If you find that as a dental practice owner, what you’re taking home at the end of each month is less than you had hoped or expected, it could be worth taking a closer look at your overheads.
Expenses could be eating into your profits, and with help from specialist dental accountants, you could get a clearer picture of exactly where your money is going every month, as well as uncover potential areas of improvement.
Let’s look at how overheads are classified:
Fixed costs – these stay the same no matter the income or how many patients are treated. Ideally, these costs should be kept between 15-30% of your revenue. Generally, these aren’t included in financial planning to boost revenue, as they never change.
Variable costs – these go up and down according to activity at the practice, and should be kept at around 15-20%. Trying to control these costs is more practical as they fluctuate with patient volume; giving dentists the ability to keep better control of their spending and budget.
A breakdown of dental practice overheads
Below are the main categories that usually contribute towards dental practice overheads:
- Staffing costs make up 25-27% of a practice’s overheads, and are one of their biggest expenses for any practice. Maintaining the right level of staffing at all times, is crucial for keeping these costs at a manageable level.
- Facility costs make up 7-9%, and include such expenses as rent, utilities and anything office-related. Rent may be a fixed cost, but managing other related expenses by swapping to energy-efficient lighting or equipment, for instance, may be one way of bringing these costs down.
- Clinical costs make up 14-16% and include expenses directly related to the care of patients, such as masks, toothpaste and gloves, right through to bigger investments like x-ray machines and dental chairs. Key to controlling these overheads is effective management of inventory. Software may be available to help with inventory-tracking, as well as reminders for reordering, while regular maintenance of dental equipment can prevent expensive repairs or early replacements.
- Administrative costs make up 6-8% and are often referred to as silent expenses that can snowball quickly. Including software systems, billing services, accounting fees and office supplies, these can be kept under control with the help of automated billing and appointment reminders, and electronic health cards to streamline operations on a day-to-day basis.
- Discretionary expenses make up 2-4% and can be trimmed or cut altogether without it having a huge impact on how a dental practice operates. These can include such things as office décor, business travel, marketing and staff entertainment. Look at whether these expenses are worth it and giving good results, or whether they can be cut back on or eliminated entirely.
Reducing overheads with tax write-offs
Property, continuing education, and even certain renovations can sometimes be written off, while office equipment may be deductible under Section 179. under Section 179.
Working with professional tax planning for dentists can also help you uncover ways to reduce your tax liability, and the Short-Term Rental strategy, or STR, may be worth exploring with them.
Before you know it, overheads can start eating into your dental practice profits, but it doesn’t have to be this way. By looking at your expenses in detail and managing them more efficiently using the tips above, you can hold on to more of your hard earned money, without compromising on the quality of patient care, or contentedness of your staff.