This is not breaking news. Dentists have long understood that overhead is the enemy of profit and, therefore, the practice. However, overhead needs to be addressed more seriously and immediately than ever before.
Here is the background. For the past two years, practice production has been relatively flat. While it would be preferable if practice production were increasing, the fact that it has not declined in the face of the current and recent past economy might actually be a positive aspect. The challenge is that while practice production may be flat, practice overhead has experienced a significant jump. Our research indicates that overhead in practices has increased by slightly over 8%, directly impacting practice profitability.
Why has overhead increased so much, so fast? The first reason is the staffing shortage, leading to a national average increase in staff wages of 10%. Additionally, recent inflation has increased the cost of most other dental expenditures by about 6%. This has had a significant impact on practice profitability, which has declined by over 7%. The short-term effect is less available cash in the practice for purchases or compensation. The long-term effect is that the dentist will end up working more years before achieving financial independence, as profitability rolls up into personal retirement savings year after year.
Dentists need to be on top of overhead expenditures more than ever. By being stringent and diligent, you have the opportunity to reduce overhead by 4% – 6%. This opportunity has always been there, but now it needs to be addressed aggressively.
Suggestions to reduce overhead include:
- Bid out your major expenses every year. Get a minimum of three bids to understand current market rates and explore potential cost reductions. I guarantee you will find ways to reduce costs when other companies bid for your business.
- Enhance practice efficiency to a level where you may even be able to operate with one less team member. Staffing costs have risen dramatically, and by enhancing efficiency through the implementation of excellent business systems, you have an opportunity to reduce some labor costs in some practices.
- Reevaluate practice insurance costs. Each year, you should meet with your insurance agent to go through each line item and determine if they are providing the best available pricing. Many agents simply use the same companies year after year and ask you to absorb the increases.
- Eliminate waste for activities and items. Practices consistently buy materials that they do not use and have waste in their overall processes. Eliminating waste, for example, by hiring a sterilization assistant instead of paying another more highly compensated staff member, can also reduce costs depending on the size and scope of the practice.
- Commercial real estate in many parts of the country is suffering. When it’s time to renew, see if you can negotiate a better lease if your area has abundant vacant commercial real estate. Your landlord may be afraid of losing you to another facility.
There are many other ways to reduce overhead; some are simply common sense. However, nothing is more powerful than sitting down periodically and reviewing every line item of expense. You will always find expenditures that are out of date, unnecessary, or just legacies that you didn’t even realize you were paying for. Invest in that which will increase practice production, eliminate unnecessary expenses, and reduce overhead by 4% – 6%. There has never been a time where this is more important and beneficial to the practice and the long-term financial success of a dentist.
ABOUT THE AUTHOR
Roger P. Levin, DDS, is the CEO and founder of Levin Group, a leading practice management consulting firm that has worked with over 30,000 clients to increase production. A recognized expert on dental practice management and marketing, he has written more than 60 books and over 4,000 articles and regularly presents seminars in the U.S. and around the world.
To contact Dr. Levin or to join the 40,000 dental professionals who receive his Practice Production Tip of the Day, visit www.levingroup.com or email rlevin@levingroup.com.
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