Practice Overview of Costs

Practice Overview of Costs

Efficiency and effectiveness count more than anything else when trying to control overhead dollars.

I. Staff and Salaries and Taxes

Staff salaries make up 25-30% (in most practices) of dental overhead. The highest overhead expenditure in the dental office is staff turnover. A practice can go down, $10,000.00 - $20,000.00 in one month’s production as the result of losing key personnel. Along with drops in production, it takes three months to train new people.

RDH should produce 4 – 5 times their salary.

II. Rent and Utilities

These should be billed out at 6-8%. Since moving to a new facility is not a money saving idea, this fixed cost is certainly not an option or change in order to decrease expenses. Generally little can be done to change this percentage. The best idea is to get the most from your facility.

III. General Expenses

These include telephone and insurance (for example) for a total of 5-7% expenditure. There is some “leeway” in this area; for example, insurance can be shopped for, however if you are totally satisfied with your services do not take on a change.

IV. Equipment Leases and Debt Service

This area should be at 6-8%. This is also a non-negotiable deal unless some sort of refinancing occurs.

V. Practice Management

This area expenditure should be between 3-5%. The practice management section not only covers consultants, but legal and accounting services as well. This is one area that must remain constant for continual growth of the practice.

VI. Lab fees

A dentist cannot charge low fees and maintain a respectable profit margin. Low lab fees (less than 10%) is not good and indicates a problem of low acceptance of treatment proposed 10-17% show as a healthy practice:

Treatment plans are necessary and will increase organization of sequencing for optimal usage of time (for dentist and patient) fewer but longer more productive appointments reduce overhead, stress, paperwork, room breakdown, sterilization etc.
Case acceptance, impromptu consultants are fine for small cases but not larger ones, they require thought, study and documentation at least a discussion of 20-25 minutes. Presenting cases without forethought is like taking a two-day camping trip with a sack lunch.

VII. Supplies and Inventory Control

Dental supplies should represent only 3-5% of collections. Office supplies should represent only 2% of collections. Offices have done monthly budgets of allotment for spending which depends on the collections the month before. This saving technique has helped many offices get within the proper percentages.

VIII. Promoting/ Advertising

This area does have the possibility of variance. The acceptance percentage is 1%. Depending on the needs of the practice this may not even be a necessary expense.

The following represents areas to be reviewed when working on lowering the overhead cost of your practice.

I. Fee adjustments

Increasing fees is the most effective way to maintain a profit since salaries, and supply costs continue to increase despite efforts to control them. Most dental offices do not have up-to-date fee schedules. They feel bad about raising fees. Any increase in staff must be tied to a fee increase. Fees must be raised a minimum of 8% per year to keep up with the cost of living. Consider the increase of OSHA requirements that have fallen on your practice for the year. ($10.50 per patient visit) update from the A.D.A.

II. Collections and Scheduling (and Production)

How much revenue must you produce per hour to turn a profit? These numbers must be passed on to the front desk to increase efficiency and reduce overhead stress.

Scheduling must be done for daily production goals, and both just to meet M.A.S. The goal of scheduling should be to do more or higher profit dentistry in the same number of hours or less without compromising quality of care or patient rapport.

Since most of your expenses are fixed, a decrease of overhead, by lowering one of your fixed or variable expenses becomes nearly impossible. If rent is $1000.00 monthly and collection is $10,000.00 monthly, then rent is 10% of collections but increase collection to $20,000.00, and then rent is only 5% of collections.

Increasing production needs to be a team effort. The presentation of dentistry must be in full swing and the hygienist must be fully involved for acceptance to increase.

II. Increasing Hygiene Services

Increasing hygiene services is very necessary in all offices. What is necessary?

Full implementation of a soft tissue management program can boost hygiene revenues by 40% or more.

Full implementation of 3 month recare. Research shows that this is an excellent standard of care for well over 50% of the patient population.

Updating of FMS, Pan’s and BW’s on a regular basis.

Adult and child fluoride treatments.

Dental sales – dentistry, toothbrushes, fluoride etc.

IV. Recare System

Better than 75% of all dental practices only have a 50% efficiency rate in hygiene, therefore every 6 months 50% of your patient population has the capability of falling through the cracks. Example:

If you have 1000 active patients and work 16 days monthly, you should have hygiene 4 days a week with 10.4 patients seen daily. Many offices suffer from the “back door syndrome” in this area. Patients are constantly slipping through the back door. A well-run and well-monitored recall system can alleviate this problem. Utilize the Hygiene Eye-opener Worksheet and begin analyzing the numbers of recare each month.

V. Supplies and Inventory

Avoid impulse buying
Start comparative shopping.
Set up a good organized inventory system (the tagging system seemed to be the most effective)
Set up a budget of 5-6% of the previous month’s collections.

VI. M.A.S. and Goal Setting

The recalculation of the break- even point is crucial and must be done quarterly to semi-annually to keep you up with increasing costs and to be able to work at a new level. Getting the team committed to new goals with new incentives is necessary to keep up motivation.

VII. Consultations/Team Meetings/Morning Huddles/Team Evaluations

Without these planning meetings the practice will slowly recess back into its own old patterns, Team evaluations are often left out in many practices, but they are crucial to entire practice growth.

VIII. Office Manual

An office manual is crucial when it comes to team organization, growth and happiness. This is some of the information the manual must cover:

Vacation, Sick

Increases, evaluations
Benefits (medical, retirement)
Maternity
Time off without pay

IX. Promotion/Advertising

It is crucial to monitor all advertising returns. This can be done manually by recording the referral source of each new patient. At the end of the year, evaluate what advertising source reared the most new patients (or was profitable for the office). When advertisers want you to renew your marking with them, utilize the information from your monitors to decide if it will be cost effective for you in the future.

X. Ways to Cut Expenses

A less expensive lab.
Shop for dental supplies.
Have a budget for all purchases.
Before renewing any marketing – total monthly monitors.
Increase the production.
Increase the quality, not quantity.
Maintain managed care at 20% or less.

OVERHEAD REPORT

Month: ______Date ______

TEAM COMPENSATION –

Gross Salary ______

Futa,Suta.W/comp ______

Bonus ______

Uniform Allowance ______

Matching FICA/Paid by Dr. ______

Other Benefits ______

Subtotals ______

Total Labor ______

OCCUPANCY

Rent/Mort.(principal & interest) ______

Utilities ______

Janitorial ______

Repairs, Maintenance, Leasehold improv. ______

Facility Insurance ______

Security System ______

Total Occup ______

HUMAN & PHYSICAL RESOURCE DEVELOPMENT

Office Furnishings & Repair ______

Dental Equipment Purch., Repair & Maint. ______

TEAM CE ______

Delinquency Paid ______

Accrued Funds ______

Total ______

SUPPLIES

Dr’s Supplies ______

Hygiene Supplies ______

Total ______

TOTAL OVERHEAD ______

DOCTOR SALARY

Draw ______

Income Taxes ______

Benefits:

Personal Expenses Paid From Office ______

Dr’s Insur: Med., Disability, Life ______

Dr’s Personal Travel Expense ______

Other ______

Total ______

SOLVENCY – 9%

Deposit into Solvency Account ______

Tax Allocation for Solvency Funds ______

Unexpected Costs ______

Total ______

ROI - 9%

Long Term Investments

Dr. Pension Contribution ______

Unexpected Costs ______

Dr’s C.E. ______

Total______

MARKETING/ADVERTISING

Advertising ______

Marketing ______

Total ______

LABORATORY

Restorative Lab ______

Total ______

ADMINISTRATIVE SERVICES

Administrative Supplies ______

Bank Service Charges ______

Business Equipment Purchase ______

Business Equipment Repair and Maint. ______

Collection Costs ______

Dues ______

Laundry Services ______

Legal and Accounting ______

Licenses ______

Malpractice Insurance ______

Other—TEAM Lunches ______

Overhead Insurance ______

Paging Device ______

Postage and Freight ______

Subscriptions ______

Taxes (Personal Prop & Other Bus. Taxes) ______

Telephone ______

Delinquency Paid ______

Accrued Funds ______

Fee Funds ______

Total ______

VITAL SIGNS FOR A HEALTHY PRACTICE

Vital Signs

Gross production
Production per hour
Collection percentage
Receivables ratio
Ninety day receivables ratio
Payment on current charges
New patient appointment ration
New patient contacts per month
Case presentation Ratio
Vital SignsAverage NP treatment potential
Case acceptance ratio
Treatment completion rate
Recall rate /

Indications

Efficiency and effectiveness of practice and generally doctor’s stress level.
Effective utilization of team, facility, appointment book control, delegation, procedure mix.
Effectiveness of financial arrangements, policy and follow-up.
Flexibility of financial policy.
Turnover of receivables related to in-office financing.
Collection skills at front desk over the counter.
Effectiveness of initial telephone contact.
Marketing effectiveness.
Effectiveness of first appointments.
IndicationsComprehensive treatment plans.
Sales skills.
Acceptability of treatment plan.
Follow-up effectiveness. / How to compute
Annual production.
Production divided by hours available for treating patients.
Collections divided by production for a given period.
Receivable divided by monthly production.
Good receivables, 90 days old by total receivables.
Percentage of month’s collections, collected at patient’s visit.
All new patient exams divided by number that make appointments.
Number of new patient examinations.
Case presentation divided by new patients seen.
How to computeTotal amount of treatment recommended divided by number of cases presented.
Total amount of treatment accepted divided by total amount recommended.
All treatment performed divided by all treatment accepted.
Patients who come for recall divided by patients placed on recall during a given time period. /

Your Practice

Your Practice /

Healthy Range

Varies.
$300.00 plus.
96%-99%
Less than one months.
33% less
25%-45%
90%-100%
10-15 patients/$10,000/mo. Prod. Depends on style of practice.
90%-100%
Healthy Range$1000.00 plus
70%-90%
85%-95%
85%-100%

True Receivables - 0 - 60 – 75% of total

True Receivables – 61 to 90 – 25% of total

Overhead review –National statistics

Overhead-General Dent. Prosth Ortho. Perio. Endo. O.S. Hygiene

Total

Acceptable Over.% 60-65% 60% 59% 50% 50% 50% 50%

Fixed costs:

Staff Gross Salaries20 -27% 30% + 9-14%

and Benefits

Facility5 - 8%

General Expenses5 - 6%

Telephone

Insurance

Equipment lease6 - 8%

Debt Service

Practice Management3 - 5%

Debt Service

Fixed Expense Goal46% + or – 7%

Variable Expenses:General Prostho. Ortho. Perio. Endo.O.S. Hyg.

Lab Fees8 – 12%10-12% 2-4% ------

Office Supplies 2%2% 3-4% 2%2%2% 1%

Dental Supplies3 – 6 %3-5% 3-6% 2-3%2-3 2-3% 1 %

Continuing Education1.25%

Travel Expense

Promotion1%

Repairs/Maintenance.50%

Other1%

Variable Expense Goal20% + or – 3%

Total Fixed and

YOU’RE OVERHEAD ANALYSIS

Doctor’s AcceptableYour Practice

Range Amount Over/Under

% $ % $

Fixed Expenses:

Team Gross, Salaries, ______

Benefits & Costs

Facilities______

General Expenses______

Telephone
Insurance

Equipment Leases______

Debt Service

Variable Expenses

Lab Fees______

Office Supplies______

Continuing Education______

Travel Expenses

Promotion______

Repairs/Maintenance______

TOTALS:______

Over/Under

Introduction:

It is essential to be able to determine the economic condition of your dental practice at all times. This condition changes with respect to both time and money. Analysis of fixed operating expenses, variable operating expenses, practice revenue, and practice revenue and practice time will determine the practice break-even point and its profitability.

Directions:

Complete the enclosed pages of practice data. If the following circumstances occur in your practice, immediately revise the enclosed pages with the new practice data.

Increase or decrease in rent payments.

Addition of major equipment.

Addition of leasehold improvements.

Addition or deletion of team members.

Addition or deletion of an associate.

Increase or decrease in team salary.

Increase or decrease in team benefits.

Increase or decrease in staff salary.

Increase or decrease in practice hours.

Debt service initiation or retirement.

Any other increase or decrease in a fixed expense. (dollar amount)

Any other addition or deletion of a fixed expense. (expense item)

Any other addition or deletion of variable expenses. (expense item)

Any other addition or deletion of variable expenses. (percentage amount)

Doctor:______Date:______

Reporting period, starting:______to ______

Annual revenue:______for year of:______

(previous year)

Monthly revenue:______for month of:______

(previous month)

Working days for this next

month:______hours/days:______

Doctor:______Date:______

Reporting period, starting:______to ______

Fixed operating cost/expense item

AnnualAveragePercentage

Amountmonthlyto revenue

Amountcollected

Facility Occupancy

Rent______

Utilities______

Janitorial______

Property taxes______

Team Compensation

Team gross salaries______

Payroll taxes______

Benefit expenses______

Insurance(office, prof.)

Prof. Liability insurance______

Overhead insurance______

Disability Insurance______

General Expenses

Telephone______

Dues/subscriptions______

Other taxes/licenses______

Legal/accounting______

Practice management______

Equipment leases______

Debt service______

Other______

Total fixed expenses

For period______Fixed expense factor

Total revenue for period______

Total Fixed Cost Expense

Fixed Expense Factor =______

Total Revenue Collections

Doctor:______Date:______

Reporting period, starting:______to______

Variable Cost Annual AveragePercentage

Expense Itemamountmonthlyto revenue

Amountcollected

Lab fees______

Office supplies______

Dental supplies______

Promotion______

Repairs/maintenance______

Other______

Total Variable Cost______Variable Expense

Factor

Total Revenue Collected______

for Period

Total Variable Cost Expense

Variable Expense Factor =______

Total Revenue Collected

Doctor:______Date:______

Reporting period, starting:______to______

Break-even Point (BEP) for PracticeMinimal Accepted Standard

Total Fixed expenses:Annual______

Total Doctor’s CompensationAnnual______

Total fixed cost expenses with

Total Doctor’s compensation:Annual______

Variable expense factor(VEF)______

Total Fixed Cost

Break-even point = ______

1- VEF

Break-even pointMonthly ______

Break-even pointWeekly ______

Break-even pointDaily ______

Break-even pointHourly ______

Profit for Practice (Goal)

Profit to Dentist and teamAnnual ______

After team salaries and

Doctor compensation

Additional revenues neededAnnual ______

Over practice annual break-

Even point (BEP)

Profit for Practice (Annual)

Additional Revenue over Break-Even Point = ______

1-VEP

Revenue GoalAnnual ______

(BEP +Annual revenue

needed over annual practice

BEP)

Revenue goalMonthly ______

Revenue goalWeekly ______

Revenue goalDaily ______

Revenue goalHourly ______

Doctor:______Date:______

Reporting period, starting:______to______

AnnualMonthly

Doctor Compensation______

Doctor salary______

Doctor Benefits______

Total Doctor compensation______

including salary and benefits

Doctor Practice Time

Practice days______

Practice hours______