The cost of operating a business is known as overhead. These are the obligatory business expenses that you must cover on your own when operating a dentistry. The average overhead for a dental office is usually around 61-62% of collections; this percentage varies slightly depending on the size of the office.
The required costs for operating the business, such as personnel salaries, equipment purchases, facility maintenance, marketing, etc., are included in overhead. Things like your own pay, auto costs, travel expenditures, seminars, and the mortgage you took to start the business are not considered overhead.
Let us look at how you can manage and calculate the overhead.
When your bookkeeper gives you the profit & loss report for your dental practice, you need a simple way to assess its performance. Following three simple steps, you can calculate the average overhead for your dental office.
Excluding the compensation and associated costs of the dentists, including the owner, the owner’s family, and the colleagues, is the most crucial step in determining the correct overhead percentage (%) of income.
On your profit & loss report, total all the remaining expense accounts, minus the dental costs from step one. Simply adding the “Total Expenses” and “Total Other Expenses” at the bottom of your profit & loss report will make this task easier. Afterward, take all the dental charges you crossed out in step one above and deduct them from the total expenses.
After patient refunds, multiply your total collection income, as mentioned at the top of your profit and loss report, by your total overhead expenses from step two.
Except for very small practices, the overhead typically increases with practice size. As a practice expands, the owner must hire more employees to handle the output demands. More collections equate to more patients and operations, which would require hiring additional practitioners, office personnel, or even an associate.
There is no question that practically all dental teams and patients have been touched by the economy to varying degrees. Dental teams can and should be dedicated to marketing to locate additional sources of income. On the other side of the income equation, they should look for ways to cut costs. The three approaches are as follows:
The concept is that as your collected income rises, you want your overhead to remain constant or perhaps decrease. You’re working more but making less money if your collections are decreasing but your percentage of practice overhead is rising.