ACT 4: MONEY SMART
I hope you are caught up by now and have your Growth Analysis spreadsheet filled out and have an understanding of where you are doing great and where you come up a little short. In any eventuality, you have a clear picture of the benchmarks and goals that you will ultimately need to address. Today, I want to add one more level of comprehension. Have you ever been lost in a mall or Disney World, and happen upon a sign that has the entire layout of the area with a huge pointer showing you where you are? Without knowing where you are, how would you know which way to go? You wouldn’t, and the spreadsheet you filled out last week along with this week’s ACT will insure that you know exactly where you are. This creates the perfect opportunity to make the changes necessary to either accelerate or change the direction and speed of your success.
This second part is your overhead. I want to take a moment and remind you that you need a template of overhead numbers that allows you to manage your expenses while simultaneously being able to access this information in a timely fashion in order to make course corrections based on facts, not feelings. Most of us use a CPA to help us with payroll, taxes, and provide a periodic Profit and Loss statement. This is probably the worst protocol for active manipulation of your financial circumstance because you don’t get the numbers in a timely fashion (typically arriving a month or two after you needed them). This P&L format for expenses is not arranged in a way that makes it useful it to manage your practice, and it often does not include all of your expenses.
I want to give you a quick and easy way to reformat your Profit and Loss statement within a program such as Quickbooks, so that you can have your finger on the pulse of your practice at any point in time. Summit Practice Solutions (that’s us: www.summitpracticesolutions.com 800-252-0955) uses an abbreviated format to make keeping up with your key practice indicators much easier. The following is a list of categories of expenses that will allow you to take all of the headings for your Profit and Loss statement and condense them into a simpler, more intuitive form.
- Compensation for all employees (not the owner doctor) 24-25%
- Facility costs 7-9%
- Lab 8-10%
- Marketing 3%
- Office supplies 2%
- Dental supplies 6%
TOTAL OPERATING OVERHEAD EXPENSES 50-55%
If you have debt associated with the practice, it should ideally be less than 7% of collections. So if you add that to the above figures, total overhead would jump to 57-62%. The doctor/owner should be receiving the remaining balance in compensation and benefits. Yes, that’s correct: 38-50% to the owner(s).
These are challenging benchmarks that are obtainable and can be achieved over the next 12 months with a new engagement in your business and the fortitude to make some tough decisions. Included here are links to examples of a traditional Profit and Loss statement from an actual practice along with a reformatted version per the above. From these you can see how this process, or ACT, organizes your overhead in an easier to monitor and understand format.
Just like the Growth Analysis spreadsheet, this reformatted Profit and Loss statement can be used from now on and I will reference additional ACTS to these documents. Don’t try to read and apply these ACTS without having the target numbers and your existing numbers right in front of you. This is called the Hawthorne Effect: What gets measured gets done. Just going through the process of gathering and collating this information will cause the numbers to improve. Add to that the intentional living that you are embarking on and you will see huge changes for the better. This is how you Summit.
Michael Abernathy, DDS
PS — I have noticed an increase in offices signing up with BEST for Dentistry (www.bestfordentistry.com) but I have also noticed that many still have not. This was ACT 1 (three weeks ago) and is guaranteed to put thousands of dollars in savings in your pocket. It will cost you nothing to join. Do it TODAY!