How many times have you failed to achieve goals you have set for yourself? Perhaps the goal was too ambitious, perhaps you did not show enough commitment to it, or perhaps it was just a figment of your imagination?
Many people fail to set goals, yet they expect to achieve something even without working towards a target. I have seen this numerous times in dental practices, particularly from a financial point of view, whereby the owner rarely achieves his/her financial goal mainly as a result of not identifying what they really want to reach.
First things first, how do you go about setting yourself targets? Should you keep professional and personal goals separate? There’s no straightforward answer and over time you’ll work out what works best for you, but when setting financial targets I find the best formula to use is to make sure they are SMART – that is Specific, Measurable, Achievable, Realistic and Timely.
• Specific. Proper goals should be well defined and clear to anyone who has a basic knowledge of the project. Keep it simple and don’t try to cover too many points in one goal – it’s better to have lots of small, specific targets than one big, complicated statement which loses all meaning.
• Measurable. You should be able to see a clear difference between before and after you achieve your goal, and also be able to measure how well you are progressing during the project. Good ways of measuring your progress are through comparing actual figures against budgeted figures and using key performance indicators.
In my experience, the key to achieving your financial targets is to set yourself a financial plan or budget, and then monitor closely how your actual performance is against the plan. By reviewing and monitoring your performance closely you will be able to assess how close you are to achieving your financial goal every step of the way. For a typical dental practice a budgeted profit and loss statement and a cash flow statement would be more than adequate.
• Achievable. The goal has to be something you can genuinely reach, and it is best to agree this with the rest of the team as you will not be able to achieve it without their support. If your goal is going to mean extra responsibilities and effort from the team then you need to be sure they are on board and will rise to the challenge.
• Realistic. You need to have available the appropriate resources to achieve a goal, the right support and knowledge, and enough time. When setting a financial target, it is important to set a realistic one – if it is slack or unrealistic it will act as a de-motivator and result in non-implementation of the budgetary control process. This is because you know that your actual performance will always be better than your goal or the goal can not be achieved, no matter how hard you work.
• Timely. You need to set an appropriate time limit between beginning the project and achieving the goal. In the case of financial goals, the financial year is usually a good time span.
The first step in setting a financial goal is to set a budget or financial plan. In setting up a budget, it is essential to consider the practice owner’s financial objectives, seasonal variances in demand, current price list of the practice, number of dentists working, daily revenue targets, operational requirements, headcount, pay rates etc. These will help you forecast the revenue and expenses accurately in order to reach your financial goal.
When setting expenditure targets, you need to set expenditure ceilings. Normally you should use industry averages for this. If you are with a NASDA accountant, they could help you set up a budget or provide industry percentage averages for various expenses at your practice.
For example, material costs should represent only 6% of the revenue, lab fees should represent only 8% and so on. However, you need to be aware that every practice varies and therefore in some instances industry averages or benchmarks will not apply to yours. For example, in the case of setting the employee cost budget, you need to take into account the operational requirements of your practice and work out a detailed employee cost budget, then incorporate that into your main budget.
Once you have set a budget for the forthcoming financial year, then you are ready to undertake budgetary control. As explained before, it is a process of comparing your actual performance with your budget (ideally on a monthly basis) with a view of identifying both adverse and favourable variances so that you could take the necessary management action to ensure your targets are met.
If you use a computerised bookkeeping package, then you can input the details of your budget into your bookkeeping package and carry out budgetary control on a monthly basis with a click of a button, without the need to manually calculate the variances or juggle with too many Excel spreadsheets.
When you start comparing actual performance versus budget, you can then identify if you are on target for reaching your financial goal, which you would have factored into your original budget. This is when you can begin making decisions based on hard numbers and not guesswork.
In today’s context, dental practices need to be operated as any other business. In doing so, it is essential to have a financial plan, monitor actual performance against the plan and then make decisions to ensure you hit your targets.
Dentistry is changing, and this means you may need to adapt the manner in which you manage your practice. A financial plan is an essential starting point.