The Dental Service Organization (DSO) industry has been on the rise with an increasing number of dental practices opting to join DSOs for various benefits, including access to advanced technologies resulting in streamlined operations. However, with growth comes increased financial responsibilities, and CFOs in this industry find themselves facing numerous unique challenges.
In this blog, we explore the different strategic ways CFOs must adapt to meet their financial obligations in the DSO industry. We also focus on how Bright Balance, a fractional accounting and finance provider, can assist DSOs in meeting these requirements and maintaining financial health for continued growth.
I. Cost Control and Optimization:
DSOs often oversee multiple dental practices and locations, making cost control crucial for CFOs, hence the need to employ some of these tactics:
- Standardization: Establish consistent procurement and payable procedures across the organization, ensuring efficiency and compliance, while also leveraging bulk purchasing power to negotiate favorable discounts on supplies and equipment. These standardized processes will enhance control and transparency, reducing the risk of errors and fraud while also offering scalability for future growth.
- Vendor Management: CFOs should routinely review vendor contracts, comparing prices to secure the best deals for supplies. Exploring alternative vendors or consolidating purchasing with fewer vendors can lead to the discovery of promotional offers and volume discounts that may result in cost savings. CFOs can also drive cost-effective procurement by consistently monitoring contracts and considering alternative suppliers.
- Automation: Strategically adopting technology provides additional and timely insight, reduced errors, operational efficiencies, and scalability for growth in order to better analyze and implement potential cost control opportunities.
II. Financial Forecasting:
Accuracy in financial forecasting enables CFOs to effectively plan for the future and therefore fulfill their financial obligations as needed:
- Budgeting: When preparing budgets for each dental practice under the DSO’s umbrella, CFOs should pay attention to details and accuracy while taking into account revenue/production, payroll costs, fixed expenses, variable expenses, and growth projections. It is important to follow a standardized budgeting method that allows for uniformity and adds simplicity in calculating variances to actual results.
- Scenario Analysis: Creating various financial scenarios in forecasting is instrumental to preparing for unexpected challenges and opportunities. This adds flexibility to financial management and creates a conducive environment for the fulfillment of all financial obligations.
- Cash Flow Forecasting: An accurate cash flow forecast helps companies predict future cash positions, prevent cash shortages, and produce returns on any cash surpluses. Liquidity planning allows the CFO to manage cash requirements for growth planning, debt service needs, covenant and key date requirements, and risk management of potential shortages.
III. Effective Revenue Cycle Management:
An efficient and effective Revenue Cycle Management (RCM) process is instrumental to achieving financial stability in the DSO industry as CFOs face a challenge of errors and discrepancies that often lead to claim denials, rejections, delays, and audits. This may affect cash flow and compliance, hence the need to implement the following practices:
- Insurance Verification: Setting up a system where verification of patients’ insurance information is done upfront to prevent claim denials and delays in payments.
- Billing Efficiency: Ensuring accuracy and timeliness in billing to minimize revenue leakage. This can be done through the automation of RCM and accounting processes which reduces errors and maximizes efficiency.
- Collections: To ensure timely payment of bills, it is important to create a collections strategy that includes convenient payment options for patient responsible balances, as well as timely follow up of third party payor claim denials. It is crucial to ensure that receivable balances reflected are correct and accurate to ensure efficient collection efforts.
- Implementation of effective data quality checks: To prevent mistakes in billing and cash posting processes, it is important to establish efficient checks and verifications for data quality at every stage of the RCM process. Although automation can aid in minimizing errors, certain procedures still demand multiple inspections to ensure precise data entry.
- Adequate training of staff: Staff needs to know the best practices for data entry, verification, and documentation. Regular training should be provided to ensure that staff are well-versed in RCM processes and the use of technological tools that can aid in the efficient capture and exchange of data.
- Automation: Strategically adopting technology is essential for enhancing operational efficiency and minimizing errors that could result in payment delays or denials from both patients and insurance payors. Implementing electronic health records and advanced practice management systems is crucial for maintaining billing accuracy and ensuring timely processing, effectively mitigating the potential for revenue leakage.
IV. Debt Management:
Managing debt is essential for maintaining financial stability and accelerating growth in the DSO space. Debt management consists of the risks related to:
- Covenant Compliance: Debt covenant compliance provides your lenders with the routine assurance required to confirm that a company is in a healthy position to repay its debt obligations. Most debt agreements and lines of credit require borrowers to meet certain financial and/or operational targets. If those targets are not met, lenders may impose financial restrictions or potentially require the payment of the outstanding debt.
- Debt Consolidation/Refinancing: Multiple credit commitments may result in higher debt service costs and increased administration. Consolidating all outstanding credit commitments to one loan agreement might lower debt service requirements, result in reduced interest rates, and simplify the administrative effort required with multiple lenders.
V. Compliance with Evolving Regulations:
Ensuring that all financial operations adhere to the latest accounting standards and meet requirements for emerging technology standards, all of which can have a profound impact on the financial health of DSOs. Keeping abreast of these changes is not only a demanding task, but also vital in sustaining competitiveness and mitigating compliance risks.
Bright Balance’s Accounting Model:
A Game-Changer for DSOs
CFOs in the DSO industry undoubtedly face many challenges of efficiently meeting these obligations as well as many others that arise on a daily basis. Bright Balance is a leading fractional accounting firm with a deep understanding of the many financial and operational challenges that DSO owners, CEOs, and CFOs face every day. Our DSO focused team works with a portfolio of 15+ dynamic DSOs encompassing a network of 200+ dental locations spanning the United States.
Through our teams’ extensive and invaluable expertise in the DSO industry, we recognize the industry’s dynamic environment and offer tailored accounting and finance services that address specific challenges faced. From in-depth strategic financial analysis to assistance with high volume transactions, we provide the tools and solutions necessary for timely and informed decision-making to reach their financial objectives.
Our fractional services go beyond basic accounting — we help develop long-term financial strategies to drive sustainable growth while allowing dental practitioners to focus on their patients’ needs. With the assistance of Bright Balance, DSOs can easily navigate the complex financial landscape and transform challenges into opportunities for success.
