Overhead Clobbering Your Practice? Take Action!
by Sally McKenzie CEO
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Today’s paper is reporting that consumer confidence has soared. Good news, right? Well, that’s only part of the story. Yes, confidence is improving, but the unemployment rolls remain long, meaning that the undercurrent of uncertainty is keeping consumers frugal, focusing their resources on need-based purchases. Few are cracking their wallets for non-essentials these days.
Undoubtedly, you are well aware that consumers of your dentistry are more financially conservative these days, delaying treatment, seeking low-cost alternatives, etc. It’s also likely that you have experienced dips in treatment acceptance, as well as increases in cancellations and appointment failures. Your new patient numbers are probably down as well. Consequently, overhead is spiraling out of control in many practices, some offices report that it is upwards of 80 cents on the dollar. That’s enough to make even the most stalwart flip into panic mode.
Certainly, overhead is a concern for dental practices in both lean and robust economic times. But some practices are feeling pressure to make significant cuts, but from where? What do you give up and how? Is it an across the board approach, slash 10% from every budget line item? Do you eliminate positions? Who goes, who stays? Should you stop marketing? Cut hours? Or should you just sit tight, do what you’ve always done and wait for the storm to pass? No doubt that virtually every business must run leaner during challenging economic times, but panic isn’t going to get you where you need to be and don’t assume that every so-called money saving measure is agood one.
Instead, I recommend that, if you don’t already have one, this is the perfect time to develop a very close relationship with your practice numbers. Get to know them very, very well. First step, examine how your practice compares to the industry standard that total overhead should “ideally” not exceed 55% of collections.
Once you know where you stand today, formulate a plan to reach the following budget targets in the coming months:
Dental supplies - 5%
Office supplies - 2%
Rent - 5%
Laboratory - 10%
Payroll - 20%
Payroll taxes and benefits - 3%
Miscellaneous - 10%
Now you know where you’re overhead numbers need to be, but how do you get there? By tackling one system at a time, starting with those areas that tend to be the biggest drain on revenues, such as facility (rent/utilities), staff salaries (employee taxes & benefits), dental supplies, laboratory, and miscellaneous. Everything that doesn’t fit anywhere else gets dumped in miscellaneous - association dues, subscriptions, legal bills, accountant fees, business taxes, telephone, marketing, fish food, etc.
Rent – I know, real estate bargains are everywhere. It’s tempting especially for those of you who are the particularly optimistic entrepreneurial dentists. You are convinced that the economic turnaround is just about to happen. So you may be eyeing that fabulous locale thinking you’ll happily do your part to boost the economy only to put further strain on your own cash flow. Put the pen down, doctor. Before you sign on the dotted line, consider one very basic question. If this is a rent increase how will you pay for it, particularly if you are experiencing your own revenue shortfalls? As tempting as that gorgeous new location may be, don’t sign on the dotted line until you have either the collections to pay for it, or a solid plan for increasing both production and collections.
If you’re already up to your neck in facility debt, consider renting a portion of the space to another dentist and explore refinancing options. While you’re at it, curb the urge to go further into debt. It can be very tempting to take advantage of short term notes, lease specials, and/or zero interest programs from various suppliers, vendors, etc.
Over time, the debt increases and eventually becomes too much to handle as the bills from multiple companies pile up. Ultimately, you become forced to start making minimum payments, which basically covers the interest and slows payment on principle. Don’t be afraid to explore debt consolidation options, particularly those offered through Bank of America’s Practice Solutions.
They provide a variety of options to enable a dentist to roll several monthly payments into one smaller payment, secure a low fixed interest rate, and pay off the debt over a 10-15 year period.
Next week, tackle the #1 cause of high overhead.
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