For a practice that seeks to grow or simply become more profitable, there’s a roadblock: understanding your expenses. This can be a tricky subject to navigate, but you can use this free tool to help navigate those waters. Knowing your overhead costs is critical to understanding the overhead gap and how your expenses impact your overall profitability, because when you aren’t tracking those numbers, an incredible amount of money can leak out of your practice without your knowledge. Like Kirk says, “Cash is to your practice what oxygen is to your body,” so you need to make every effort to reduce your overhead as much as possible so your practice can continue to exist. You can’t just produce more and hope that solves everything—you need to look at your expenses!
- Fixed Expenses
These costs remain constant, regardless of your level of production of patient volume. They are regular, recurring expenses, and there’s no variation, no matter what the day-to-day operations are. Some of the most common fixed expenses are:
- Rent or lease
- Salaries
- Insurance
- Loan payments
- Software or service subscriptions
These expenses are effectively out of your control, and the only way to reduce their overhead percentage is to collect more money, such as by reducing your write-offs.
- Variable Expenses
These are your costs that will fluctuate based on your level of production or patient volume. In other words, they vary directly with the operations of the practice. Some of the most common variable expenses are:
- Dental supplies
- Lab fees
- Utilities
- Marketing
- Continuing Education
- Repairs and maintenance
Unlike your fixed expenses, you have some control over these aspects, since they’re relative to your output. Additionally, you have some autonomy over the suppliers and brands you choose. Just like fixed expenses, you can improve the overhead percentage by collecting more, but you can also take other actions:
- Create an ordering system. This should work around a budgeted target of 5%, and you can use 5% of your prior months’ collections as a guide. Furthermore, you need to make someone accountable for shopping around instead of just relying on your rep.
- Review your lab invoices for inconsistencies and systematically review the fees. This is an area where you want to make a team member accountable so you know it’s getting done.
- Create strategies to save on repairs and maintenance. Often there are team members who can handle minor issues, so elect an office equipment coordinator to be your triage before calling for service. When you do call for repairs, try to include multiple issues on one call so you aren’t calling each time there’s an individual issue.
While some dentists advise increasing your production to help offset your expenses, there’s more to it. The biggest way you can reduce your overhead is by collecting more of what you produce, so check out our free Roadmap to Practice Profitability and learn more! There’s so much you can do that will have an impact on your overhead, and by working with your team and creating accountability, you can make it happen!
To learn more about ACT and how we can help you build a Better Practice and a Better Life, reach out to Gina!
Tune in next time to learn how to differentiate your practice from your competitors!
