As a small business owner, you want to have money left over every month to put in the bank. Yet, I’ll bet there have been times when you scratched your head because you were producing lots of dentistry with less money at month’s end to show for it. Here at ACT, we’ve identified and been writing about four gaps where money leaves your practice and leaves you wondering, “What happened?” One of these gaps is your practice overhead. National trends show this number is on the rise—the current average is 71-72%—and as it gets higher, it becomes harder and harder to maintain a healthy profit margin. If you don’t know your overhead, your only option is to produce more in the hopes there’s some left over for you. It’s important to know how to calculate your overhead and understand where you stand. This isn’t a complicated process, and it’s something you can calculate in 60 seconds.
Organize Your Buckets
Overhead is frequently overlooked because it can be confusing. Part of the complexity in understanding overhead comes from the expense categories on your profit and loss statement, or what we call buckets, and knowing how to organize your expenses within these buckets. We like to use a seven-bucket system because it makes the most sense to a private dental practice:
- Team compensation
- Facility and equipment
- Supplies
- Lab
- Operating costs
- Marketing
- Discretionary
Having these buckets is crucial because you cannot set a budget or create a strategy for decreasing overhead without them.
Do the Math
Kirk likes to say that “if you’re going to own a business, you’ve got to do a little bit of math,” so if organizing your expenses in this way seems overbearing, don’t get bogged down with the details of the buckets—focus first on just figuring out your overall overhead number. Once you understand how to calculate your overhead in 60 seconds, you’ll realize that the complexity of overhead is something you don’t need to worry about anymore. At its simplest, your overhead is your expenses minus your doctor salary and benefits, and calculating it is extremely easy:
- Pull up your Profit and Loss Statement
- Find your Expense Total at the bottom
- Find the Doctor Salary and Benefits number above that
- Subtract the Doctor Salary and Benefits number from the Expense Total
The result is your overhead, and that’s all there is to it. It will be a dollar figure, but if you divide it by your revenue, then you’ll have the overhead percentage. This is something you need to do once a month because having an accurate picture of your overhead will let you know when in the month you start making money, as well as give you a starting point for working to decrease it.
Follow the Roadmap
You’ve calculated your overhead and understand which expenses go into which buckets—now what? I’ve mentioned creating a plan to decrease overhead, which is the end goal of tracking your overhead, and thanks to ACT’s free Roadmap to Practice Profitability, it’s incredibly easy to do that. The Roadmap will walk you through how the money flows through your practice, and there’s a specific section for overhead. It will help you analyze each of your buckets and add a lot of clarity behind those numbers so you can then set up a budget. This process doesn’t have to be complex, and we designed the Roadmap to make this as easy as possible.
You don’t have to go through this alone, either. Our fantastic coaches are happy to lend their expertise—all you have to do is reach out and schedule a call. Working on your overhead can be one of the least desirable things you do, but when you’re working hard and not seeing any profits from it, decreasing that overhead can be the biggest stress relief. We’re all about Better Practice, Better Life here at ACT, and getting your overhead under control will do just that. You’ll sleep better, feel better, and have more room to breathe.
Dr. Barrett Straub is the CEO of ACT Dental
