Study your 2014 Overhead Expenses for Improvement in 2015
Yes, it’s that time of year again when you are scrounging to get all your tax information together and your accountant is bugging you to get the info to start preparing your 2014 tax returns. This is also a good time for you to sit down and actually “study” your Profit and Loss statement (P&L) for 2014. Your accountant may provide this, or you may be able to print out your own if you use an accounting software program such as QuickBooks.
A helpful way to view the P&L is to use the option that shows the percentages of the various categories compared to the net collections, assuming that you have your categories set up correctly. Keep in mind that “industry standards” vary from specialty to specialty, and general practices follow a slightly different version from the specialists. This article will target the general practice.
Let me be the first to remind you that I am not an accountant, so this article is to help you understand your P&L from a practice management standpoint. I would like to address a few areas that are critical to your practice and your understanding of your practice expenses.
2. Dental supplies need to be categorized correctly to reflect properly on the P&L. It is common to see supplies at 10% but on further review, invoices that have been earmarked for dental supplies also included items such as repairs, computer support, electronic claims and statements, and small instruments such as hand scalers, rubber dam clamps, mirrors, etc. These items are NOT disposable and should not be included with the other disposable expenses. Instead, these items should have their own line item under Miscellaneous.
Cad cam expenses are not dental supply expenses, even though they are on the same invoice. Those expenses are “Lab” expenses and should be earmarked as such. This can make a huge difference in your dental supplies.
3. Lab expenses vary from office to office. When lab expenses are over 10% of the net collections of the practice, this can indicate either too many “redos” (which does not reap any revenue to offset the lab expense), or your fees are not within the typical range of 6-7 times the fee for the unit. This can be a real challenge when working with PPO plans that have lower reimbursements for fixed and removable appliances, as well as crowns. It may require some “shopping” on your part.
Sleep apnea appliances are being delivered more frequently, as well as orthodontic services being offered in a general practice. Monitor these charges, adjustments and collections separately from the restorative and hygiene portion of your practice. Why? Because it can take months to get a sleep apnea appliance paid and you have the upfront expense from the lab. This is also true for your orthodontic patients. Set up your orthodontic patients as a separate patient in your practice management program. Because their account is paid over a period of time, if you are trying to maintain the “over 90 days accounts” under 10% of your total accounts receivable, your ortho accounts will have a negative influence on your aging percentages.
4. Net Wages vs. Gross Wages. When you review the wages on your P&L, confirm with your accountant if you are looking at net wages after taxes or gross wages. It is usually net wages after all the withholdings are deducted. You actually pay your staff gross wages! It is the IRS that requires you to withhold state, federal and other payroll taxes on their behalf. These payroll taxes are not an expense to you but simply a pass-through from the employee to the IRS. However, you do have employer payroll responsibilities that are expenses to the practice. Make sure you are reviewing the accurate figures. I also prefer to review payroll summary reports opposed to the P&L from a practice management standpoint.
Gross wages as a percentage of net collections should be kept separate from staff benefits as a percentage of net collections. Benefits could be vacation, sick and holiday pay, bonuses, health insurance, uniforms not required by OSHA, etc. Miscellaneous (10% of net collections), facility (5%) and office supply (1-2%) categories are relatively self-explanatory.
Please take the time to review your expenses. Compare your percentages to last year and see what has increased. Do some research and see if you can determine why. Typically, fixed expenses don’t vary that much as a percentage from year to year, unless something has affected them. Also review with your accountant any concerns that you may have regarding significant changes in expenses.
Wishing for you and your team a healthy and prosperous 2015!
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