you don’t have to do a VPN into your server and get on QuickBooks that way. 

Howard Farran: I agree. Do you have many clients that use the Microsoft, Great White Plains? Or Peachtree? 

Adam Smith: We don’t have actually all our clients- Peachtree we have a couple that are using Peachtree. 

Howard Farran: How do you compare Peachtree to QuickBooks Online? 

Adam Smith: They’re pretty similar. User-friendliness I used Peachtree during my accounting under grad and user-friendliness I enjoyed QuickBooks better I think it’s more user-friendly. 

Howard Farran: QuickBooks Online?

Adam Smith: Yes. 

Howard Farran: And QuickBooks Pro is on your desktop. So the first thing a dentist is going to say is – because QuickBooks Online is the data in my computer or is it in the cloud? 

Adam Smith: It’s in the cloud.

Howard Farran: And what are your thoughts on that- I’m fifty-two, is that a scary thing to do or is that not scary to you? 

Adam Smith: It doesn’t scare me, but probably because I’ve spent a lot of my life putting things into cloud. It’s the way that Apple stores a lot of my data and those types of things, it doesn’t really bother me.

Howard Farran: What about reliability? If it’s in my desktop I can login to it. How often do you try and go get your data online and it’s not accessible?

Adam Smith: I’m I’ve actually never had a situation where I wasn’t able to access QuickBooks online. As long as I have internet connection. I’ve never had their side be down. 

Howard Farran: You’re right, I agree QuickBooks Online is what the dentists should be doing, especially even the 5000 kids that are coming out of school that don’t have any baggage with any deal, just do QuickBooks Online. That is the best bet. 

Now, practice management software. Do you guys- I mean there is Henry Schein has Dentrix, Patterson has EagleSoft, SoftDent- someone different has it about every 18 minutes, there’s a big one out there, what’s the one- Open Dental. Is there any of those that you like more than the others? 

Adam Smith: That’s also very dependent on what you’re looking for. Some I would choose for ease of entering things in and some I would choose for ease of reporting and those are actually different.  

Howard Farran: Give names on that. 

Adam Smith: So Open Dental, if you understand how to do a little bit of programming or if you search for it, there’s a query for just about any number that you’re looking for to pull a report on that out of Open Dental. That’s very convenient. 

Howard Farran: That’s why he started that company. Because he was livid that he, I think he had Dentrix and he wanted to extract the data out for a targeted direct mail piece and he couldn’t go into his own software to pull out the data to do direct mail pieces. It was a marketing thing and he was in the sense that it was his data, his patients, he had bought the software and he can’t even pull his own data so that was why Open Dental was started. So you’re saying with Open Dental you can run a query for any data? 

Adam Smith: Hold on just one second.

Howard Farran: So you like Open Dental because you can run any data query? 

Adam Smith: Like I said, it’s dependent on what you’re looking for. 

I like the robustness of reporting from Open Dental. As far as ease of reporting, you’re not having to go search out a query and put the query in, EagleSoft I do like their reporting. They have fairly robust reports that are easy to get to. Dentrix is probably easiest user interface wise, but not as easy with reports

Howard Farran: Are you in Provo right now? I’m looking out your window, is that snow on the ground? 

Adam Smith: There might be a little bit. We haven’t had snow for a while though. I think it’s just the temperature. 

Howard Farran: Dentrix was born in Provo. You’re in Provo where Dentrix was born.

Adam Smith: Just right off the freeway. I pass it on my way to work every day.

Howard Farran: And that’s also where Gordon Christensen has his CRA. So I think Dentrix was- aren’t they the largest market share? Isn’t that the majority?

And I think it’s because the genius that started that started it and when he started he chose Windows so it’s been Windows ever since and a lot of the things like SoftDent were old DOS based systems that they tried to dress it up so it looks like Windows, but it’s just not Windows and Dentrix is completely pure Windows.

So that’s why- and what that means to the user is that every function that you’re used to using on Word and everything is what Dentrix uses so wherever you would point and click on any other thing you’re doing on the internet, that’s how Dentrix can work too so it’s the easiest to train staff with. 

Adam Smith: Right, so user interface wise like I said Dentrix is fantastic. EagleSoft is pretty user-friendly that way. They’re user-friendly for getting reports quickly and having quite a few reports. The robustness of reporting definitely I would hand to Open Dental. SoftDent I’d put right in there at the same rate as EagleSoft.

Howard Farran: I’m going to turn the screws tighter on you. So if I’m a dentist, tell me how much money do I give you, how much does it cost, how often do I talk to you, this dashboard? More specifics. 

I’m your new client. Pitch me Adam. What do I have to pay you, how often will I see your charming face? What date are you going to help me and why do you think- obviously you have two have dentists renewing with you, month after month and year after year for a decade- tell me why, tell me the whole picture, tell me why dentists renew with you. Why is this a good value for my fellow colleagues? 

Adam Smith: That’s a great question. So we have a couple of different packages. The typical package is about five ninety-nine each month. 

Basically what that does is it get you your dashboard, it’ll tie in with your QuickBooks, with your practice management system and give you actionable daily items at a glance. 

With that comes unlimited numerical support, your initial analysis which is what I was talking about, going through the financials and making sure that they’re classified correctly, giving you the points that you should be looking at initially to get the most value and hit the ground running and then as you’ve got to all the data in front of you, what we’re looking at is the ability to make changes on a daily basis and see the effects of those changes without having to do hours and hours of reporting or hours and hours of tracking because that’s what your practice management software is for. 

Howard Farran: So you say a numerical support, can the dentist call you each month or how does that work? 

Adam Smith: They can call, they can chat with us online and we’ll send them updates, we’ll send them notifications when things are trending in the wrong direction. 

Howard Farran: Do you show this dentist how he’s doing compared to other dentists? So how many things are on your dashboard? 

Adam Smith: We’ve got a lot. We should actually just do a demo for you sometime Howard, but we’ve got three main categories which is really the categories that dentistry breaks down to. 

If you look at the collections of a dental practice, we’ve got our patients, how many patients we’re seeing, how often we’re seeing them, how many new ones we’re getting, how many we’re losing, so we’ve got our patient flow. 

We’ve got our production on those patients and that breaks down into a hygiene, that breaks down into restorative and then there are a lot of key performance indicators based off of each of those and then we’ve got our collections on those productions.

Those three numbers determine your top line. 

Howard Farran: Go through, you said three numbers, go through the three again for our viewers. One, two and three. 

Adam Smith: Okay so it’s your patients, your patient flow. 

Howard Farran: So number one would be patient flow, is that new patients per month or how many patients you’re seeing a day or a month? 

Adam Smith: Patient visits per month. 

Howard Farran: Patient flow. 

Adam Smith: And then you’ve got your production off of each of those visits. 

Howard Farran: Okay so number two would be production. 

Adam Smith: And then once you’ve produced, it’s how well you’re collecting off of that. Every other thing that you’re looking at boils down from one of those things. You look at new patients, that’s in your patient visits. Am I not having enough patient visits because I don’t have enough new patients or because I don’t reschedule my patients well enough and those are the things that the dashboard drills into. 

Howard Farran: And by the way I think it would be a fun thing. Do you ever get to Phoenix? 

Adam Smith: I have actually, we’ve got family that lives in the Mason area and I actually lived in Phoenix for a while. 

Howard Farran: Oh really where did you live? In Mason? 

Adam Smith: My wife and I lived off of Cactus Road. 

Howard Farran: That’s North Phoenix? That’s Scottsdale. So you’re one of those rich, snooty, tooty Scottsdale people. 

Adam Smith: No I don’t live in Scottsdale. I lived in the ghetto part of Cactus Road. 

Howard Farran: I’m in actually Phoenix but it’s the part of Phoenix south of South Mountain, so it’s Phoenix, Arizona but everybody calls it Ahwatukee. 

Adam Smith: Okay. 

Howard Farran: You tell anybody in Ahwatukee you call it Phoenix they would look at you strange, but it’s Phoenix Arizona. If you’re ever down here that would be so cool, we’ll demo this and capture it all and we’ll do a live demo or what you could do is on this podcast if you do have a film demo, do you have a canned demo that you have? 

Adam Smith: Yeah we’re putting that together right now actually. 

Howard Farran: Well when you get it done send it to me and I’ll hook it on in this podcast so and remember in our podcasts, a couple of things: if you go to Dentaltown, we get a transcript of all our podcasts so you can read it so this whole thing you can read on Dentaltown. You can also watch it on Dentaltown because this is Skype so we have a video that we put on YouTube and Dentaltown but the majority of our viewers actually are from iTunes so they’re just listening. So when you do that demo, realize that at least 60% of your audience is going to be Stevie Wonder so you’ve really got to talk through. 

Stevie ain’t going to see anything you’re pointing to on the screen. It’s better than half the seminars you go to where you’d actually be Ray Charles, you’d be blind and dead but okay, so then they’re paying you what, two fillings a month you’re saying, 600 bucks, so if a dentist gives you the revenue from two fillings a month, you’re going to be capturing all of his data from his QuickBooks Online and his practice management information system, SoftDent, EagleSoft, Open Dental what have you and then you have to combine the numbers because our management information system is too third world- by the way you should just go down to the Dentrix next door when you drive by there every day. Stop by there every day and walk in there to the owner and say oh by the way, Howard Farran says, he’s a dentists with a MBA and he says you’re nuts and insane and crazy. Have a good day!

If you just did that every day for a year, he probably would come out and hook up to QuickBooks Online and I mean this industry is going to be very sick if dentists keep signing up for PPO’s not realizing they’re losing money. Do you know how many dentists I’ve met that were swamped and they dropped a PPO plan and now they net more money? Because you just intuitively gut feeling feel if you’re just running from room to room and you’re just working hard and you go home every night exhausted, we’ll that’s good because I have work ethic, I saw 20 people, didn’t I do a good job? 

I mean I worked real hard, I did 20 fillings and they don’t realize that they took the profit from 10 fillings and subsidized another 10 they did at a loss and if they get rid of the 10 they’re doing at a loss, I mean it’s just sad that because of companies like Dentrix these people don’t know when they’re losing money. That’s just sad. It’s absolutely sad. 

It’s so counter intuitive when you tell a dentist, you know, in your situation if you ran off a third of your patients, you would net more income. And when you’re a dentist you’re kind of like a fireman. A fireman wants to find a lot of houses on fire and put the fires out, a policeman wants to catch the bad guy, we want to fix all the broken teeth but when you sit them down and say dude, these teeth you fix, you’re losing money. You’re taking money, profit out of your bank account and doing this at a loss and they’re just like how could that be? And it could be because Dentrix doesn’t hook up to QuickBooks Online. It’s that simple. It’s just that rudimentary simple. 

Okay so then this person, these dentists, over 100 dentists, how many of them call you each month or how many of them email or online? Go over the communication with you guys on this data so that they can use this data to make decisions and change decisions and be more profitable? 

Adam Smith: Right so I speak to all of the dentists typically at least once a month. It comes with unlimited numerical support so if they have a question about a key performance indicator or what things are affecting that or why something is happening the way that it’s happening, they’re always welcome to call us so some I’m talking to for five times a month, some I’m talking to even up to 10 times a month and newer people I’m generally talking to a lot more and once they get the flow of things then it’s just a touch once a month, things are going great, these things have moved in the right direction, maybe we should  be looking at these things, you have things in place that you’re working on with those. How are those working? 

They’ve got all the data right there to show us how those are working. 

Howard Farran: And more specifically, if you have a hundred clients, what percent of the time are you talking to the dentists versus the dentist’s spouse versus the office manager? Because my whole mission has been, with, no dentist has to practice solo again and the bottom of the day the dentists just don’t realize is my situation common or am I an outlier? So are you usually talking to the doctor’s spouse, are you usually talking to the office manager or are does the doctor actually man up and does it himself? 

Adam Smith: We generally talk to the doctor. We’ll get some calls from the office manager, they’ve got some numbers that they’re kind of responsible for so if those aren’t moving in the right direction we’ll get the call from the office manager but typically we’re talking with the doctor at least once a month, helping him understand where he’s at, helping him make those decisions and then sometimes he’ll say okay can you call my office manager and let her know we talked about it and make sure we’re working on some sort of strategy to get this number moving where we need it to be but typically that interaction is happening with the dentist. 

Howard Farran: And what percent of the time is it the doctor’s spouse? 

Adam Smith: We’ve got a couple of doctor spouses that are the office manager, and that’s really the only situation that we have that in. If they’re functioning as the office manager then typically we’ll just- generally we’re just working through the spouse because they can communicate to both sides. 

Howard Farran: Because I want to share one thing with the viewers. I’ve been in dentistry 27 years, I’ve seen a gazillion dentists and you know, divorce is usually over- they say the main three things divorce is, is money, sex and substance abuse so if you’re not a drug or an alcoholic then it just comes down to money and sex, it’s a double whammy if you’re paying money for sex. That’s just a double no-no but I think more marriages are healthier when the spouse gets involved with his numbers because otherwise the spouse will say no well can we go get a new car? Vacation? Is this a good time to go to Aspen or whatever and when the spouse is intimately involved with these numbers with the dentist they just have a healthier relationship because they both are seeing the scorecard and they both know we’re broke, or we owe a lot of taxes. 

They get it and hiding all this financial, eating at yourself and then not being able to say no to your spouse on spending is just a recipe for stress and a blow out. 

Adam Smith: I think you’re absolutely right. I’ve seen that a lot where the spouse doesn’t understand all of the things that go into running the business so when the bank account is low they don’t understand everything that’s tied around that or tied to that and they just see that the bank account is low and it can be harping on their side or maybe they don’t even see that the bank account is low and keep spending. 

Howard Farran: Yeah and then how many times have I seen a dentist saying oh my God, I can’t believe I did five crowns a day- and the spouse will be thinking a crown is a thousand dollars, you did five thousand dollars so who cares if I go spend 500, I mean that’s only 10%, I mean that’s not like I’m- they don’t know the overhead, they don’t understand net income. 

So get your spouse involved with this. 

Adam Smith: Agreed. It’s something that the spouse could pull up at home, the doctor could pull up at work, you can pull it up from any computer. It’s cloud based as well so you can pull it up from any computer that you have internet access on. You can pull it up on a tablet, you can pull it up on your phone. 

Howard Farran: Apple or Android? 

Adam Smith: Yup. So she can see or he can see, whichever the spouse is, this is the financial board, this is where all the stuff is pulling in. Wow, that’s a lot less money ending up at the bottom line than I thought was actually ending up at the bottom line. Maybe I do need to make some changes there. 

Howard Farran: And what are reasonable expectations Adam? If I give you the money from two fillings, if the first two filing I do on the first day of every month at 08:00. I go in every Monday on the first day of the month and from eight to nine I do two fillings and I give you the $600. A year later, what percent of these dentists, of your clients renew with you for another year and why are they renewing? What is reasonable expectation? Did they lower their overhead 2%, 4%? Obviously they wouldn’t renew if they weren’t finding value for the money but I’m trying to help my viewer understand what is that value? If I give you 600 do you think you’re going to lower my overhead 2%, 4%, what do you usually see? First of all what percent of your dentists renew after another year? 

Adam Smith: We have about 10% attrition over a year so we keep about 90 for the year. 

Howard Farran: That’s better than any dental office in America. I don’t think any dentist keeps 90% of their patients in any given year. That’s awesome. 

Adam Smith: The best that I’ve seen, Howard, is 74% of patients in 18 months. Most people think that they’re above that but that’s actually the best number that I’ve seen someone keep. 

Howard Farran: Oh my Gosh, email me some quotes like that. If you can email me any quotes I’ll push them out with your name and website, so 74% is the best. What is the average and what is the worst? 

Adam Smith: You’ll be surprised at the average. 32%.

Howard Farran: The average dentist you see after 18 months is only seeing 32% of their original patients? 

Adam Smith: 32%. 

Howard Farran: Adam send me some killer quotes like that and then if we tag it up with your name and your website you’ll get a ton of marketing publicity for that but again, I’m turning the screws on you, I’ve only got you for six seconds, if the dentist does this, at the end of the year why do nine out of ten stay? How much better is it? Is that quantifiable? 

Adam Smith: I mean I would have to look at the statistics. If I think in general, if we’re not increasing your take home by about 5% a year, we’re not doing our job right or you’re not being actionable on anything that we’re pointing you towards. So there are two sides of it, either are we giving you good data to act upon and are you acting upon it and if you’re not ready to be proactive and if you’re not looking for solutions and the person that’s ready to implement changes, this is not the solution for you. 

I’ll be brutally honest. We’ll ask you to make changes, if you’re not going to make them, you won’t see the effects. 

Howard Farran: Yeah and that’s the same thing with a personal trainer and a nutritionist. People always ask me that I should get a nutritionist to work with on my diet, it’s like dude I’m not stupid, I know when I’m eating a butter finger that it probably should be a banana or an orange. I’m not dumb! I’m just not ready to give up my candy and sweets. 

Adam Smith: At least you exercise enough Howard that it doesn’t really catch up with you. 

Howard Farran: There you go. Well our time is up Adam Smith. I really enjoyed this. If you want to send me a demo to put on the back of this, or we could just do a separate one, we’ll get a transcript of the demo. I would absolutely love next time you’re in Phoenix visiting, stop by Ahwatukee and I would love to have my office do this. I would love my office do this. 

Adam Smith: Yeah I’d love to come meet you in person. We’ll be down there pretty soon visiting some family in Mason. 

Howard Farran: And by the way to all the viewers out there watching, I’m much more handsome in person. This is just Skype- Skype makes me like old, short, fat and bald and I’m really a young, handsome guy so- hey I look forward to seeing you. Happy holidays to you and your family and dude stop by Dentrix every day and tell that guy to hook up to Quicken. 

Adam Smith: I’ll let him know. 

Howard Farran: Okay, thanks buddy. Alright bye-bye. 

Category: Adam Smith, Finance
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