Dr. Roger P. Levin brings you the most thought-provoking topics from the Dental Business Study Clubs, an organization focused on the business of successful dentistry. Each month, Dr. Levin will explore an aspect of the business of dentistry in detail.
Overhead is a necessary evil because the old saying that "you have to spend money to make money" is correct. However, when overhead becomes higher than acceptable, it becomes invasive and, eventually, dangerous. The scary thing is you may not even realize it until it's too late. Production will continue to maintain a steady, healthy pace while overhead eats profits away.
Overhead is a factor that can put tremendous financial pressure on a practice and create severe challenges going forward. To effectively tackle any issue that you may have with overhead, you must have a good understanding of it.
5 things to know about overhead
Roger P. Levin, DDS, is the executive founder of the Dental Business Study Clubs.What you don't know about your overhead could kill your practice. So you must devote some time to learning the unwritten rules about overhead and how they affect your business operations. If you're looking for greater practice success, you should know these five key things about overhead:
1. Acceptable practice overhead percentage rates
We've found that the following overhead percentage rates are critical for practice success:
- 59% for general practices
- 50% for oral surgery practices
- 51% for periodontics practices
- 49% for orthodontics practices
- 49% for pediatric dentistry practices
- 64% for prosthodontics practices (higher lab costs)
- 42% for endodontics practices
2. Overhead always tends to grow
You can't assume your overhead today is the same as it was a year or two ago unless you were paying careful attention. In any business, overhead percentages always tend to increase, and this will continue to happen unless you pay attention.
3. Prices for basic supplies and materials always increase
Being frugal pays off. To be sure that you're getting the best value for supplies, you must compare prices. Don't get caught up in thinking that you need to have the most expensive product in every category. Expensive doesn't always mean it's better.
4. Acceptable line-item percentages in your profit and loss statement
By comparing each line item such as staffing, marketing, supplies and materials, rent, lab costs, insurance, and benefits to acceptable percentages, the practice will have an opportunity to determine which areas need to be addressed. It's important to know where overhead is creeping up or is out of line. Keep in mind that every dollar saved in expenses becomes profit.
5. You are not locked into most of your expenses
Fixed expenses such as rent often cannot be changed. However, many other fixed expenses can be renegotiated or restrategized. For example, maintenance contracts, leases, and other factors can either be renegotiated or restrategized using longer-term financing from a different source.
You can also change staff compensation as necessary by adding bonus plans rather than automatic raises if the staff is compensated much higher than average. You should also definitely bid out your insurances on an annual basis to make sure everything is in check. Premiums tend to rise and often rise a lot.
Keeping overhead in check
Every business has and needs overhead to operate. However, over time, it can kill a practice when it's not carefully monitored. Conversely, when practices keep it under control, profit is excellent and the practice performs at the right level. There will always be increases in expenditures. Having an intelligent approach to regularly analyzing overhead using the five areas described above will help practices keep it in check.
Roger P. Levin, DDS, is the executive founder of the Dental Business Study Clubs.
The comments and observations expressed herein do not necessarily reflect the opinions of DrBicuspid.com, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.
