Rick Willeford, MBA, CPA, CFP
Your practice is the financial engine that drives your financial plan. It's up to you to choose the financial level you prefer or need to practice. To help maximize your potential, here are a few thoughts to consider.
Art Weiderman, a CPA from Tustin, Calif., and a member of the Academy of Dental CPAs, points out that "90 percent of the problem is not overhead." Staff, supplies, and lab fees are about 75 percent of your total overhead. Assuming you are not blatantly throwing money away, these costs are fixed: you need a certain number of staff, you need to pay the going rate, you only can consume so many supplies, and your crown fees should reflect your lab costs.
Remember that expense ratios involve two figures: the expense divided by the collections (or, preferably, production). If your actual expenses are reasonable, but your overhead is "too high," you will often discover the problem is low production and/or collections based on the capacity of your facility and staff.
For example, the typical production for a solo practice over five years old is between $450,000-$750,000, with an average of about $600,000. Of course, many do better, with the top 5 percent of solo superstars producing over $1,000,000.
Let's look at a few specific benchmarks to see how your practice compares to the norm, and where you should start looking if you don't like how you stack up. Variation from these benchmarks does not imply good or bad - just a variable worth investigating.
Benchmark No. 1: You can roughly gauge your practice potential based on the number of active patients you have. The definition of an "active" patient ranges from one who has been in for treatment at least once in the last 18 months in an urban setting to one who has been seen within three years in a rural setting. Let's settle for a two-year definition.
The typical solo practice has between 1,500-2,000 active patients, for an average of 1,750. You will find that a practice often averages between $300-$500 per year per active patient. Using a low-side figure of $350, a practice with 1,750 active patients should gross 1,750 x $350 = $612,500.
Obviously, a lot of one-time emergencies and a lot of managed care will throw off this formula. Likewise, a practice doing comprehensive cases will generate a lot more per patient. How do your figures work out?
Benchmark No. 2: Assume a practice is open four days for 48 weeks, or 92 days per year. At eight hours per day, this is 1,536 hours per year. The $612,500 above divided by 1,536 hours equals about $400 per hour for the dentist plus hygiene department to generate.
To increase this hourly figure, consultant Linda Miles suggests that 35 to 40 percent of your total production should come from the lab-based 2000-series restorative codes. How does your hourly production compare?
Benchmark No. 3: Hygiene typically should be 20 to 35 percent of total production. If you are on the low end, you might either have a poor recall system, or the operative and restorative costs simply are very high. Consultant Annette Ashley-Linder, RDH, believes that if your practice is truly committed to nonsurgical perio management, then 25-40 percent of total hygiene production should come from the 4000-series perio codes. Where do you stack up- and why?
Benchmark No. 4: Allen Schiff, CPA, an ADCPA member from Baltimore, echoes what consultant Charles Blair, DDS, has been preaching for years: Keep your fees balanced and at the appropriate level!
Of course, it seems we all need to be continuously reminded that "gross" is good for bragging rights at the study club, but it's the "net" that truly counts!
Raymond "Rick" Willeford MBA, CPA, CFP, is president of Willeford & Associates, CPA, PC, a fee-only firm specializing in financial, tax, and practice-transition strategies for dentists since 1975. Mr. Willeford is president of the Academy of Dental CPAs, a member of the national Practice Valuation Study Group, and numerous dental study clubs. Contact him by phone at (770) 552-8500 or by email at [email protected].
