The Fastest Cure for Cancellations and No Shows

By Jon Rutty, Practice Transition Specialist

This has got to be one of my favorite topics. While I also love goal setting and making a good plan, I love to see major problems turn around with a good strategy. Many times, Cancellations and No Shows seem to be some sort of blue whale that is swallowing you up, but it doesn’t have to be that way, and following this simple plan will help you to regain control of your schedule and accommodate the people who actually show up to their appointments.

If you are like most offices, you have a 20% or higher Cancellation and No Show rate. That means in an office that sees 40 patients a day, on average 8 people are moving their appointments or abandoning them for one reason or another. Sound shocking? What’s worse is that what many offices are doing is not only failing to keep people on the schedule, it is frustrating some of their best patients so much that they want to leave.

Blink if you do one of these things.

1) When someone cancels or no-shows you charge a small fee to their account. You tell patients about this hoping this will deter them from being absent, but you likely hear something like, “Well if that’s what you have to do, I guess you have to do it,” as they roll their eyes on the other side of the phone. Fast forward 6 months to a year, and they have the same balance on their account and you are thinking to yourself, “They are never going to pay this.” Then at some point when you are cleaning up your AR you decide, “let’s just write off all of the no-show balances and put a note in their account that they have to pay it to reschedule,” or worse, you decide to send them the dreaded dismissal letter. How’s that working for you?

2) You schedule patients three columns across because you have such a bad problem in your office, you just don’t know when someone is going to show up. So by having three people scheduled you hedge your bets and salvage the day. That is until all three decide to show up at the same time and someone has to wait because there is not enough space to see them all, or if there is, a 30- minute appointment now takes an hour because you can’t be in three places at once, therefore putting the rest of your patients behind. How am I doing?

The reality is that I’ve seen no shortage of ways that aren’t working for practices. Would you like to know how to fix this problem for good? Good! I’m going to give you some specific action steps that, when used will work to keep good people in your schedule and weed out those who are just not able to show up to their appointments.

Step 1 – You Don’t Have “Cancellations”

We don’t say the “C” word, especially in the company of patients. I can’t tell you how many times I have heard a dental professional tell a patient, “Oh we have cancellations all the time. If we can move you up we will.” THUD! That’s the sound of me falling over and dying in the background. Why don’t you just tell them that they are free to cancel anytime because we always have a backup plan. Stop it! What you say to patients will forge the type of relationship you want to have with them. They don’t need to know we have cancellations all the time. Just tell them, “If we can make time for you sooner, we will.” So what do we do instead? It’s not uncommon that offices tell patients that they need to call 24 hours ahead of time if they can’t make the appointment. However, the reason why patients aren’t good at this is because you are telling them, and they often forget what you say, don’t they? Instead, ask them, “Ms. Jones, will you please call me 24 hours ahead of time if you can’t make this appointment?” And then wait for a response. By doing this, you engage their brain. They have to say “yes” and people don’t like to be liars. They will remember, “Shoot, I told the office manager that if I couldn’t make it to the appointment I would call 24 hours ahead of time.” And then they will call. If they call with notice, then reschedule them like normal.

Step 2 – How to Respond to Someone Wanting to Cancel Same-Day

There is only so much we can do in the way of giving someone a consequence for not showing up to their appointment, but can we agree that what we do needs to accomplish two things: 1) the patient either stays on the schedule or never cancels again, and 2) make sure we don’t create more unnecessary work for us on the backend (i.e. culling through AR reports for small balances that need to be written off, or collected). What I am about to show you has helped hundreds of offices all over the nation for the past 30 years to reduce their cancellations and no-shows to an average of 10% or less.

When a person calls to cancel, ask them this question. “Ms. Jones, I’m sorry to hear you’re having trouble today, what can I do to help you keep this appointment?” And then stop talking. Don’t talk. They are thinking. What you have told them without telling them is, “Ms. Jones this isn’t okay. How can we fix this?” You will be surprised how many people come up with a creative solution to their own problem. You might be asking, “What in the world can we do to help them keep their appointment?” That’s a great question. They may ask you the same thing. If you have time to move them up or down on the schedule for that day, then do that. Ultimately, you want to discover what is going on. Can they come late? Can they come for some of it, but not all of it? What can they do? As much as you can, use the time that you already have scheduled to do something productive with them. If they have multiple quads of work, perhaps just do one quad. If they have a cleaning and an exam, maybe do one or the other. Holes in your schedule are never a good option, especially last minute, so work with them as much as you can to keep them on the schedule without running anyone else behind.

Step 3 – What If They Say They Can’t Make It After All?

Great question. Tell the patient, “I’m sorry you can’t make it to your reserved appointment time today. I don’t have another appointment time for three weeks. I know the doctor would hate for you to wait that long for your appointment. Are you sure there is nothing you we can do to keep this appointment?” This is crucial. Telling a patient they have to wait three weeks could be the reason they cancel their other plans instead. You want to make it inconvenient for a patient to call without notice and get right back onto the schedule. “But what if I have an open day tomorrow,” you ask. Move them out three weeks. At the very least, this amount of inconvenience could be the reason they never do it again. But if it isn’t, the next step is sure to be.

Step 4 – When They Definitely Can’t Show Up

If you have exhausted steps 1, 2, and 3 and they are still going MIA, then tell them this. “Ms. Jones, I’m sorry you can’t make it today. I have rescheduled you for (three weeks out). I know this will never happen, but in the unlikely event that it does, I just need to let you know that you will have to prepay for all of your future appointments.” This is GOLD! What are we doing here? We are telling the patient that this is not okay, but we are not slapping them in the face with a no-show fee. We are setting boundaries for our office, but we are not insulting the character of our patients, nor are we excusing it like it’s okay. If it happens again, collect the patients fee upfront before scheduling. In our offices, anyone who prepays, and I mean anyone, gets a 5% discount and I would extend it to them as well. If you do this, you will see your Cancellations and No Shows drop dramatically, because people who pay upfront, show up.

As with anything, fixing your schedule is a process. It takes time and practice. When using this strategy, you want to use your brain too. You’re a smart person. If someone is calling late notice because of a death in the family, it is obviously not the time to go down this road, but that is the exception, not the rule. I promise if you begin to use this strategy today, you will begin to see more patients showing up to appointments and experience less disturbance in your production in the weeks and months to come.

Interest Rates Affect on Practice Values – Why now is a good time to Buy!

By Rod Johnston, MBA, CMA

Owner and Principal, Omni Practice Group

Some of you may remember, others were not born yet, but back in October of 1981, interest rates on home loans were 18.91%.  Over the years, interest rates have gone up and they have gone down.  In the early 2020s, we saw some home mortgage rates go as low as 2.81%.  If you were wise, you borrowed as much as you could at that time and bought a house, even though you may already have one.  Coincidentally, home prices typically do not follow interest rates.  In fact, there have been periods of time over the past fifty years where interest rates have gone up and the average house price also went up.  The same isn’t true for the value of practices.

When I first got into helping doctors sell their practices in the early 2000s, interest rates for practice loans were about 7.5%.  Most of the terms on those loans were 7-year terms.  Meaning you had 7 years to pay off or amortize the loan.  What does that mean for practice values?  Banks determine how much they will lend based on cash flow after debt service.  Debt service is the amount of your monthly loan payments.

To calculate cash flow, you start with the net income on last years’ tax return.  Banks typically use 2-years tax returns, brokers when valuing a practice use 3 years of tax returns.  I’m using one year’s tax return to keep it simple.  You take the last year’s net income of the practice and then add back the non-operational expenses.  Those expenses are those that may not be necessary to run the practice.  Expenses could include gifts to employees, a continuing education class a seller took in Hawaii to get a vacation along with the CE, or meals they expensed for practice.  You can stop those expenses and still run the practice.

This gives you an adjusted net income for the practice.  You then subtract your annual debt service to get the cash flow number.  The banks then divide the cash flow after debt service by the annual debt service to get a debt service ratio number which should be above 1.2 times the debt service.  So, if your cash flow is $120,000 and your debt service is $100,000, your debt service ratio is $120,000/$100,000 = 1.2 times your cash flow.  Anything lower than that and the loan would be rejected, or you would need to figure out how to make the numbers work to get the debt service ratio up.

What does this have to do with practice values?  Well, if interest rates go up, that’s going to cause a buyers debt service payments to go up.  An increase in debt service will result in a decrease in cash flow after debt service.   This will result in the debt service ratio going down and possibly dropping below the threshold of 1.2 times cash flow after debt service.  The same goes for the term of the loan.  Some banks now have 15- or 20-year terms on their practice loans.  This reduces the debt service payments as the loan is spread out over more years.  The result is a decrease in annual debt service payments which improves cash flow.  A bank with a 7-year term may not get the loan approved, but a bank with a 15-year term may be able to do it.

Brokers know all this stuff.  When good brokers do their valuations, they’ll do a check to make sure the bank will be able to finance the practice at a certain value.  So, they’ll do a debt service ratio calculation and if it falls below 1.2 times debt service, then they should lower the value to price it correctly.

The good news is that there was a recent drop in practice loan interest rates.  Interest rates on practice loans are between 5% and 5.5% at the moment.  As a buyer, this means the cash flow after debt service is improved with lower interest rates.  Because the lower interest rate resulted in lower debt service payments which helped increase the debt service ratio.  In addition, lower interest rates will lower a buyers’ monthly payments as well.  This may help you get into a practice that you may not have been able to purchase in the past as the ratio now works with the lower interest rate.  This can be especially good in a startup scenario or in larger practices.

In summary, remember that when interest rates are low, which they are at the moment, it’s a good time to think about buying a practice.   You may be able to get into a better cash-flowing practice with the same or lower payments than when you buy when interest rates are higher.

If you would like a free consultation on buying a practice, please contact one of the Omni brokers.  We are always glad to help.  Phone calls are always free.  We are also having a buyer’s webinar on October 10th, 2024, and a seminar on November 1st, 2024, in Bellevue, Washington, where you will be educated from beginning to end on how to purchase a practice and why you should buy a practice.

Interest Rates Affect on Practice Values – Why now is a good time to sell

By Rod Johnston, MBA, CMA

Some of you may remember that in October of 1981, interest rates on home loans were 18.91%.  Over the years, interest rates have gone up and they have gone down.  In the early 2020’s, we saw some home mortgage rates go as low as 2.81%.  If you were wise, you borrowed as much as you could at that time and bought a house, even though you may already have one.  Coincidentally, home prices typically don’t follow interest rates.  In fact, there have been periods of time over the past fifty years where interest rates have gone up and the average house price also went up.  The same isn’t true for the value of practices.

When I first got into helping doctors sell their practices in the early 2000’s, interest rates for practice loans were about 7.5%.  Most of the terms on those loans were 7-year terms.  Meaning you had 7 years to pay off or amortize the loan.  What does that mean for practice values?  Banks determine how much they will lend based on cash flow after debt service.  Debt service is the amount of your monthly loan payments.

To calculate cash flow, you start with the net income on last years’ tax return.  Banks typically use 2-years tax returns, brokers when valuing a practice use 3 years of tax returns.  I’m using one year’s tax return to keep it simple.  You take the last year’s net income and then add back the non-operational expenses in the business.  Those expenses are those that may not be necessary to run the business.  Expenses could include gifts to employees, a continuing education class you took in Hawaii to get a vacation along with the CE, or meals you expensed for business.  You can stop those expenses and still run your practice.

This gives you an adjusted net income.  You then subtract your annual debt service to get the cash flow number.  The banks then divide the cash flow after debt service by the annual debt service to get a debt service ratio number which should be above 1.2 times the debt service.  So, if your cash flow is $120,000 and your debt service is $100,000, your debt service ratio is $120,000/$100,000 = 1.2 times your cash flow.  Anything lower than that and the loan would be rejected, or you would need to figure out how to make the numbers work to get the debt service ratio up.

What does this have to do with practice values?  Well, if interest rates go up, that’s going to cause a buyers debt service payments to go up.  An increase in debt service will result in a decrease in cash flow after debt service.   This will result in the debt service ratio going down and possibly dropping below the threshold of 1.2 times cash flow after debt service.  The same goes for the term of the loan.  Some banks now have 15- or 20-year terms on their practice loans.  This reduces the debt service payments as the loan is spread out over more years.  The result is a decrease in annual debt service payments which improves cash flow.  A bank with a 7-year term may not get the loan approved, but a bank with a 15-year term may be able to do it.

Brokers know all this stuff.  When good brokers do their valuations, they’ll do a check to make sure the bank will be able to finance the practice at a certain value.  So, they’ll do a debt service ratio calculation and if it falls below 1.2 times debt service, then they should lower the value to price it correctly.

The good news is that there was a recent drop in practice loan interest rates.  Interest rates on practice loans are between 5% and 5.5% at the moment.  As a seller, this means values can be pushed a bit as the cash flow after debt service is improved with lower interest rates.  A practice valued at $950,000, may now be worth over $1 million or even more.  Because the lower interest rate resulted in lower debt service payments which helped increase the debt service ratio.

It’s good news for the buyers as well.  Lower interest rates can lower their monthly payments as well.  This may help them get into a practice that they may not have been able to purchase in the past as the ratio now works.  This can be especially good in a startup scenario or in larger practices.

In summary, just remember that when interest rates are low, which they are at the moment, it’s a good time to have your practice valued and put on the market.  It’s also a good time to be a buyer as your payments could be reduced.

If you would like a free consultation on the value of your practice, or to discuss a possible transition in the future, please reach out to one of the Omni brokers.  We are always glad to help.  Phone calls are always free and if you do a valuation with us today, we will update them for free in the future.

50 Steps To Sell Your Practice

50-Steps-to-Sell-Your-Practice.doc (101 downloads )

Maximizing Practice Price

Maximizing Practice Price

By: Bruce Johnson, DDS

If you are considering selling your practice, always try to plan at least three to five years prior to the date that you hope to sell. We would all love to obtain the maximum price for the sale of our practices and I have listed some major points to help you achieve that goal.

1. Do not take your foot off the pedal. It is very common for those getting ready to sell to start slowing down by taking more time off and decreasing the working hours. Anything that decreases your overall production will result in a decreased value for your practice.
2. Try to keep your existing staff happy and motivated! You may want to consider pay raises or bonuses. I feel bonuses based on production level would be best rather than just hourly pay raises that the new buyer would need to maintain. If it is out of the standard range that may not be viewed favorably by a new buyer. Also, I do not recommend sharing your plans to sell with the staff. People are often afraid of change and sharing your plans too soon could cause some staff to start looking elsewhere. Staff turnover prior to a sale is not something a new buyer wants to see. Your plans to sell should only be discussed with your broker, your immediate family, accountant, and attorney.
3. Clean up your accounts receivables and eliminate all credits. Stay on top of collecting from both patients and insurance companies. Call those patients with outstanding balances and do everything you can to collect monies owed. Run your credit balance reports and reach out to patients to whom you owe money. You want to keep clean credit balance reports and stay current on your state’s process and procedures for unclaimed property.
4. Make your practice look attractive. Fresh paint, nice carpets, and new or recent countertops. Clean out storage areas and move your personal belongings to your home or to a storage facility. The outdoor landscape needs to be attractive. So, consider a landscape company to help. Make sure your outdoor signage is visible and clean.
5. Do not buy expensive dental equipment like a CEREC or a Cone Beam CT because you will likely not recover that investment. But do make sure you have the basic equipment that buyers want. Most everyone expects digital x-rays so consider updating to digital technology. An existing dark room with dip tanks will be viewed less favorably. Evaluate your office computer system and software. Your broker will be happy to provide guidance and best suggestions if some of your systems and office equipment are dated. Make sure handpieces are all in good working condition. If dental chairs are over ten years old, considering having them reconditioned. Buyers will often decrease their offer to allow for major updates.
6. If you are leasing your place of business, make sure your lease is current and has at least seven to ten years left with options. Banks will not loan with a weak lease structure. For example, if your lease expires five years from now, be sure there is at least one or more five-year options. The lender will need to assure the buyer can remain in that space for the life of the loan.
7. Review your fees and make sure they are in the normal fee range. If they are too low, you should work on increasing them to the normal fee range for your area.
8. Review your overall office overhead costs and try to get all categories into the standard range. Avoid running personal expenses/vacations through your practice. Your practice should reflect the true expenses of running the practice. Accountants have ranges in each dental category that are standard in general dentistry.