The era of organic growth is going away. It used to be that a Dental Practice would slowly but surely grow with time. Now the competition is fiercer, therefore, attracting patients is more difficult than it has ever been. Besides attracting new patients, the second best way of increasing income is reducing overhead cost by reducing unnecessary expenditures.

I still turn a profit, so why do I care.

Dental Practices have one of the highest overheads of any industry, on average dental practices have a 60% overhead. This is true of high-performance and low-performance practices. Every cost excluding doctor compensation is considered overhead, this includes:
• Employee wages
• Rent or Mortgage
• Supplies
• Equipment
• Utilities

To put things into perspective, no matter the level of production most practices are paying on average 60 cents out of every dollar in expenses. This means that a small reduction will make a difference in the long term.

For example: A practice has a yearly gross income of $1 million. The average overhead of 75% means that $750,000 of that money is overhead, leaving you with $250,000 in income. Assume you make an overhead reduction of 5% that will increase your income by $50,000. This is also true for smaller practices, a 5% reduction in overhead in a practice that grosses $500,000 will mean an increase in net income of $25,000.

How do you determine if your overhead is too high?

Determining your overhead costs should be relatively simple. Your accountant should provide you with a Profit & Loss (PL) report. A Profit & Loss Report should include your income and expenses and break them down categorically. Determine which categories constitute your overhead expenses, one-time expenses like new furniture for the lobby or other expenses which are only inquired once every few years should not be included.

After determining the amount spent on these categories average them out by month and subtract them from your average monthly income. If you are not pleased with the amount left over then your overhead might be too high.

 

How to determine where you are spending too much money.

Below you will find guidelines which will help you determine where you might be spending too much. Be aware that these are averages and expenses like rent and employee wages vary geographically.

The example below is a 1 Doctor practice with a 60% Overhead.

So you have determined that your overhead is too high.

The solution is not always reducing staff or reducing the quality of the services provided. Take a step back and look through the reports your accountant provides you and look for any expenses which are not necessary for the growth of your business.

There are many ways to reduce your overhead percentage without reducing fixed expenses.

These include:

–    Encouraging current patients to leave reviews and refer friends and family

–    Research ways to cut costs. Dental supplies are a variable overhead cost that increases with production, find more affordable alternatives and compare pricing to find the best deal possible. There are some other expenses which could also be reduced in some cases.

–    Re-negotiate the term of your lease

–    Review insurance coverage and premiums to see if there are potential savings

–    Review the staff’s job descriptions and find ways to improve efficiency. Which in turn can lower labor expenses and/or increase production.

 

Overhead expenses should be reviewed periodically to determine where improvements can be made. Consult with an accountant that specializes in the dental industry. An accountant or CPA that is familiar with the dental industry will be able to advise you about the best ways to optimize your business and reduce overhead.

 

OBooks offers packages for all dental practices, from small to large. We provide you with reports that will help you better visualize where your Dental Practice stands. Showing you Key Performance Indicators and helping you determine what you need to do so your Dental Practice can grow while also taking other back-office tasks off your hands so you have more time to focus on practicing dentistry and growing your practice.

We are not a legal firm and do not provide legal advice. We are Accounting and Tax Practice. This article does not create an attorney-client relationship or a practitioner-client relationship. This article should not be seen as legal advice. You should consult with an attorney or tax professional before you rely on this information.