How well is your practice performing?
Dental practice principals need to recognise and be alert to trends and learn when to make changes to their operations and strategies, says Jayne Clifford
Arecent report published by IBIS World which focused on the dental industry and dental practices across the UK highlighted some interesting trends in the NHS/private dental market and also some useful financial benchmark statistics which are worth sharing.
According to the report published at the end of last year, the overall dental market size in the UK in revenue terms was £6.7bn in 2017-18, which is forecast to grow at around 1.1 per cent per annum over the next five years. This is up from 0.5 per cent per annum growth during the preceding five-year period.
The main reasons cited for the increase in growth were improving economic conditions and longer waiting times for NHS services, which have led to rising demand for private services.
The growing ageing population and an increasingly health-conscious consumer are also likely to lead to further demand for dental services. As people grow older and live longer, natural wear and tear on teeth will raise demand for treatments, and although the population at large will consume fewer sugary products over the next five years, which will lead to fewer dental problems, this health consciousness is likely to lead to people visiting their dentist more frequently and exploring more cosmetic-related dental treatments.
Interestingly, according to IBIS, women are nearly twice as likely to have had a dental check-up in the past 12 months as men, and women are also more likely to undertake cosmetic procedures than men. With much of the focus in the media of late about achieving gender equality for women in many walks and areas of life (and rightly so), it does look like dental practices should be adopting a male gender bias in their patient communications by specifically targeting adult males to help increase demand for their services.
Although revenue is forecast to grow over the next five years, many dental principals may not see this growth in revenue translated into a growth in profits. Margins are likely to be curtailed by increasing competition and rising wage costs over the next five years which makes it even more important to keep on top of the finances.
Principals of dental practices need to recognise and be alert to trends and learn when to make changes to their operations and strategies. NHS income should be monitored monthly and will highlight whether the practice’s volume is expanding or contracting. It is also useful to look at the income to payroll ratio and your net profit margin percentage.
Employee costs will vary from practice to practice, but it is estimated by IBIS that payroll costs, on average, absorbed about 58 per cent of revenue and net profit margins across the industry are about 5-6 per cent of revenue during the last 12 months.
Non-labour purchases – for example, materials such as fluoride, toothpastes, polishes, crowns, bridges, braces and other dental supplies – account for about 16 per cent of revenue expenditure in the dental industry in 2017-18. The continuing consolidation has made it easier for the larger players to achieve economies of scale thereby further increasing their profit margins.
Other costs, including insurances, PI cover, rates, rent and utilities, are also forecast to increase over the next few years, so do take this into account when you are looking at your management accounts and forecasting cash flows and margins with your accountant at your regular meetings with them.
Your accountant should be able to flex the forecast model to include increases in these areas and the impact that this will have on your cash flow and profit margins. It can be quite surprising how much difference a small percentage increase in some of your regular outgoings can have on your net profit margin, and just as equally, how much small but incremental price rises over the next couple of years, such as inflationary increases, can have on your bottom line.
Finally, as of 6 April, employers and employees are required to increase their contributions into their auto-enrolment pension. From this April the minimum employer contribution will be 2 per cent (rising to 3 per cent from April 2019) and the employees minimum contribution from April this year will be 3 per cent and 5 per cent next year. So be sure to factor this in to your income and expenditure projections for 2018 and 2019.
About the author
Jayne Clifford is a director at Martin Aitken & Co.
To contact Jayne, email firstname.lastname@example.org