Getting on the fast track

Pausing to perform monthly reviews of your overhead expenditures can put your practice in fast forward.

C. Edward Miller, DDS, and

Jon Fulton, MBA

Dentists often find it difficult to perform all of the tasks that are a vital and necessary part of their busy practices. One of the most important tools for success in any dental practice is the calculation and management - on a monthly basis - of the costs and expenses relating to business overhead.

Generally, if 100 dentists were polled, only a small percentage would be able to honestly respond that they were watching costs on a monthly basis. Ironically, if the same 100 dentists were asked whether they believed that the calculation of overhead expenses on a monthly basis would be significant to their practices, the response would likely be a unanimous consensus.

There are many reasons why dentists have not taken the time to determine the percentage of their practices` overhead costs and expenses.

(1) They feel they are too busy to invest time in the determination of overhead expenses.

(2); They do not know how to calculate their overhead.

(3) They may just be too lazy.

It is likely that most dentists fall into the first category. In light of the myriad of tasks and duties that must be completed, many dentists feel they do not have enough time to calculate overhead on a regular basis. However, the ability to calculate and exert control over monthly overhead costs is vital to the continued success of any dental practice. Therefore, it is imperative that each dentist develop an effective plan which will enable them to track monthly expenditures. If this is done, the practice`s overhead can easily be tabulated.

The ideal overhead model

The generally accepted model for a dental practice`s overhead is set forth in Table 1 (see next page).

Keeping expenditures within the guidelines below yields an average monthly overhead of 52 percent. All dental practices should strive to approximate these figures. At first glance, a monthly overhead of 52 percent may seem unrealistic. However, many dentists who are committed to a routine monthly review of their overhead find they are able to reduce their costs and expenses even further.

After calculating monthly costs and expenses and determining the total monthly overhead, many dentists will have to lower their expenditures. Obviously, one way to decrease overhead is to increase production by working more hours, improving scheduling, or by increasing fees. However, it should be emphasized that working more hours is not the solution. Generally, the first step is to examine each category and see how your practice compares to the ideal.

For example, if the combined staff salary appears to be inconsistent with the practice`s monthly expenditures, it may be necessary to look at the staff as a whole. Are you overstaffed? Are the salaries inconsistent with production or out-of-line with the amount of dentistry performed? If the answer to either of these questions is "yes," some hard decisions need to be made.

In addition, the practice model - which advocates a large number of new patients per month - generally means higher overhead. The increased amount of paperwork at the reception area requires additional business staff. In addition, an influx of new patients typically requires additional clinical staff to treat them. Furthermore, seeing more new patients generally results in the dentist having less time to spend with each patient.

By allocating less time with patients at their initial visit, dentists are either sacrificing complete and thorough treatment or overwhelming the new patient with rushed information. The likely result is that the new patient will not return. This "roller-blading" method of dentistry may temporarily result in higher production, but it will also mean high overhead, fatigue, poor health, and unhappiness in your practice.

If a dentist finds that the practice`s lab bills are below 10 to 12 percent, it is likely that ideal dentistry is not being presented. By not presenting ideal dentistry to patients, dentists are hurting production and - worst of all - not providing patients with the best treatment possible. On the other hand, if cosmetic dentistry is a significant part of your practice, lab bills may be above 10 to 12 percent. It should be noted that this is well within the acceptable range since production will likely have increased as well.

During the initial review of monthly overhead costs and expenses, dental supplies are usually found to be above the desired percentage. The best way to keep the cost of supplies under control and in line with the ideal model in Table 1 is to review the desired percentage of the previous month`s production. For example, the ideal overhead model suggests that dental-supply costs fall within a range of 4 to 5 percent. If you produced $30,000 in January, dental supplies should not have exceeded $1,200. Going forward, $1,200 should be the maximum amount spent on supplies for the month of February. If this method is followed throughout the year, it is likely that the ideal model will be achieved with relative ease.

With respect to continuing education, many dentists enroll in numerous educational courses each year; however, they typically fail to apply what they have learned, or discover that the programs were of no value to them. If this is the case, the cost of the continuing education, time spent out of the office, and travel expenses raises overhead. Therefore, it is important to choose educational courses that add value to your practice and to your professional growth. For example, many dentists have expressed great enthusiasm for cosmetic dentistry courses. In addition, the business training and the practice-management guidance offered by certain consultants are known to provide invaluable information to the dental community. Programs such as these will make practicing dentistry more fun and profitable.

If you have not done so already, now is the time to take a close look at your practice with respect to overhead expenditures. Hit the "pause button" in your practice if you find that swift changes are needed to bring your practice in line with the ideal overhead model. Taking inventory of where you are and getting the help necessary to make your practice more profitable is vital. It might just put your practice on fast forward.

Table 1

Monthly costs and expenses Percentage

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Staff......................................................20%

Lab costs..................................................10%

Professional supplies......................................4-5%

Occupancy expenses

(mortgage/rent, office insurance,

office utilities, repair and maintenance,

and office furnishings)....................................6%

Administrative costs

(office supplies, new business equipment,