Entry #18
What 36% Practice Overhead Looks Like
“Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice, and discipline.” ” – Jim Collins
I’m currently 7 months into my start-up. A big thank you to everyone who has been following along since the beginning. Small business conventional wisdom tells us that it can take up to 2 years for a new business to turn a profit and allow the owner to start paying themselves. Dental offices can be a bit of an exception to the rule in that manner. I was fortunate enough to be able to pay myself a paycheck from the office from our very first month of operations. From that point since, we have been cash flow positive.
A prelude to reading this blog post should really be my 10th post: “Overhead and the Million-Dollar Practice Myth.” That article went into detail about how high overhead practices are essentially doing large amounts of ‘free dentistry.’ Extra work that the practice must produce for the owner to take home the exact same amount of profit as a lower revenue, lower stress, lower overhead practice. Opening my practice at 27 years old, I like things simple, as I don’t have the years of experience for high-end, complex procedures. I run my practice with bread and butter dentistry. Simple dental work for regular working families. I send the ‘special’ cases to the ‘specialists.’ I don’t really do many/any procedures that we weren’t all comfortable doing in dental school.
I keep my overhead low, and it allows me to keep my prices lower for my patients. That’s something that I feel good about. Low overhead also gives me room to give my staff raises and bonuses. I feel good about that too.
LOTS and LOTS of people keep sending me emails about this topic. So I decided to finally shed some light on it…
The average dental practice runs at around 65% overhead. Meaning, after ALL expenses (including the practice loan payment), the owner takes home $35 for every $100 the practice produces. I’ve been consistently running around 40% overhead or BELOW. Here I’m going to profile last months numbers — a month in which we ran at about 36% overhead. Meaning, I keep and take home $64 for every $100 the office produces. I’m going to dig into the numbers and break down categories for you all here;
Caveat: For simplicity sake, the numbers will be rounded; I’m not accounting to the nearest penny here before you send your accountants after my head.
Keep in mind; during the month of May, I gave my assistant a raise; and my front desk girl a $1,000 bonus.
For the month of May 2018:
My practice collected ~$39,000
My practice expenses were ~$14,000
My personal monthly take home pay was ~$25,000
Total Revenue: ~$39,000
Costs
Staff Costs (Payroll): $5,255 (13.5%)
Payroll tax: $1,307 (3.3%)
Insurance: $253 (0.06%)
Marketing: $497 (1.2%) + One-time cost of $250 for professional video services = $747 (2%)
Merchant Services Fees: $174 (0.04%)
Utilities (Energy, Landscaping, Water, Netflix, Internet, Dental Software, Phones, Security,etc): $1,434 (3.6%) (includes a 1x landscaping fee for building/planting a flowerbed; also paid two months Energy bill this month)
Dental Supplies: $1,630 (4%)
Misc Office Supplies: $140 (0.03%)
Lab: $1,490 (3.8%)
Mortgage Payment: $1,020 (2.6%)
Practice Loan Payment: $630 (1.6%)
Total Costs: $13,906 ~~~ $14,000 (~36%).
Again, there are many ways to practice. I’m not telling you how you should practice. Maybe in the future I will want a more traditional – high expense, high overhead practice. But right now I don’t. Right now this is working.
I’m very early in my start-up and any number of unforeseen changes or obstacles could happen.
My current goals are to keep overhead relatively low, and slowly continue to ramp up production as the patient base grows. Right now we are getting between 45 and 65 new patients per month on typically around $500 per month marketing budget. This past month was a little higher on the marketing budget.
I love the freedom that simple dentistry and low-overhead affords. Maybe one day I will change my mind….
Kaizen,
–DeAngelo S. Webster, DDS
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