Is THIS What's Driving Your Overhead Up?
It creeps up on you slowly, silently - much like termites, quietly chewing away at the infrastructure. You don’t quite comprehend the extent of the problem until it’s a crisis. It all begins innocently enough. A few extra bucks for a “helper” at the front desk for those busy times, “occasional” holes in the schedule that just don’t get filled, raises based on another year of service rather than improved productivity. And before long, you are wondering if you’ll have enough to make the payments on the new diagnostic equipment you had planned to purchase. You’re asking yourself if there will be enough money to cover all of the continuing education that you and your team are required to complete in coming months. And you are trying to convince yourself that it’s okay to defer saving for retirement yet again.
This is when you start to realize that the tables have turned. You can’t plan for the future. You are no longer in charge. Overhead is now dictating how you run your business. No longer are you making decisions based on what’s best for the practice. Rather, choices are made based on how much it costs - whatever “it” is. How much longer can you do without it, and is it absolutely necessary. This, doctor, is no way to run a practice. Worst of all, there are few things as stressful as monetary stress. The good news is you can get out from under overhead - but it won’t come without commitment to clean up inefficiencies and a clear understanding of those systems that have the greatest impact on cash flow.
Let’s consider the benchmarks. The industry standard for overhead is 55% of collections. If you are currently at 60-65%, you are comfortably within reach. If yours is higher, you need to take action. Some doctors report their overhead as high as 85%, which means they are making just 15 cents on the dollar! And you definitely don’t want to be a member of the “15 Cent Club” for any length of time.
The first step in controlling overhead is to establish the following budget targets:
Supplies - 5%
Do you want me to review yours? Just click HERE to send me your figures.
Certainly, all of the areas can be a drain on profits, but payroll is typically the biggest expense. Problems arise when payroll, including taxes and benefits, exceeds 23-25% of gross income. If yours is higher, profits are taking a pounding. Most often, high payroll costs are caused by one or more of the following situations:
You Have Too Many Employees
Raises Based on Longevity Rather than Productivity/Performance
Hygiene is Not Meeting the Industry Standard for Production
Next week, plugging the holes and tracking the systems.
For more information on this topic and for additional Dental Practice Management info, visit my blog: The Lighter Side.
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