This article is being shared courtesy of The Curious Dentist and can be found here.
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Overhead. That evil monster that will quietly eat up your gross collections until nothing is left for you to take home. It’s so dangerous because it’s often invisible. You get peeks of the overhead monster when you see a stack of bills on your desk, but it largely remains hidden. It took me a few years to know where to look for it, but I’ve finally found it.
Once a year, print up your Income Statement, also known as a Profit and Loss Statement. You can take a quick peek at one if you are running your bills through Qucikbooks or a similar program, or you can just have your accountant create one for you. Here’s what mine looked like last year:
I suggest running these numbers once a year, though you could certainly do this semi-annually or even quarterly. I don’t recommend checking overhead more frequently than that because some of the numbers start to lose their credibility the closer you slice it. For example, your dental supply purchases can vary significantly from month to month.
Okay, so an Income Statement/P&L shows you the simple calculation of gross income – expenses = net income. Thus this financial statement is a great place to see all of your expenses placed into neat little categories. Find the line item you want to look at and divide it by your gross income and mulitply by 100 to get it as a percent. For example, in 2013, my practice’s gross income was $595,553 and my lab bill was $61,706, which leaves me with a lab overhead of 10.4%. That is to say that my lab bill makes up a little over 10% of my total overhead.
If you so some research online you’ll find that practice managment consultants actually agree on what your overhead percentages should be. Here’s a chart illustrating the big ones:
Staff hovers around 25%, dental supplies at 5%, lab should be 10%, and your rent/mortgage at 5%. Now those are just guidelines. If your total staff compensation package is at 26% that does not mean you’re paying your team too much. And many practice consultants agree that if you’re doing a lot of big implant cases then your lab bill can acceptably grow closer to 15%. So these are guidelines.
Now, if your overhead percentages are significantly larger in a category, you need to dig deeper. If my supply bill was over 15% then I would put my thinking cap on. Can I negotiate with my current supplier? Can I find a better deal with another supplier? Am I just buying a lot of crap I don’t need? Do I really need four different types of composite? And so on. Print up your Income Statement/P&L and you’ll see that ugly overhead monster in plain sight.
One final note, you may have noticed that the above chart implies that you can expect to take home 55% of every dollar that you make. Jeez, that would be nice. Well of course that isn’t always the case. Don’t forget that there are other small expenses that can add up, like your phone bill. You can crunch and categorize your numbers a lot of different ways, the point is to just keep track of them. And don’t forget, I think we should also know our procedure costs.