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1.11.08 Issue #305 Forward This Newsletter To A Colleague

Nancy Caudill
Senior Consultant
McKenzie Management
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Is There More Month Than There Is Money?

Dr. Jim Caviness – Case Study #131

Dr. Caviness’s concerns:  “It is a struggle for me every month to make enough money to pay my personal bills.  Some months I can write myself a payroll check and some months I can’t!”

Many dentists, like Dr. Caviness, share this lament. The problem is that Dr. Caviness has failed to include himself as part of the big picture and making emotional decisions instead of informed decisions.

Dr. Caviness’s practice facts:

  • 15-year old practice in the same location
  • He is averaging $80,000 a month in net collections
  • Approximately 22 new patients a month
  • Does not know overhead costs

The team members enjoy working with Dr. Caviness; however, it was noted that he was anxious and vocal about not making enough money.  This left the team confused when they knew they were reaching their daily goals 75% of the time. However their goal was $96,000/month leaving them short $16,000/month.

To make matters worse, Dr. Caviness recently purchased a new home in an affluent neighborhood. His mistake was emotionally assuming that the practice was going to make more money to offset this larger mortgage payment!  Unless there is a definitive business plan to improve practice systems, the practice overhead stays the same, the collections stay at 83% of goal and he cannot afford to pay himself more to meet his new mortgage payment.

In addition, the doctor put in a 150 gallon fish tank in the reception room area and he just hired an additional clinical assistant.  It was evident that Dr. Caviness did not know the answers to these questions:

  • “What is your gross salary overhead for the existing team members?”
  • “What is your total practice overhead?”
  • “How much money do you need personally per month?

What He Needed to Know:

  • Salary Overhead: Dr. Caviness could not afford to hire another clinical assistant based on the monthly collections.  Standard in the industry is 19-22% of total collections for team salaries (not including payroll taxes and benefits which are an additional 3-5%).  His salary overhead costs were  28% or $22,400 of $80K/month in collections.  However, if the practice were reaching their goal of $96/month, payroll would be 23%.  When a new team member is hired, a salary review should be conducted in order to make an informed decision on whether or not you can afford to hire and how much you can afford to pay this person. Some thought must be given to the job description of the new hire in regards to how they will be able to increase collections in order to justify the increased expense. Just because an employee says, “Doctor, I need more help.”, does not alwaysmean the addition of a new employee.  It could be inefficiencies in the systems, for example.
  • Total Overhead:  Standard in the industry for a general practice is 55-60% of net collections.  Total Overhead includes the following expense categories:  Lab – Dental Supplies – Office Supplies – Team Gross Wages – Team Benefits – Facility – Miscellaneous.  Dr. Caviness’s total overhead was 76%!  This left doctor with 24% or $19,200/month.

The practice was NOT producing/collecting enough money to support the practice expenses and Dr. Caviness added more fuel to the burning fire by purchasing a home that he could not afford at the moment without a business plan to reduce overhead and increase revenues..

In Dr. Caviness’s situation, the additional expenses have been incurred and he can’t do it over.  The practice is going to have to “step up” to increase production and collections in order to allow the practice to increase his salary.

Dr. Caviness determined the amount of money per month to satisfy his personal obligations and determined at 35% of monthly collections what that monthly amount would need to be.

The practice systems were reviewed, obstacles were revealed with solutions, and Dr. Caviness realized that it was important for him to diagnose necessary treatment and leave it up to his competent staff to “sell” the dentistry. Reaching his goals as well as knowing “the numbers”, will help him to make informed decisions in the future.

There are limitations on what a practice can produce so don’t make the mistake of thinking that you will work harder and therefore make more money.  Know your numbers so you can make good buying decisions that will affect the rest of your life! 

If you would like more information on how McKenzie's Practice Enrichment Programs can help you IMPLEMENT proven strategies….. email info@mckenziemgmt.com.

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