Percentage of overhead is a choice

Jan. 1, 2009
Frequently dentists place too much emphasis on gross production rather than net return.

by Bill Blatchford, DDS

For more on this topic, go to www.dentaleconomics.com and search using the following key words: business strategy, challenging economic times, overhead, Blatchford, leadership.

Frequently dentists place too much emphasis on gross production rather than net return. What you bring home is your choice by virtue of being aware of expenses, and having the intention and action to earn and keep 45%. Currently, dental overhead in the United States is approaching 78%, which means net return is a low 22%. How is it that some dentists are able to operate at 55% or under?

When economics are good, dentistry is on people's priority list, making it easier to be successful. Yet most dentists — even in good times — find that the money rolls through their fingers; there is never enough.

At Blatchford, we are big believers in budgets. Too often, the connotation of budgets is as appalling as a diet. We avoid budgets because we feel like we would be denied the fun stuff, the choices. In reality, a solid budget allows for the necessary purchases of equipment, improvements, and continuing education in addition to the fun stuff. A budget is based on percentages that allow you to monitor your practice on a monthly and quarterly basis. A budget helps you answer the question: What choices do I need to make to keep within my budget to take 45% home?

A dental budget has rent at 5%, equipment at 5%, marketing needs at 3% to 10%, lab expenses at or more than 10%, dental supplies at 5%, and total team expenses at 20%. This item is one that you can control. It is the largest item in your budget. Most offices are staffed at closer to 30%. If you are producing $100,000 a month and are not watching your numbers, your lack of leadership in this area is costing you an extra $10,000 in net income.

It is easy to abdicate leadership regarding team members when you focus on clinical dentistry. A team member says, “I need more help in the front.” Without looking at your budget or your numbers and failing to question the “why” — or you may have failed to implement a fair and very motivating bonus — you say, “OK, take care of it.” You have just committed yourself to an annual $30,000-plus and allowed your team to dictate your overhead.

Your team should be privy to your budget, percentages, targets, and goals. When they know the numbers and a fair bonus system is a part of your practice, your team becomes accountable for those numbers and for making the practice work. Good team members make it their own practice.

What does it take to have your team at 20%? Leadership, a road map of the future, requires strong systems to be in place: block booking, complete cross-training, coaching to meet goal at morning huddles, weekly staff meetings about numbers, monthly training sessions, computers in every room so hygienists and assistants can enter treatment, tight scheduling, increasing collections at time of service, applying the 80/20 rule to your practice so marketing money is effective, being positive, energized, and — the most important — making sure everyone masters sales conversations with guests by reading books, role-playing, and encouraging. It also takes a doctor willing to diagnose long-term treatment plans rather than single-tooth dentistry.

Besides looking at the numbers of staff at 20% of production/collection, here are some other indicators of overstaffing:

  • More people working in the front than those producing the dentistry
  • Layers of supervisors and managers
  • Having staff members who have little or no patient contact

When a dentist feels overhead is something that just happens and he/she is not in charge of net income, it hurts your family, team, and patients. When finances have control of you, do you make decisions about patient care in a different way, such as choosing a less competent lab, diagnosing only what you feel patients will accept rather than discussing long-term dreams and treatment plans with them? Does your financial pinch force you to offer less than ideal? Do you offer less so the patient will at least accept something?

Choose your 55% overhead by creating budgets and living within those numbers, especially for the team — the one area you can change. Make the bold decision to take home 45%. It can be yours because of your leadership.

Dr. Bill Blatchford is a leading dental business coach who has worked with more than 2,000 offices to help dentists achieve more time off, more net, and more enjoyment. Become a member of Blatchford FILES, Dr. Blatchford's monthly CD on winning at dental business. The first two months are free. Call (541) 389-9088 or visit www.blatchford.com for more information.

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