How Many More Years do You Plan to Practice?

3 Jun

Screen Shot 2016-06-02 at 4.12.29 PM.pngIn our dental world of primarily ‘production-speak’, overheads continue to rise. At dental meetings it seems that the only numbers bantered around are production numbers. We all acknowledge that only net income matters, yet most of us don’t seem to remember that vital detail when it comes to running our practices and making overhead choices.

Latest research shows the average overhead in a general dental practice is hovering at 75%. WOW! In other words, you have to produce and collect 4 dollars for every dollar you get to claim as income. That’s before the tax man, etc. comes to visit. In effect, you work approximately 9 to 10 months for your overhead and taxes and 2 to 3 months for your spendable net. Sobering.

Obviously, decisions you make today profoundly affect your life for years to come. One such decision is the amount of overhead you choose to have in your practice. Yes, I said ‘choose’ to have, because every dentist chooses his/her overhead. Now, I understand that you may not intentionally choose high overhead, but the decisions you make today affect your overhead tomorrow. What choice have you made? High overhead model or low overhead model? It’s not too late to commit to a low overhead model.

Most dentists live by the rule that the best way to lower overhead and make more net income is to increase production which usually means working harder/faster/longer. Or, we often try to operate by cutting the wrong costs and fail to invest in proper practice and business principles. Working harder is a higher overhead choice because it increases costs in order to support that kind of system; more employees, more chairs, more patients, etc. are needed. Bad systems leave you no choice but to work harder. Is that what you want?

Another way of looking at this same issue is to follow the “busy” practice model.

Do you really believe (as sometimes we are taught) that raising your overhead is necessary to increase your production and net income? Do you accept as true the notions that you may well reach your net income goals simply by adding more patients, hygiene or staff to your practice? I hope not. Proponents of more volume fail to appreciate the finer points of overhead control. Adding more patients, staff, etc. may be part of the solution later on, but overhead control should always be addressed first, nevertheless; most skip that step onto the more attractive (and harder) road to increase production. Let’s take a hard look at dental math. The numbers don’t lie. I hope you are sitting down.

If your practice is ‘average’ and is burdened with 75% overhead, lowering the expenses by a mere 10% can produce astounding results. Here’s an example.

Let’s say you have a $500,000/year average dental practice operating for 30 years. At 75% overhead, your net income would be $125,000 each year. Lowering the overhead by 10% down to 65% would result in an increase of $50,000 net/year given the same production and collection. That increase calculated over the 30 years would mean an additional $1,500,000 of net income over your practice life. Again, given a 75% overhead you would have to produce 4 times that amount to receive those same dollars in net income . . ., an extra $6,000,000 of dentistry or $200,000/year for 30 years to accomplish the same result. That’s 4.8 months worth of work and collections each and every year.

What that means to you is that by choosing a measly 10% unnecessary amount of overhead for your practice, you will have to work an additional 12 years to support someone else! That’s more than one-third of your work life.

Or, if you continue to work the entire 30 years, you can pocket the extra $1.5 million. Both these first two calculations assume that you took the extra money and just put it under your mattress. What if you were to conservatively invest the ‘overage’ generated by this overhead reduction? Your work life would be cut by more than half!

A common overhead mistake is to be overstaffed as a result of using poor systems. Let’s say you have one extra employee being paid a salary (plus expenses) of $2500/month. Following the same formula as above, you will have to work an additional 7.2 years just for having the luxury of having one more employee when the crux of the issue would be to fix the less-than-efficient systems in your practice so as to painlessly solve the overhead problem.

Please don’t get caught in the trap believing that production is directly tied to the number of employees. It’s simply not true. A well run practice can collect $25K to $40K/month/employee. Fix the systems, fix the overhead.

Where are the money holes in your practice? Even in you think you want to ‘die at the chair’ because you enjoy dentistry so much, wouldn’t it be nice to at least have the choice as to when you retire? Plus, how do you know what the future will bring? How you’re your health be in your 50’, 60’s or 70’s? How long will you live? And wouldn’t having the choice to retire sooner be better than later?

Don’t let your higher than needed overhead force you to miss the best part of your life. If you feel tired and wish you had more flexibility in your life’s work schedule, look at your overhead. Get some specialized help if you need it.

How many extra years are you going to have to work simply because you have chosen high overhead? An extra 10% is in fact doubling your work load. Don’t you have a family member or someone else who could benefit from that extra time?  What about you?

Don’t let the magic pass you by.

 

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