Problem: My lab is tight on cash and I'm looking to better control my inventory costs.
Strategy: Keeping a tight reign on your inventory and not stocking a lot of extra materials can be a great idea—especially when it comes to high-priced metals and implant components. On the other hand, you can also save money by buying in bulk—especially for frequently used items like acrylic or ones that have a long shelf life, like teeth. Other strategies to save on inventory costs include combining multiple orders into one to lower shipping costs, taking the time to shop around for the best prices and requesting bids from various manufacturers/suppliers before placing orders.
Another way to save money on products and materials is to maximize your buying power by co-oping with local labs to purchase products in bulk. Perdue Dental Laboratory, Sarasota, FL, often partners with the C&B lab with whom it works on combination cases, and the labs save between 5% and 10% on orders of common consumables like plaster, stone and teeth.
Problem: How can I ensure I'm getting the best deal from my service providers?
Strategy: Renegotiate. From shipping costs to service contracts, ask your providers if you're getting the best rate possible. "In these times, they all want to keep the business they have and you might be surprised at what they'll do," says Doug Baker, Director of Professional and Industry Relations for National Dentex Corp. For instance, when Baker compared the cost of a local pick up and delivery service to hiring a driver and buying a car, he found he could spend less money each year than what the lab was currently paying using the delivery service. "I called the owner of the delivery service, he dropped his prices $1 on every package touched and we saved over $5,000 a year with that one phone call," says Baker.
Similarly, over the last three years, Leon Hermanides, CDT, President of Protea Dental Studio, Inc. in Redmond, WA, has twice renegotiated his rent with his landlord by offering to extend the number of years on his lease. The result? He's saving $1,200 a month!
Problem: I'm getting ready to sell my laboratory and need to ensure that all of my financial records are in order for potential buyers.
Strategy: Work with your CPA to "recast" your financial statements so that a buyer gets the most realistic view of your laboratory's profitability. If you're like most closely held private companies, you do all you can to limit taxes by reducing profits; however, when preparing for a sale you need to recast the profits and remove the perks you take from the business. For example, if your salary is inflated, it should be substituted with an amount that's more realistic if you were to hire a replacement. Also look on your P&L statements for one-time costs such as legal settlements, fines or severance payments that can detract from your profitability and identify them as such.
During the due diligence phase, buyers will want to examine income statements, balance sheets, income tax returns and aging reports, as well as your sales history for at least the past three years.
Problem: How do I use my income statement to get a better handle on costs?
Strategy: When analyzing your income statement, it's important to look at the percentages rather than the dollar figures. Dollars will change from period to period but the goal is to achieve or maintain consistent percentages. By comparing current and past percentages, you can determine where costs are increasing or decreasing in relation to all expenses.
There are some industry standard percentages that laboratory owners strive for:
Direct labor and benefits should be between 30 and 35% of sales; if you combine all labor and benefits, this percentage might go as high as 50%. The extensiveness of your benefits package will affect your labor percentage.
Material percentages are usually between 8 and 15% of sales; this may vary depending on the size of your laboratory. For instance, a larger lab might have a lower material percentage because it has more buying power than a smaller lab. Keep in mind that these percentages can vary depending on how you keep your books and allocate expenses. For example, if you work at the bench, the time you spend fabricating restorations should be a direct labor cost whereas your "non-producing time" should be a general and administrative expense.
Problem: I have a good client who has recently run up a large balance. I know I have to address it, but I'm not sure how to approach him.
Strategy: Start with an honest conversation. If the client truly wants to pay off his debt but is having financial difficulty, you may be able to establish a payment plan or come up with another option. For example, Marc Daichman, Owner, Asteto-Dent Labs, Maplewood, NJ, once had a long-time customer who was having financial issues and ran up a large balance for the first time. "We let it go for 90 days. When we still didn't receive payment, we told him in a very upfront, polite way that he needed to decide whether or not he wanted to maintain his relationship with our laboratory," says Daichman. "As a result, he took a loan from his pension in order to pay off his balance."
If the client is unresponsive or becomes belligerent, Daichman takes him to small claims court as long as the amount owed is under $2,000 (the small claims limit in his state). It costs about $20 to file a suit and, he's found that many times, a doctor will choose to pay once he receives the summons rather than spend a day in court.
Problem: Given the current economic situation, I'm uneasy letting new clients who have no history with our laboratory run a balance.
Strategy: Cut potential losses; set a credit limit for new customers until you're comfortable with their payment habits. "We simply let the client know that, until we've established a history, we have a credit limit of $2,000; once he hits it, he needs to send a payment or we will only deliver new cases by COD," says Dale Chandler, CFO, Maverick Dental Laboratories, Export, PA. "It can get awkward, but we have to ask ourselves, 'how much is too much to lose?'" Usually, if a practice demonstrates over a three-month period that it has control of its finances and pays on time, the lab incrementally increases the credit limit.