The Young and the Cashless – Too Many Toys!
Dr. Scott’s, Farris, Johnson’s, etc Stories:
The telephone rings at our home office in La Jolla, California. We hear the same cries for help from young dentists just starting out. “Help! I don’t have enough money to pay my bills. I need more patients and more production.”
Similar Office Facts:
As I work with these wonderful young dentists, my heart goes out to them. I remember when I was young and ignorant and thought I knew everything and what I didn’t know I didn’t need to know. “Ignorance is Bliss” someone told me one time.
When I arrive at airports and am “claimed” by the dentist in baggage claim, the dentists direct me to their vehicle…sometimes it is a brand new BMW SUV and sometimes it’s an old dirty Explorer. This tells me something! As we ride along, we talk about what is happening in the office and what the dentist perceives as the issues at hand. Obviously, cash flow is at the top of the list for these dentists in this article. Granted, there are also those young dentists that I work with that were fortunate enough to “get lucky” and fell into a practice that is serving them well and they are looking for help with their uncontrollable growth. I must say, however, that these dentists are the exception in my experiences.
As I preview the practice on the first day of my 4-day visit, I observe the following:
Now don’t misunderstand me. I am not saying that all these items aren’t important in a progressive practice. What I am saying is that there is a time for everything during the course of the life of a practice.
Recommendations to these young dentists and others that may be reading this article:
How do you even know if a Cad Cam is applicable for you unless you already know that you are going to be doing at least 20 units of crowns/onlays/inlays a month and knowing how it is going to make you money?
Let’s do some math…get your calculator and let me teach you about determining exactly how much money you should allocate to the overhead categories listed above relative to your collections.
Your monthly collections are $25,000 a month so far.
OK….so what should you have done before signing the lease now that you realize that you are almost 2x above customary facility overhead? When you are considering leasing a space…here is your formula: Lease ($2,750) / 5% = $55,000 Easy enough to do…this means that you need to collect $55,000 a month to keep your facility overhead at 5%.
If you want your overhead to be around 60% for the year, “guesstimate” what your expenses are going to be for the month ($15,000 not including your salary) and divide my 60%. $15,000 / 60% = $25,000. This means that you need to collect $25,000 to cover $15,000 in overhead expenses.
Keep in mind that a 60% overhead is NOT covering all your high-ticket items. These are all items that are depreciated so these expenses are covered above and beyond the 60% overhead that you pay out within the 7 categories.
It is not my intention to confuse you and I am not an accountant, nor am I giving tax advice. What I am trying to reveal to all dentists is the importance of understanding your business and where you are spending your practice dollars. It is not enough to say, “My checks aren’t bouncing so I must be making money.” This is not a way to run your business.
Before you get so deep in debt that it is too late to dig out of your hole, contact McKenzie Management and inquire about how we can help you avoid the need for a “shovel”. If you are already in the hole – don’t despair. You might just need a ditch digger instead!Forward this article to a friend.
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