Scratch Dental Office – Is the Profit Margin Too Low?

I am in my 4th year of a scratch startup and the practice’s collections are on track to reach $1.2 mil this year.

YTD the profit margin is only 16%.

I’d say 10-15% AFTER “normal” comp for the doctors.

I know the Levin Group says it should be 38-40%.

That’s what a SOLO doctor NETS after their overhead; you might be comparing apples and oranges.

The office manager is my wife and doesn’t get paid anything except part of my salary.

You should factor in a cost for her when arriving at your OH % if you’re going to compare to other practices or general statistics.

We are a heavy PPO/Medicaid practice with 84% of our patients with insurance.

This will usually create higher percentages across the board as your collections will be lower as a percentage of your GROSS production.

Here are my individual expenses:

Staff Wages/Payroll Taxes/Associate Pay 49.3%

What’s the percentage without the associates component?

Facility 4.5%

Dental Supplies 8.8%

Lab Fees 2.7%

That’s low and maybe why your expenses percentages are higher. Your more expensive procedures might be lower compared to the typical practice.

Advertising 4.9%

Office Supplies 1.2%

From what I’ve understood the staff wages/payroll taxes/associate pay should be 22-27%

Correct. Forget what it MIGHT be with an associate. That runs a wider range.

Office Manager … included with my salary

Front desk $14/hr

Floater Assistant/Front Desk $16/hr

Expanded Assistant $19 / hr

Expanded Assistant $ 22.25 / hr

Expanded Assistant $ 21 / hr

Expanded Assistant $16 / hr

Hygienist $29 / hr

Hygienist $29 / hr

Hygienist $29 / hr

Hygienist $34/ hr

Front Desk $16 / hr

Dentist #2 $500 / day or $83.33 per hour

If you weren’t married would you even need an OM?

Now, this doesn’t leave a whole lot of money for me. I’m not doing horrible, in fact I’m probably doing just as well as most associates plus I only see patients 24 hours a week. I have every Friday off and I’ve just taken my 6th full week of vacation this year so I see the good side of things. I just think with some good management things could be even better. Thanks for any advice.

Here is the complete Expense Report:


Expense


4000 • Personnel Costs


4010 • Staff Wages 31.71%


4020 • Payroll Taxes 8.71%


4050 • Contract Labor 0.73%


4070 • Associate Wages 8.13%


Total 4000 • Personnel Costs 49.28%


4100 • Facility Costs


4110 • Rent 3.04%


4120 • Utilities 0.79%


4130 • Telephone 0.38%


4140 • Cleaning & Maintenance 0.2%


4150 • Building Repairs 0.1%


Total 4100 • Facility Costs 4.51%


4210 • Dental Supplies 8.76%


4220 • Laboratory Fees 2.69%


4230 • Office Supplies 1.22%


4240 • Interest Expense 1.99%


4250 • Advertising 4.88%


4260 • Bank Service Charges 0.55%


4270 • Gifts 0.08%


4280 • Legal & Professional Fees 0.4%


4290 • Liability Insurance 0.52%


4310 • Postage and Delivery 0.13%


4340 • Uniforms 0.06%


4360 • Depreciation Expense 3.29%


4370 • Sales Tax 0.03%


6560 • Payroll Expenses 0.17%


6570 • Payroll Fees 0.03%


Total Expense 78.58%


Net Ordinary Income 21.42%


Other Income/Expense


Other Expense


4410 • Doctor’s Salary 3.63%


4420 • Doctor’s Payroll Taxes 0.29%


4470 • Professional Development 0.23%


4480 • Malpractice Insurance 0.03%


4490 • Licenses 0.09%


4520 • Meals & Entertainment 0.44%


4530 • Dues and Subscriptions 0.1%


4540 • Charitable Donations 0.04%


8000 • Ask Accountant 0.23%


Total Other Expense 5.07%


Net Other Income -5.07%


Net Income 16.35%

Some of your expenses percentages don’t make sense:

For example, payroll taxes generally aren’t much more than 8% of gross payroll. Between staff and associates you show wages of 39.84%. So based on collections of $1,200,000 your wages s/b approximately 478,000 and 8% of that is $38,000, which should be the payroll tax cost for JUST those wages. $38k of $1.2mill is 3.2% and you say they’re 8.71%? That’s about $60k higher than I would expect. What else are you putting in there? Is the 39.84% NET or gross wages? Also, do those payroll taxes include yours? If so, that could explain about 1%.

I’d start with the 78.58% and eliminate the associate and their payroll taxes (call it 9%), remove the interest & depreciation of 5% and now you’re at 64.58%, a little more in line to the 57-60% we see, still high by say 6%. Supplies is high by 2%, advertising and marketing high by 2%, staff wages if gross are too high by at least 4%, payroll taxes are off the charts for some reason, some may be your payroll tax.

If I were you I’d want to make sure I’m starting with clean, comparable OH stats before jumping to any conclusions.

This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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