The US economy is now at an interesting nexus that directly affects the financial health of dental practices. I remember past cycles especially in the 70’s and 80’s where the dental profession got caught flat footed. In those times, dentists really struggled. I don’t want to see that again. So, for what it’s worth, I’d like to present some thoughts to consider. This perspective is not intended to be anything other than food for thought. What you choose to do is certainly up to you. So, here goes:
We have now seen years of recovery and slow accelerating economic growth that has been supported by very low interest rates. These low interest rates have supported investment in dental education and in dental practices. That’s the good news. The challenge of course is that fees for service have been kept low. But at least with lots of unemployment, wages for employees have stayed pretty flat. And practices have done ok.
Now we are at a new place of full employment. And interest rate increases are poised to tick up. This almost always is paralleled with inflation. And wages all around us are going up.
This means that over the next 5 years (barring some unexpected recession), dentists will be paying more for supplies, more for laboratory services, more for equipment, and more for employee wages. And borrowing becomes more expensive.
The big lesson from the past is that in the 70’s and 80’s when inflation went double digit and interest rates went above 20% dentists resisted raising fees for their services and many practices struggled to survive.
My thoughts on this are:
Number one, don’t let growth and inflation get ahead of you. Stay tuned in to what’s happening as costs begin to rise even more than what you think now.
Number two, the best employees are going to cost more. Training employees will cost more. Insurance will cost more. Brace yourself.
Number three, build reserves so that if things get tight you don’t have to borrow at higher (perhaps, exorbitant) rates.
Number four, pay attention to profitability not just production/collections.
Number five, if you are ready (really ready) to expand and grow, don’t wait too long until borrowing rates go up.
All of these thoughts expose the reality that our fees need to increase.
At or above the rate of inflation. No excuses.
If you want a profitable practice, you must manage your fee schedule. If your dental hygiene wages go from $35/hr to $50/hr, you must manage your fees. If your Lab costs go up because their employee costs go up, you must manage your fees. If your lease goes up, you must increase your fees. Across the board!
You get the picture…
This is the great news of a growing economy! Everyone does better!
Except the dentist who lags behind the growth curve….
It’s your business! Stay profitable, my friends!
Mark W Montgomery, DMD