EBITDA is a measure of a company's operating profit shown as a percentage of its revenue. The better your EBITDA margin, the healthier (and more valuable) your business. Therefore, steps to improve your EBITDA bring added value to your business. Unfortunately, supply price creep, poor purchasing habits, and supplier overbilling all adversely affect your EBITDA. But your EBITDA matters to your practice's bottom line and to possible investors, helping them determine if your practice is a wise investment. In this guide, we get into all things EBITDA, including what it is, why it matters, what affects EBITDA, and ways to improve it.
The acronym stands for: Earnings Before Interest, Taxes, Depreciation, and Amortization.
By removing all elements non-relevant to operations, the performance metric accurately measures your operating performance and your ability to generate profits, reflecting your practice's financial growth.
Knowing the EBITDA of your dental practice allows you, and possible investors, to compare your performance to others in the industry on a fair and level playing field.
EBITDA is a valuable tool when performing any of the following:
A reflection of growth potential, EBITDA offers subjective comparisons, showing potential buyers if a company is a wise investment compared to other companies. If you're a seller wanting to put your practice on the market, EBITDA will help you set the correct asking price.
As we've said, the strength of your practice is reflected in the health of your EBITDA, so if you're intent is to increase profits and, along with them, the value of your practice, it's essential to take strategic steps to improve it.
Practices aiming for growth tend to focus on attracting new patients and increasing production, but the key to EBITDA is more about working smarter, not harder. Although you still want to increase your revenue, focusing on the other aspects of operations that impact EBITDA first makes you more likely to see profit improvements faster.
Establishing the frameworks that allow for effective operations increases the potency of your actions, allowing you to do more with less so you can scale profitably.
To help you get there, below, we offer six ways you can improve your profits and your EBITDA.
Given today's highly volatile market, it may seem like maintaining pricing on your dental supplies is easier said than done. But maintaining price stability allows you to stabilize your EBITDA margin.
The most effective method for pursuing price stability is to utilize a spend management solution that enables you to implement the best practices that allow you to:
Remember, market conditions frequently change, especially in today's volatile world, and data can quickly become outdated. Therefore, we suggest you ensure the information you rely on is current and frequently updated, if not in real time.
Method was built to give you real-time visibility, allowing you to keep an eye on the market and your own specially negotiated pricing. With the right data, you can make strategic, facts-driven decisions that safeguard your profits and ensure you drive down costs.
Reducing your overhead is one of the fastest, most impactful ways to improve your profit margin and, therefore, one of the best places to start.
Unlike revenue, every penny you save makes it straight to your bottom line. That's right, $1.00 saved is $1.00 earned. In comparison, once you deduct expenses, you would actually need to increase revenue by $3.00 to increase profits by $1.00.
There are many ways to improve your operating costs, depending on your priorities and where you have the most opportunity for improvement.
Here are two of the most impactful areas to focus on when cutting operating costs include:
Eliminate unessential expenditures. By improving your procurement processes and implementing an order approval process, you can eliminate redundant orders and stop unnecessary expenditures before they happen.
Don't let them gouge you. Instead, shop around and understand market prices. You'll be surprised to see how much discrepancy between suppliers.
Method's spend management platform also gives you visibility on over 800,000 items and 2000+ dental-specific suppliers so you can make the most financially responsible buying decisions for your practice and stop overspending unnecessarily.
Leverage your volumes for deeper cost savings. Procurement analytics, spend controls, and a digital order approval process empower you to implement formularies, run Request for Quotes (RFQs), and optimize your spending, delivering long-term cost savings that make it straight to your bottom line.
Poor inventory management leads to increased costs and negatively impacts your cash flow, diminishing your working capital and your EBITDA. In addition, every supply you purchase that sits in inventory continues to tie up your practice's hard-earned dollars, and the item is now at risk of becoming lost, damaged, stolen, or expiring prior to use.
To improve your EBITDA, you need to shorten the time between purchasing supplies and collecting the revenue those supplies help you produce. Inventory management best practices allow you to align your business needs with your purchases, so you buy what you need when needed, ensuring you minimize waste and avoid costly write-offs due to expired or obsolete inventory.
The right solution should give you complete visibility over your inventory management and procurement process so that you can optimize your inventory levels.
Method's inventory management platform will help you identify your supply needs and provides you with the visibility, control, and data you require to more effectively manage your purchases. Know when it is time to order and determine the most economical quantity order to increase your working capital and minimize your risk of financial write-offs.
It may seem obvious that increasing your revenue will help you improve the EBITDA of your practice. Although it's far from easy, there are many strategies you can use. Here are a few ways to Increase Dental Practice Revenue:
Raise your fees (while staying competitive) by evaluating:
Increase production capacity by:
Expand the number of high-profit procedures you offer:
Offer financing options:
Implement a referral program:
Leverage automated emails to encourage bookings:
Increasing your number of active patients, improving your case acceptance rate, and investing in marketing to attract new patients can all help you improve your EBITDA.
For more, check out ways to increase dental practice revenue.
Managing a long list of highly technical dental supplies can be a time-consuming, tricky process.
A spend management platform with a short implementation period and a low barrier of entry can deliver a fast Return on Investment (ROI). Leveraging automation and streamlined workflows to improve efficiencies and avoid labor-intensive, error-prone manual processes reliant on a myriad of emails, phone calls, faxes, and supplier portals, digitizing can deliver almost immediate results.
Technology plays a critical role in improving your EBITDA. The right solution should be scaleable and capable of growing with you.
Method's platform is flexible and scaleable enough to work for you today and tomorrow, covering all areas such as RFQs, inventory management, spend control, budget monitoring, and data analytics.
Method has a proven track record of helping companies streamline their processes and control expenses, including identifying requirements, finding contract billing errors, and implementing more strategic procurement processes for long-term maximized cost savings.
Our customer success team is ready to help your business run more efficiently and grow that EBITDA.
Ready to Find the Right Method With Method? Request a personalized demo now.
