Dental Practice Finance: For Solo Dentists or Multi-location dental group practice
How is your practice performing financially? If you only look at your production and collection to tell you the answer, then you may be missing the truth. To get a real understanding of how your dental practice finances look, you need to check not just your income, but also your expenses.
It is just like your personal budget. If you ignore the fact that you have to pay the mortgage, insurance, gas, food, etc. and you only look at your paycheck, then you probably feel like you have plenty of money and are successful. However, if you sit down and look at all your expenses and discover that you only have $10 left over at the end of the month, you realize that you do not have a dime to waste!
This change of perspective drives your attitude in your practice. When you know your expenses, you know how closely you need to watch the money in your practice. This works whether you have great profits or minimal profits, as long as you know your profit level, you can make better decisions.
So, how should you watch your dental practice expenses?
Whether you are the administrator for a multi-location group dental practice or the dentist owner you should review your practice expenses compared to benchmarks every end of month. First, print your last month’s income statement and look at it. First of all, does the income you show for last month match the collections report from your dental practice management software? These two should match.
Next, look down the list of expenses. Do all these categories and dollar figures look about right to you? In QuickBooks, you can double click on an expense from the income statement and it will bring up the ledger to show more detail on the expenses that make up that number. If anything seems odd, ask to see the bill so you know what you are paying for.
Now, lets look at a few specific expenses:
First, check out your dental supplies expense. Compare it to your total income for the month. 6-7% is the benchmark here. How are you doing?
Dental Staff Compensation
Next, look at your staff salaries and taxes. Again, compare this to your collections. 28% is a great performance level for staff compensation (including benefits & taxes too).
Next, consider your lab, this one should be similar to the dental supplies expense. Again, compare all your lab bills (including crowns, implants, abutments, you name it) to your income for the month. If 6% is the benchmark, how do you compare?
If any of these expenses are way over the benchmark, then start digging into the invoices so you can see why the bills are so large. On the other hand, if the percentages are super low, this is also a red flag. This could mean that some expenses are not being recorded in your accounting software.
Once you look at your income statement, you will more clearly see the financial performance of your practice. Looking at this every month – along with your balance sheet which will reflect any outstanding loans (dental school perhaps?) will help you to move toward your financial goals.
Managing your finances is just one way to run a successful dental practice. If you’re interested in new ideas on running a dental practice, please subscribe to my weekly blog. One of the biggest challenges to managing a dental practice is managing dental insurance. With dental insurance handled, then dental marketing for new patients becomes a primary focus. In today’s day of online reviews, handling patient complaints well is essential. As your practice grows, hiring dental staff becomes more important. With 16+ years of dental practice management experience, I’m open to your questions to help you run a successful dental office.
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