The only way to make profit is to sell more, spend less or both at the same time. Selling more takes time and influence. You have 100% control over your expenses today. Your practice is leaking cash through overhead and other SG&A (Selling, General and Administrative) expenses. This is the lowest-hanging fruit that will yield quick results with just a little bit of attention.
A high-performance practice will use a very simple tool as a system to manage expenses: the budget. Remember that a business cannot survive long without cash flow. Mismanaging expenses will quickly result in business failure.
The five major cost centers that will require most of your attention are:
- Rent [5% or less]***
- Wages [25%-30% or less] (includes all wages/salaries, payroll taxes and fees, and benefits)***
- Lab [9% or less] (crown/bridge lab, removable prosthetics, implant and ortho lab) *
- Dental supplies: [5% or less] (general dental supplies and ortho supplies) **
- Office supplies
*Some offices choose to place cerec blocks, ortho/implant brackets/fixtures/lab under supplies. If this is your preference, keep it consistent and understand that these percentages will change. Alternative reporting: supplies + lab = 14% or less combined.
**All numbers above are a percentage of adjusted production. You can also report them as a percentage of collections, in which case they will relatively increase (if your collections is less than 100% of your adjusted production). In my practices we choose to report them as a percentage of adjusted production.
***Regional variances may apply.
Step One in reducing your costs is to allocate a budget for all the expense line-items in your Profit & Loss Statement (P&L). Step Two is to monitor those figures, reviewing them regularly. How regularly? It depends on how much you’re spending in those line items and how often they change. The higher the figures, the more detailed a review is needed. The higher the number of transactions, the more often you should review them. At an absolute minimum, your budget should be reviewed once per month.
Some of these line items you may have more influence over month-to-month than others. Rent, for example, can only be negotiated at the beginning of a lease period (occasionally mid-lease, but that is rare) so the figure is less critical to watch short-term.
are more subjective and worthy of constant attention. Cutting wages to save on expenses can have a negative impact on your practice. Team members who feel they are not being fairly and equitably compensated deliver results which reflect that belief, and service quality can begin to suffer. It can also reduce the chances of your ability to recruit A-players. In our practices, we choose to compensate our team members well. Therefore, our wages are at the top end of the spectrum locally. Why? Because we want to attract, train and retain the best and eliminate A-players from jumping ship due to minor wage increases offered by competitors. (There are obviously limits to this and each position has a cap regardless of what competitors are offering. In addition, not everyone gets a raise just because 365 days has elapsed since their last one.) Lastly, it is important to note that you have a choice to pay by the hour or salary. There are pros and cons to each method.
Your lab expenses can be negotiated as your practice grows. The more lab services you require, the better you will be able to negotiate for volume discounts.
Expenses for sundries and consumables can be managed through negotiation or control of their use. You may be able to negotiate pricing with suppliers. A larger cash leak often finds it’s way into your practice through waste. Effective use of your sundries should be monitored by the numbers.
You have got to know your numbers. The figures are the evidence that your system is either working or is broken. Your numbers also show you where you need to focus. The systems you implement to run your operations are what you use to survive, stabilize and thrive in your practice.