Arun Mehra provides a how-to guide to optimising financial operations for maximum effect.
Achieving clinical excellence is only one part of a successful dental practice; mastering the business side is another. Both ensure sustainable growth.
My wife founded the Neem Tree Dental Group in London and the south east. Together, we’ve built the business from the ground up, embedding best practices into everything we do.
Although our approach is profoundly personal, we implement the same strategies in our business that we advise our clients.
Structure and success
Dental groups have evolved rapidly in the past five to 10 years. Many have begun with an ad hoc approach, with some owners acquiring practices without structure or strategy.
Dentists have acquired practices, secured loans, and bought diverse practices – from limited companies to sole traders and partnerships.
There has also been a notable trend toward growth through start-ups, with some dental professionals building a group by opening multiple new practices. The combination
of strategies is also used, blending start-ups and acquisitions to create a robust portfolio.
However, this piecemeal approach can lead to complications. The lack of a cohesive financial structure can create significant hurdles, particularly regarding valuation and eventual exit strategies.
From a financial perspective, the primary objective of forming a dental group is to increase EBITDA (earnings before interest, taxes, depreciation, and amortisation). As the number
of practices increases, so should the collective EBITDA of the group, enhancing value for potential investors. The key lies in planning from a solid financial and accounting framework.
Here are six tips to ensure your business is structured for long-term success and smooth transitions.
1. Embrace a systems-based mindset
Different practices using different systems create a mishmash of data that is difficult to consolidate and analyse. A lack of cohesion causes operational headaches and can significantly impact the ROI.
With a unified system, tracking and comparing the financial health of different practices becomes smooth and efficient. Implementing a universal accounting system across all practices is vital. This allows you to assess critical performance metrics, such as:
- The financial contributions of associates
- Hourly rates generated
- The EBITDA for each site is a particularly vital metric because it directly influences business valuations. It is crucial to consider whether you want to sell or acquire practices.
2. Create a streamlined framework
As practices expand, ownership structures grow more complex. Over the years, I’ve observed numerous groups whose financial structure is a patchwork of different entities – from limited companies to sole traders to partnerships.
This scattered approach often leads to confusion regarding tax benefits. For instance, without a unified corporate group structure, profitable entities cannot offset losses from other entities, leading to higher tax liabilities.
My preferred structure involves establishing a holding company at the top, where individual limited companies are set up for each practice. This setup offers several key advantages. Clear reporting lines and financial clarity are maintained when each practice is housed within its own company.
And if you decide to sell one of your practices in the future, having each practice within its own company simplifies the transaction. A well-organised financial framework is not just about avoiding current headaches; it’s about future-proofing your business.
3. Invest in technology and software support
Technology plays an essential role in managing the financial aspects of a business, and using the right technology can help streamline processes. However, choosing and implementing the appropriate systems requires careful planning and consideration.
Before exploring specific software options, consider several crucial questions:
- How is financial data, particularly invoices, managed at the clinic level?
- Are invoices manually entered into a system, or is there an automated solution that can scan and input this data?
- Once the data is captured, how does it flow into the bookkeeping system? Which bookkeeping system is best suited for your dental group?
- Does the system support standardised accounts charts across all clinics to ensure uniformity in financial statements such as ‘profit and loss’ and balance sheets?
- Is there consistency in financial reporting across all entities within the group?
- Is the financial data processed at individual clinics or centralised at a head office?
- How do you track purchases, payments and approvals to maintain control and oversight if they are centralised?
- What controls are in place to manage spending across the group?
Implementing a hierarchical approval system for purchases over a certain threshold ensures financial control and prevents unauthorised expenditures. And remember, the processes that work for one practice may not be sufficient when dealing with the intricacies of a larger organisation.
Technology should not only be seen as a tool for managing daily operations but as an integral part of strategic planning and growth. It allows for better data collection, improved financial oversight and informed decisions based on real-time data.
4. Choose the right technology for you
There’s a sea of technology out there in the accounting space. The bookkeeping toolkits were limited when I started – primarily Excel and Sage. Today, the options have expanded exponentially, with platforms like Xero and Quickbooks becoming the standard, offering enhanced capabilities and integrations unheard of a decade ago.
Beyond these foundational tools, an ecosystem of apps is designed to augment and streamline accounting processes. For instance, apps like Approvalmax, Dext, Hubdoc, and Lightyear can be integrated directly with Quickbooks or Xero.
These tools can automate tasks such as scanning invoices, managing approvals, and downloading invoice data into accounting software – each offering a level of sophistication that can significantly enhance efficiency.
When it comes to payments, new systems such as Telleroo, Crezco or Payhawk offer innovative solutions that save time and reduce manual effort. Instead of manually processing payments one by one through a bank account, these platforms allow bulk payments with just a few clicks. This saves time and minimises errors, freeing up valuable resources that can be better spent elsewhere.
Reporting is another critical area where technology plays a crucial role. While it’s essential to have up-to-date bookkeeping and payment systems, leveraging software that can provide insightful analytics is equally important. Tools like Spotlight, Sift and Fathom offer advanced reporting features that help dental group owners and managers understand their business’s financial health at a glance.
Yet, successful implementation is vital with all these powerful tools at your disposal. It’s one thing to have access to these technologies, but if they’re not implemented correctly, their full potential may not be realised. This is where many businesses falter – subscribing to multiple services but only utilising a fraction of their capabilities.
Proper implementation ensures you get accurate data and actionable insights that can drive your business forward.
5. Workflow and team structure
Establishing an effective workflow tailored to your business needs is crucial. Identify the workflow that best supports your operations and select the technology that complements it.
It’s not uncommon to see practice managers or dental nurses handling bookkeeping tasks, which is often inefficient. Instead, hiring a dedicated bookkeeper can lead to better outcomes and free up valuable time for your practice manager to focus on strategic growth.
As your team expands, you might need a more structured financial infrastructure. Depending on the size and complexity of your business,
this could include bookkeepers, an accountant, a financial controller, and even a finance director.
Or you may wish to opt for a finance manager, with other financial tasks – such as bookkeeping, reporting, management accounts and payroll – outsourced.
6. Let the numbers tell the story
Bookkeeping must be done daily, and bank accounts should be reconciled regularly. The ultimate goal is to produce management accounts by each month’s end.
Having access to these management accounts is crucial. They provide insights into how to interpret your numbers and take appropriate actions. It’s a continuous process of review and adjustment.
Once you establish a reliable system, you’ll start to recognise patterns, understand what’s working, and identify areas for improvement.
So, spend some time focusing on this crucial aspect of your business. You won’t have the visibility needed to grow and develop your business effectively without a solid grasp of your numbers and a structured system.
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