If you focus on practice production but not reducing overhead expenses for your dental practice, you’ll be forced to work harder than you need to.
While many dental practice growth plans rightfully focus on increasing revenue, it’s important to do so as part of an overall practice profitability plan. And every good practice profitability plan also focuses on reducing overhead expenses. After all, you can be as productive as possible and still end up not making enough money if you are paying too much for your overhead.
Many practices can make an immediate positive impact on their practices by reducing wasteful spending and either redirecting that money to more productive uses or taking that money home as profits. That’s why it’s so important to know your numbers and make sure you are not paying much for overhead expenses, such as dental supplies, lab fees, rent, and administrative costs.
So how do you know if your overhead expenses are out of control? Dr. Glenn Vo, our Delivering Wow Platinum “Reducing Overhead” coach shared strategies he uses to help practices reduce overhead. Here are two steps he suggests every practice complete. These will help you understand exactly how to know if their overhead expenses are out of control.
Determine your overhead expenses.
The easiest way to figure out your office overhead is to get a profit and loss statement from your CPA. If your CPA isn’t offering that already, ask them for one and make sure you get one every month from now on. (If your CPA doesn’t—and won’t—do that, switch CPAs. You need to know your numbers if you ever want to build a dream dental practice!)
When you look at your profit and loss statement, add up all the expenses and then divide that number by the gross collections of your practice. Dr. Vo suggests that you exclude your salary as well as your associates’ salary from overhead calculations. Generally, industry standard calculations exclude these numbers for overhead calculations. For calculating overhead, focus on the items you and your fellow doctors need to support your practice, which would include hygienist and staff salaries.
That calculation will give you a good general overhead percentage. For example, if your monthly collections are $500,000 and your overhead expenses are $300,000, your overhead percentage would be 60%.
Compare that number to benchmarks.
Some practice owners are surprised by their overhead numbers. Industry ideal for overhead is 55% of collections for a general practitioner. Many times, practices fall between 60% and 65%. Of course, with Delivering WOW, we’re overachievers and strive for even better. Obviously, the lower you can get your overhead, the more profitable your practice can be. But be sure you maintain the right level of quality so you can continue to Deliver WOW.
A general rule of thumb is if you can get your number below 50% and approach 40%, you’re doing an amazing job. If your number starts to track over 75%, however, your overhead is likely out of control. Don’t worry, though. If this is the first time you’re paying attention to your number, you can likely reduce this number fast, especially if you’ve joined the Delivering WOW Platinum coaching program and taken advantage of the deals we’ve negotiated on your behalf.
Is your overhead out of control?
Once you know your number, examine each expense a little more carefully. Are all of your expenses absolutely necessary to the survival and growth of your business? If not, you may need to cut a few out until you can afford them.
If you’ve already cut out unnecessary expenses and are still left with a number that’s too high, it’s possible your practice is underproducing. Or, you might need to evaluate—and perhaps raise—prices. Usually, a combination of cutting unnecessary expenses and increasing revenue gives the best results.
What does your overhead percentage tell you about your practice? If want help reducing overhead, sign up for our Delivering WOW Platinum Coaching Program where overhead guru, Dr. Glenn Vo, can help you take control of your finances.