WANT BETTER CONTROL OF YOUR PRACTICE? ANALYZE OVERHEAD!

The dental practice that reaches its maximum profit potential has a system in place for analyzing overhead and setting an annual budget.  The budgeting process and ultimate control of the financial strength of your practice begins with overhead analysis, preferably from the most recent three years.  The most effective way to analyze overhead is to divide expenses into six categories, NOT including doctor compensation, and understand the percent each category typically takes of collections.

The six categories of expense and the recommended percent each takes of collections:

            Personnel, including staff wages, payroll taxes, and benefits

                        General, orthodontic and other specialties---19% to 28%

                        Pediatric dental practice---24% to 30%

            Occupancy---7% to 11%

            Administrative expenses and supplies---6% to 10%

            Equipment, furnishings, contingency fund---4% to 6%

            Clinical supplies and expenses, including lab

                        General, prosthodontics and other specialties---7% to 13%

                        Pediatric practice---6% to 8%

                        Orthodontic practice---10% to 12%

            Marketing---3% to 6%; more if a Marketing Coordinator is employed            

Suggestion:  if you are just beginning the analysis process, work with your accountant or bookkeeper to set up a Chart of Accounts in which every office bill paid is assigned a code number that corresponds to one of the six categories of expense listed above.  Consistently code monthly payments for each category of expense to the same account number.  By doing so, at the end of the quarter or year, one can tell the total dollars spent in each of the six categories and calculate what percentage of collections each requires.  If a category is well over the recommended percentage, the focus for the coming period should be cutting expenses in that category if possible.

An example of Chart of Accounts codes with the variety of expenses that might be included in each:    

            Personnel – 5000s Chart of Accounts codes

                        Wages, payroll taxes, and benefits

                        Continuing education expenses

            Occupancy – 6000s Chart of Accounts codes

                        Lease or note payment

                        Utilities

                        Janitorial, grounds, and security services

                        Repairs and maintenance to facility

                        Insurance on building and contents

            Administrative – 7000s Chart of Accounts Codes

                        Accounting and legal services

                        Answering service

                        Collection costs/merchant charges for credit cards

                        Computer expenses

                        Dues and subscriptions

                        Insurance---Malpractice, Business overhead, Disability

                        Laundry

                        Licenses and permits

                        Miscellaneous

                        Office supplies, postage

                        Taxes

            Equipment, furnishings, contingency fund – 8000s Chart of Accounts codes

            Clinical supplies, expenses, and laboratory services – 9000s Chart of Account codes

            Marketing – 9500s Chart of Accounts codes

                        Online marketing expenses

                        Print pieces and advertising

                        Patient giveaways

                        Wages of Marketing Coordinator if one is employed

A Chart of Accounts should be customized for your practice.  You and your accountant can set codes to obtain as much detail as you choose to use in the analysis of your practice overhead.