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2.06.09 Issue #361 Forward This Newsletter To A Colleague


Nancy Caudill
Senior Consultant
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Is Bigger Always Better?

Dr. George Grant—Case Study #112

Is your dream to own your own building, have 6 fully equipped operatories, 2 hygienists, 2 business staff and 2 assistants? It was Dr. Grant's dream and it came true. However, along with his dream practice came some not-so-dreamy overhead headaches!

Practice Facts

  • Doctor is averaging $3,000 per day
  • Hygienists are averaging $950 per day
  • 23 New Comprehensive Exam/Hygiene patients per month
  • Collections are 98% of net production
  • A/R is 0.87 of net production

Sounds okay, right? Well, it was all good when he was averaging these production figures at his previous location because he only worked with 1 assistant and 1 business employee. This allowed his staff gross wage overhead to be 18% of his net collections per month and a total overhead of 55%!

So what is happening to cause Dr. Grant to dip into his emergency funds to meet payroll? Let's take a look…

Critical Issues

  • lack of marketing
  • no consideration of facility overhead compared to income
  • no criteria for employment needs
  • lack of pre-planning

What should have happened first? Without even considering the investment of new equipment, dental supplies, a mortgage, etc., simply understanding standards in the industry would have helped Dr. Grant to make some decisions initially in order to pre-plan his move. The graph below illustrates industry overhead standards.

How much does he need to collect every month to stay within normal ranges for facility and gross wages for his employees?

Facility overhead should be around 5% of collections. In Dr. Grant's case, his facility cost is $5,000 a month.

$5,000 / 5% = $100,000 a month in collections. Prior to his move, he was collecting around $77,000. This would be an increase of 30%! Possible? Yes, with the right tools in place and a good marketing plan.

Staff overhead budget would then be $100,000 x 20% = $20,000 monthly.

2 hygienists at $350/day x 16 days = $12,200
2 assistants at $144/day x 16 days = $5,760
2 front desk coordinators at $144/day x 16 days = $5,760

TOTAL: $23,720 or 23.7%—3.7% over budget

At first, Dr. Grant was not concerned about being over budget for his employees. Then it was brought to his attention that $3,720 a month x 12 months = $44,640 a year!

His Options

  • working more days to increase collections
  • reduce the number of employees
  • increase fees to increase collections
  • lease out 2 of his operatories to a specialist to assist with the overhead

Working more days does not equate to higher production if there aren’t patients to put in the chairs on the additional days. He is booked out 1.5 weeks and seeing the same number of new patients.

Increasing fees in this economy may not be a viable option and doesn't have that much impact when accepting PPOs.

Leasing out 1 or 2 of his operatories is a consideration, but that also brings along its own set of concerns with legal agreements and other logistics.

Recommendations: Since the commitment was already made, the building was purchased and equipped and the doors were open, he couldn't go back now and rethink his situation. The first step was to determine how to increase production. Systems were implemented to “dial for dollars” to his existing patient base. This included calling past-due hygiene patients as well as patients with outstanding treatment plans. Nothing was going to change except his overhead unless he promoted his practice by stepping up his internal marketing and seeking assistance implementing an external marketing plan to attract new patients.

Additionally, until he becomes busier, he can easily produce chairside the same amount that he was producing in his previous practice with only one assistant and proper scheduling.

It was not recommended that he reduce the number of business staff because he needed both employees for practice promotion and management of anticipated growth.

Is bigger better? It certainly can be but smart pre-planning must be considered first.

If you are considering enlarging your existing space or relocating, be sure to put your pencil to paper and work the numbers so you know what you need to produce to avoid spending the next ten years worrying about meeting payroll.

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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