There are certain key indicators that your dental practiceâ€™s overhead may be out of control. First and foremost, after the bills are paid, and your staff has received payroll, is there any money left over for you? Linda Drevenstedt, R.D.H. and principal of Drevenstedt Consulting, says using a dental-specific CPA and equipping your practice management team with proper software will go a long way.
We’ve all done that juggling routine of delaying the mailing of bill payments until we know there will be money in the checking account to cover the payment once it’s received. It’s not a fun game to play, and it’s a clear sign that our expenses may be out of control.
It’s an even worse feeling if it’s happening in your dental practice. There are certain indicators that this troubling trend is occurring under your practice’s roof.
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“The warning signs have to do with what I call the checkbook reach out,” says Linda Drevenstedt, R.D.H., MS, principal of Drevenstedt Consulting. “In other words, there’s not enough money in the checkbook to make payroll.”
Or, you’re paying your bills and your staff, but then what’s left in the checkbook for you? Fortunately, there are steps you can take to better control your overhead.
The first step after having that oh-my-gosh moment signaling overhead may be out of control is identifying a benchmark — a model for your practice. Because practices — whether you’re a general dentist, orthodontist or prosthodontist — are not all alike. And just looking at a profit and loss statement from QuickBooks won’t cut it.
“In my experience, dentists have accountants who are not dental specialists,” Drevenstedt says. “And the accounting statements they get are alphabetical lists of categories with no percentages, and no benchmarks. So (practitioners) are not necessarily getting a tool on a monthly or quarterly basis to even look at their overhead.”
And even if they are, too often expenses are not properly categorized. For example, Drevenstedt says she often sees a category called Wages, and everyone at the practice is lumped into that one category. If you do that, how can you tell if certain salaries are too high?
“That’s generally one of the places where overhead is out of whack,” she explains. “I have them break things out. What do you pay your hygienists? What do you pay your assistants? What do you pay the people who run the business, including office managers?”
Effectively categorizing expenses will enable you to better see departments or areas of the practice are functioning well, and those that may be out of line. Otherwise, you may fall victim to a knee-jerk reaction based on insufficient information.
“Doctors may pick up that their overhead is too high,” Drevenstedt says. “They know that staff salary should be a certain percentage because they’ve read it in a magazine. So they categorically decide to freeze all wages. That’s a managerial decision that may or may not be correct.”
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The Whole Picture
One of the benefits of properly categorizing and benchmarking expenses is you may find that your overhead is not necessarily out of control — or not too much out of control. The bigger picture may indicate that collections need to be improved. This is what Drevenstedt refers to as the full picture of the practice’s financial health.
“It’s about how much is the practice producing, and is it producing at a good level?” Drevenstedt says. “That’s why I go back to the benchmarks. It’s no different than is your blood pressure okay compared to last year. What is the average that a well-functioning orthodontist produces? Well, are you there or not?”
Looking at production is important, Drevenstedt says, because it’s the side of the practice that can most often be influenced without having to drastically cut expenses. Nobody likes that. And nobody likes to freeze wages. Doing the latter, she says, takes staff out of creative mode and throws them into freak mode.
And once you generate revenue, how good is the practice at collecting what is owed?
“Are we pretty good at collecting?” Drevenstedt asks, rhetorically. “Or are we letting the insurance companies keep our money and not following up?”
Fortunately, there are tools that can help. Drevenstedt says one of the best advances in a while is the automated parts of billing; being able to look at and automatically re-file insurances. These automated statements can help collect the revenue that the doctor and hygienists have worked to produce.
But, there’s still the human element.
“You can have a lot of things that are automated and they can work really well, but the other part of the picture is, you still have to do the calculating of how well is it working, and is it getting us the results that we want?” Drevenstedt says. “Do we need a human to get on the phone to call the insurance company and find out why we didn’t get paid?”
In other words, she adds, rattle some cages.