Overhead watch

Oct. 1, 2002
Uncertain times require all businesses that want to succeed to understand and be vigilant about sticking close to the numbers. Over the last 30 years, overhead in dental offices has risen from under 50 percent to about 75 percent today.

Bill Blatchford, DDS

Uncertain times require all businesses that want to succeed to understand and be vigilant about sticking close to the numbers. Over the last 30 years, overhead in dental offices has risen from under 50 percent to about 75 percent today. After the 10 years of boom economy, we have developed dangerously complacent habits in numbers knowledge.

With an average net return of 25 percent, every dentist and staff member must know what it takes to make a practice financially strong. The cavalier attitude about numbers is shown when a dentist might say, "I went ahead and bought the bigger widget. The monthly payment is only $1,445, and that is just two crowns a month. No problem!"

The real problem is that the doctor doesn't understand his overhead. He made an emotional decision and monthly commitment to something he may not be able to afford at his present production/collection level. In the average office, $1,445 would net $360. To net $1,445 from two crowns, his unit fee would need to be four times $1,445 or $2,848 per tooth.

Overhead Rule No. 1 — Per hour cost of dentistry: In determining cost per hour, remove from consideration all capital expenditures (anything over $2,000 per month), continuing-education courses, and travel to these courses. Also remove doctor benefits which are legal, but do not influence the cost of producing a unit of dentistry in your office. This includes your automobile, the cost of attending the AACD convention in Hawaii, etc.

With that figure, subtract the lab bill. Figure an average unit price and multiply by the number of units. Otherwise, your lab bill will not reflect the work that month. Divide the overhead by the total hours you see patients. This gives you the cost per hour without your lab costs. Divide this figure by the number of providers. As an example. one doctor and one hygienist would be two providers. This is the cost per hour per provider.

To accurately figure overhead, you must time your procedures, including diagnostic time, prep, and seat time. Then. add in the cost of laboratory procedures. As you can see, once the lab bill is removed, the cost per hour for the hygienist is the same as the doctor's. This is a good exercise to to go through with your staff. Once they know the overhead per hour, there is real ownership in scheduling to meet or exceed the hourly overhead goal. Your staff can see there is no room for reduced fees, free work, or constant remakes.

Overhead Rule No. 2 — Accountability: If your overhead is low, you made it happen. If it is high, you also chose that, but you can choose a different course. How different? Consider your fees. Are you charging the same fee for optional aesthetic treatment, such as veneers, as you do for posterior crowns? Considering your real overhead per hour that you figured above, when you include your lab fee, diagnostic, and seating time, are you covering your overhead when you do a single crown? Is it time to raise your fees?

Consider raising your production by "block booking." Do only larger procedures in the morning, scheduling to a goal. and seating treatment in the afternoon. By holding the blocks of time for certain procedures, your production will increase.

Overhead control requires you to examine your numbers. Staffing for a general practice with some cosmetic work should be at 20 percent of your collections. If it is higher, why? Reducing your staff by three can produce $70,000 to $100,000 a month. Profitability is not a function of more people. Make the tough leadership decisions to install systems and skilled staff to make it happen.

Overhead Rule No.3 — Big Picture Accounting: Quit trying to cut overhead with the little things. Buying the cheapest cotton wads when you are spending 34 percent of your overhead dollars on staff is fuzzy thinking. Be bold!

Increase your lab bill. Some 95 percent of all lab work is one tooth at a time. The average laboratory overhead is 8 percent. If you increase your lab percentage to 15 percent, how would that affect your production/collection figures and your work day? What kinds of choices are you giving your patients if your lab bill is increased to 15 percent? If your lab bill is 3percent, what kinds of choices are you giving your patients?

Be smart about your overhead. You and your staff should hug the figures and own them. Make the overhead figures work for you by making the tough leadership decisions that will result in a financially viable practice, no matter what the economic outlook is. If your overhead is out of control, and you want real help in increasing your bottom line, email me at billblatch @aol.com.

Money cannot buy you happiness, but it certainly can help you find that happiness.

Dr. Bill Blatchford, a practice-management coach only to dentists, has developed a distance learning coaching program utilizing conference calls, personal phone coaching, the Internet, and email. Minimizing the travel requirements, Blatchford coaching is now available anytime and anywhere. Based in Sunriver, Ore., Dr. Blatchford is speaking at the Chicago Midwinter, Profitable Dentistry's Destin Seminar, and Discus Dental's Las Vegas Seminar in 2003.He can be reached at (800) 578-9155 or visit his Web site at www.blatchford.com.

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