How to Improve Your EBITDA

October 25, 2022

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.

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What is EBITDA?

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.

How EBITDA Can Be Used

EBITDA is a valuable tool when performing any of the following:

  • Budgeting: You may have the cash flow or access to funds to purchase that shiny piece of new equipment, but that doesn't mean you have the profits.
    Suppose you're planning next year's budget and are wondering what you can afford. Looking at your EBITDA will help you determine if now is the right time to lay out the funds for that nice-to-have but perhaps not completely necessary new piece of equipment.
  • Downsizing or expanding: Staffing decisions made on perception instead of facts can land you in hot water. To ensure your practice doesn't find itself in a financial bind, unable to cover payroll, or letting go of employees you may have been able to retain, take a look at your EBITDA.
    If you're considering downsizing or expanding your staff, analyzing your EBITDA will enable you to look at the matter objectively rather than subjectively so you can make a financially solid decision.
  • Investing or Selling: If you're considering acquiring another practice or are ready to move on from yours and want to develop an exit strategy, EBITDA can help.

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.

6 Ways to Improve EBITDA

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.

Maintain Price Stability

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:

  • Avoid unnecessary spikes in spending
  • Monitor supplier pricing and deter price creep
  • Ensure you pay the price you committed to for the items and quantities you ordered and received, and no more.

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.

Emphasize Cost Reduction

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.

  • When negotiating with and choosing suppliers, consider EBITDA-friendly factors, such as payment terms. The longer you can hold the cash in your bank, the better for your EBITDA. If suppliers are unable to move on price, improving payment terms is another way for them to attract your business.
  • For DSOs managing spend across locations, a spend management platform can help you implement formularies and control spend so you can standardize the supplies used and gain more buying power.
  • Supplier competition can help you optimize your buying power. A Request for Quote enables you to request special pricing based on your requirements. A digital RFQ process, however, does you one better, streamlining the entire process for all parties. Suppliers can quickly and easily respond within the platform. Buyers can create, send, analyze responses, and award business, creating POs directly from quotes.
  • Make sure you understand your vendors and how you can negotiate with them. For instance, by dealing directly with manufacturers, you can leverage your volume and take advantage of economies of scale for deeper discounts. Some distributors will also work with manufacturers on your behalf to offer you a special deal.

Improve Inventory Management

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.

Increase Revenue

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:

  • Your costs
  • Patient value
  • Your competitive environment

Increase production capacity by:

  • Hiring more dentists or hygienists
  • Adding extra treatment rooms
  • Shortening wait times and production times
  • Ensure dental assistants are performing routine tasks such as cleanings and x-rays

Expand the number of high-profit procedures you offer:

  • Procedures such as porcelain veneers or implants may offer an opportunity for nicer profits. However, make sure to do the math and account for costs and production time to confirm you're actually making a higher profit before pushing ahead.

Offer financing options:

  • Patients don't always have insurance coverage for non-standard procedures; even if they do, they may have difficulty covering any out-of-pocket expenses. Internal or external payment plans offer patients an alternative financial solution.
  • If you can work with providers that offer direct insurance company billing, you make it easier on patients with cash flow challenges. If you enable them to avoid paying upfront for dental treatments and waiting to be reimbursed, they're more likely to take advantage of your services.

Implement a referral program:

  • Loyal, active patients are critical to a healthy practice and are more likely to offer recommendations. Considering implementing a referral program that incentivizes existing patients and employees to refer their friends, family, or coworkers.

Leverage automated emails to encourage bookings:

  • Your patients are busy or maybe just forgetful. Either way, automated emails with direct booking links make it easy for you to follow up on patients at scheduled intervals, encourage them to schedule their next appointment, and make it easy for them to do so.
  • Automated emails are also great for promoting profitable, limited-time offers on non-standard procedures.

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.

Utilize automation to reduce personnel costs and minimize costly human errors.

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.

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Method Procurement Technologies gives independent dental practices and DSOs the inventory management and procurement capabilities they need to succeed. With our full, end-to-end solution, ordering dental supplies is straightforward and hassle-free.

Learn how Method Procurement's spend management solutions can improve your bottom line. Get in touch with our team today or request a demo to see it for yourself.