Predictability, stability, and profitability: Finally get control of your overhead

Dec. 20, 2016
You can tackle your dental practice overhead any time of year you have 12 months of data, but there's no time like the present.

As we near the end of 2016, it's common to look back at the year to determine what worked, what didn't, and what we should do differently in 2017. This goes beyond New Year's resolutions—I'm referring to taking control of your practice's overhead. This can be done any time of the year as long as you have 12 months of data, but December seems an appropriate time.

I understand that doctors undergo years of schooling so that they can work with patients and change lives; analyzing profit margins is often the last thing on their minds. However, it's often not until a doctor's been in the field for five to 10 years that he or she will realize, "I'm a good doctor, but my business needs help." As a consultant who specializes in working with dentists, that's what I'm here for. Even if a doctor hires an office administrator, which can be a huge help with daily management, it's important that the doctor understands overhead in order to direct the practice's future.

The most important first step in taking control of dental practice overhead is simply committing to sit down and invest a few hours in analyzing the past 12 months. You'd be surprised how many practices simply hope they're spending money in the right places or at the right times without a real understanding of their expenses, but, as the saying goes, you can't manage what you don't measure.

READ MORE | 4 reasons why your dental practice overhead is out of control

The year in review

Once you've made the commitment to examine overhead, the next step is to analyze the profit and loss (P&L) statement—that is, the business revenue, costs, and expenses from the past 12 months. I highly recommend using QuickBooks for this, though an Excel sheet could also work with some adaptations. When considering profit and loss, the two biggest variables are labs and dental supplies. Unlike overhead for your staff, rent, and office supplies, fees for labs and prices of supplies tend to fluctuate throughout the year. The result of lining up your profit and losses will be percentages that can be compared to a national range of what's "healthy" and "not healthy" for a practice of your size.

Looking ahead

Now that you have your percentages, the next step is to forecast the coming 12 months' expenses. A small sample of things to forecast includes staff raises and new technology that may change your expenses (e.g., an intraoral scanner such as the CS 3600 [Carestream Dental] will reduce how much alginate and impression trays you buy). What about your facility (e.g., rent, renovations, custodial costs)?

READ MORE | How to think about your dental practice overhead

Go for the goals

With your projected totals, you should be able to determine new production goals. Add up personnel expenses, associate or doctor expenses, lab fees, marketing, etc., for a grand total. When you subtract the variables, you will arrive at a complete percentage. This is when you determine how many days you will work and how much you will earn. Many small business owners take pay cuts or never even pay themselves. What better reason to be in control of your overhead than to manage your work-life balance and take home a paycheck?

For example, a client's son graduated from a private high school and went to a private college. The difference for him to send his son to college was $2,000 more than he had been paying. The doctor forecasted well enough to factor an extra $2,000 a month into his additional income and didn't feel the pinch at home.

Finally, create action plans that will carry you through the next year. Ask yourself, "At what point in the next 12 months will we have accomplished xyz?" So that you have an opportunity to evaluate each of the items on your action plan, dedicate time throughout the year by adding action plan meetings to your work calendar. This will help you stay on track to achieve your forecasted goals; stick to your plan and hold yourself and your team accountable.

Many doctors balk at the idea of handling overhead; it's just not something that was taught in school, and it can be intimidating. However, there's true value in it. Doctors can better prepare for variables like the fluctuating cost of supplies, plan raises for deserving staff, optimize scheduling, and may even be able to take home a little extra at the end of the day. Take time to finally get control of your overhead—do it for your practice, for yourself, and your family!

Adele Reische is the owner of Synergy Practice Management and the director of new member relations of the Speaking Consulting Network. She is also a graduate of The Consulting U, a master's training and continuing education program. Adele is an active member of the Academy of Dental Management Consultants and the American Academy of Dental Office Managers, as well as a certified consultant in employment. She can be reached at [email protected].

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