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09.23.05 Issue #185  
   
Overhead Sending you Overboard?


Sally McKenzie, CEO
The McKenzie Company
sallymck@mckenziemgmt.com

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Overhead. One word, three syllables, serious stress. The thought of it can instantly suck the joy right out of your day. So many great ideas, so many things you should be pursuing, so many improvements that could be made if you only had the money. But more and more of the practice revenues are siphoned off to cover just the day-to-day costs of doing business.

High overhead can affect the doctor at every turn. Many dentists are not making as much money as they believe they could or should be. They worry that they are not saving adequately for retirement. Others keep telling themselves that they will save, eventually, once they get expenses under control and production increases. But the days, months, and years are ticking by.

And it’s not just the dentists who bear the impact of high overhead. It extends to the staff and the patients as well. Too many dental teams struggle to find the resources for continuing education for both doctor and staff. They dream of updating equipment and purchasing state-of-the-art diagnostic tools to better serve patients, but they don’t pursue the investment because they are too worried about the expense. They cringe at the physical appearance of the office, but improvements would take more money than the practice can afford. And to top it all off everyone feels like they are working as hard as humanly possible, but there is no guarantee that the effort will pay off in the form of raises or bonuses. Sheesh! Is it any wonder that the topic alone can make you feel overwhelmed?

But there is a light at the end of the tunnel, and it’s not an oncoming train. There are deliberate steps that you and your team can take to get this situation back on track.

The gold standard for overhead is 55% of revenues. If you are currently at 60-65%, congratulations, you are in the comfortable range for a general practice. If yours is higher, you have plenty of company. Some practices report their overhead as high as 80%. They are making a mere 20 cents on the dollar! While there are several factors that influence overhead, look first at high expenses, inconsistent production, and low collections.  

We’ll start with expenses. Your practice is constantly pouring money into five major areas: Facility (rent/utilities), Staff Salaries (Employee Taxes & Benefits), Dental Supplies, Laboratory, and Miscellaneous “stuff” (Everything that doesn’t fit anywhere else gets dumped in here – dues, subscriptions, legal bills, accountant fees, business taxes, telephone, marketing, goldfish food, and on and on).

To achieve the 55% overhead goal, start by establishing the following budget targets:

  • Dental supplies - 5%
  • Office supplies - 2%
  • Facility - 5%
  • Laboratory - 10%
  • Payroll - 20%
  • Payroll taxes and benefits - 3%
  • Miscellaneous - 10%

Certainly, all of the areas add up but payroll is an expense that packs a particularly powerful punch. Payroll should be between 20-22% of revenues. Tack on an additional 3-5% for payroll taxes and benefits. If your payroll costs are higher than that they are hammering your profits, here’s what may be happening:

  • You have too many employees. More staff does not guarantee an improvement in efficiency or production. It does, however, guarantee an increase in overhead – unless you are hiring a patient coordinator who is going to make sure the schedule is full and production goals can be met.
  • You are giving raises based on longevity rather than productivity/performance. Repeat after me: If production is going down and overhead is going up, payroll cannot be increased. Establish a compensation policy. The policy states that raises will be given based upon employee performance – provided the practice is making a profit.
  • The hygiene department is not meeting the industry standard for production, which is at least 33% of total practice production. If the doctor steps back and takes a closer look at what is happening, he/she will find that the hygienist has far more down time than they should, patient retention is seriously lacking, and periodontal treatment is minimal at best. The recall system, if there even is one, needs immediate attention to ensure that the hygiene schedule is full, the hygienist is scheduled to produce 3x his/her salary, and cancellations are filled.

Next week, day-to-day “routines” that send overhead overboard.

If you would like to see how your overhead matches up – click here.

If you have any question or comments, please email Sally McKenzie at sallymck@mckenziemgmt.com.

Interested in having Sally speak to your dental society or study club? Click Here.

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McKenzie Management's Seminar Schedule
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Nov. 10-11 Santa Barbara, CA Dental Education Lab 877-777-6151 Max. Prod. Sally McKenzie
Nov. 18-19 Griffin, GA Endo Magic Root Camp 877-478-9748 Top Issues Sally McKenzie
Dec. 1 Cincinnati, OH Cincinnati Dental Society 513-984-3443 Breakdown Sally McKenzie
 

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