In recent posts, we’ve discussed how you can improve patient service through better dental practice performance. You should have a core understanding of what issues to look for, what certain numbers and metrics mean, and how to handle them. In our final post of the series, we’re giving you the key expense areas as benchmarks, plus other areas where you can trim down overhead costs.
There are five typical overhead expense groupings:
- Labor 27%
- Facilities 5-7%
- Clinical 10-15%
- Marketing and advertising 2%
- Other 7-10%
Other expenses can also be grouped according to categories and measured against a percentage of revenue. These include bank charges and collection expenses, office supplies, labor departments, rent, dental supplies, and lab expenses. These cost centers range from 1.5 percent for bank charges and office supplies to ten percent for hygiene compensation and lab expenses (on the high end).
As a dentist owner, you must remain diligent about expense classifications. Compare the right information and where to code. Aim for consistency year over year and avoid creating too many additional expense categories beyond what we mentioned above. Subcategories are okay, but you’ll only make your job (and your dental CPA’s job) more difficult by trying to be too detailed. Also, use common industry expense categories if possible.
Other Overhead Issues
Before we wrap up ways to improve your bottom line, we’d be remiss if we didn’t ask you to consider how a few other items affect your bottom line.
- Debt services
- Depreciation and amortization
- Capital acquisitions
- Owning versus renting your space
- Employee wages versus benefits versus family wages
- Running perks through regular categories
Each of these areas could have its own blog post. Generally, these areas are about improved cash flow management.
When you’re conducting an overhead analysis of your dental practice, you might be tempted to include every expense category. There are items to exclude from this analysis, however. These include:
- Owner Compensation and benefits
- Non-owner doctor’s compensation and benefits
- Doctor retirement plan contributions and health insurance
- Other insurances
Exceptions to this list include malpractice insurance, professional licenses and registrations, and one cell phone. Those items should stay on the expense analysis.
Other Ways to Reduce Overhead
Comparison shop. This is one of the easiest ways to reduce costs. Find the best prices on utilities, especially Internet and phone service and dental supplies. You can also try to renegotiate lease terms and insurance coverage – both for your patients and yourself. A less popular option is to curtail cost of living raises for staff in favor of bonuses tied to increased production. Proceed with caution when it comes to staff compensation, and always call us before making a change in this area.
Summary
Improving patient care through practice performance is possible. When you better understand the revenue and expenses of your practice, and take proactive steps to control them, you’ll likely find yourself less stressed, more efficient, and with more money in your wallet. Worrying about cash flow affects patient care. Always running behind reduces clinical time, which also reduces treatment planning – and future revenue opportunities. High-performing dental practices are better able to place an emphasis on quality patient care. That’s the bottom line.
Contact Dental CPAs for questions on improving your dental practice’s bottom line.