Dental Overheads and Profitability

“You cannot cost control your way to profitability” a business man I admired used to tell me. He was correct, cost control alone is not enough, but managing overheads can improve the profitability of a successful practice and buy time for a clinic that is struggling.

Most dentists do not enjoy reviewing the P&L prepared by their accountant so many do not have a good grasp of where their money is being spent. As a result there is almost certainly leakage in the practice’s spending – money that is being wasted due to poor expense management. For most clinics the largest costs are Staff Expenses, Laboratory Fees, Dental Supplies and Rent. These need to be managed and we will address staff costs in this article, Lab fees, Dental Supplies and Rent will be covered in a separate post. I recommend you start with the “all other” category as this will be a significant spend and can quickly be addressed.

All other costs and the one month fix. Expenses can become institutionalized, subscriptions, memberships, advertising etc. are renewed automatically without a thought. Sometimes there is good reason to continue these expenses but often their value has become marginalized and they are no longer justified. Software often falls into this category – three years ago a member of staff took out a subscription to a software service to complete a project, and although the software is no longer needed it continues to renew every year. To stop this wasteful spending review every payment that is made by your practice for one month. Every cheque that is written, every credit card payment, every transfer out of your bank accounts. By taking control of the cash for a month you will identify payments being made for items you do not need.

I would recommend you conduct this review at the first month of a quarter as some expenses are charged quarterly. You should repeat this exercise a few months later to catch the items that were missed in first review. Finally follow up to ensure all wasteful spending is actually stopped. Inertia can be a big problem when managing expenses, especially if the expenses seem small.

Staff costs will likely be the largest single expense.. Optimizing staffing costs can make a significant contribution to the profit generated by your practice. So managing them makes sense.

Start by analyzing staff costs as a percentage of revenues. Look back at least 18 months are staff costs as a percent of revenues increasing? Or decreasing? If they are increasing, take the time to understand why costs are rising faster than revenues, have you added staff? increased salaries? paid bonuses? Have payroll taxes increased?

If you can, find out what a typical clinic in your area pays in staff costs as a percent of production. This provides a bench mark to measure your practice’s costs versus others.

Remember to include all staff costs, salaries, bonuses, allowances, payroll taxes, other benefits. If you are incurring expenses to have your staff come to work, include it in this review.

Now that you have a good idea of your staffing costs, it is time to optimize. Unless you have found your staff costs are significantly higher than the local benchmark, do not start by reducing staffing numbers. Good staff are always hard to find and hiring is expensive. Smaller practices with one receptionist, one assistant and maybe one hygienist do not have any scope to reduce staff cost. Our objective is increase revenues without increasing staffing costs, and where possible allow our staff to be revenue generators.

An excellent way to improve staff efficiency is to produce a written set of Standard Operating Procedures (SOP) that describe the optimal way of carrying out each task. These should be developed in consultation with your staff, they will understand what wastes their time and how to overcome these challenges. In particular, learn from your best staff on how they achieve their results. Do not just talk to them, observe their daily actions to truly understand how they work.

Accurate estimation of procedure time will avoid waste. Your dentists probably work at different speeds so do not use a one size fits all approach. Look back to see how long each dentist takes to complete a procedure. If that is not possible start tracking time spend and use this data to improve scheduling.

Appointments: Ask patients to schedule their next appointment when they check out to avoid follow up phone calls. The use of digital technology can effectively automate confirmations and reminders.

Store Room: A well organized store room will minimize time looking for supplies. It will also reduce losses caused by items exceeding their shelf life by encouraging the use of older stock first. First in First Out inventory management. See article on Inventory Management For Dental Clinics for more information on the procurement to pay process

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