Dr Phillip Palmer, December 2002 - As practice management consultants to the dental profession, we at Prime Practice, are regularly asked questions like …
In answering any of these questions there are many factors to be considered. While an absolute answer to any of them is impossible within the confines of an article to the dental profession at large, guidelines can be set out that would give every dentist an indication of how she/he is faring in comparison to their peers.
Benchmarking is the process of comparing one's practice to similar practices in a number of areas. The key to this process is to determine what are the norms for your practice (i.e. suburban, CBD, rural, length of experience, specialist, GP and so on) and where do you fit into this range - higher or lower than average. Of course this begs the question 'how do I get information on these norms?’
I'm going to set out observations that Prime Practice has made in its many years of working with hundreds of dental practices with respect to practice expenses and income.
Practice expenses should be broken up into the following categories:
Employee expenses include staff salaries, staff super and fringe benefits. After taking out any Assistant Dentist or Hygienist wages and super these should come to 15-18% of the production of the practice.
If your employee expenses seem a bit high here remember it is most unlikely (though not impossible) you are paying your staff too highly. Far more common is the situation where the dentist(s) simply do not produce enough, for one reason or another, pushing this percentage up artificially.
I very rarely come across a practice where staff are overpaid or are too numerous. However I often see dentists who under produce, either through inefficiency, under diagnosing, or not getting sufficient case acceptance.
Laboratory expenses include outside lab bills, or if you have your own laboratory then it should include lab supplies, lab salaries and super, lab equipment leases (including cerec), and lab rent-in other words all the costs of running the lab.
This should come to 10-14 % of production of a dental practice. Often dentists work out that theirs is only 3% to 4% and want to be congratulated on their clever business practice. However lab expense is the one practice expense that Prime would encourage to be higher rather than lower.
Most dentists would agree that by and large (tho' not always) stronger and longer lasting fillings, crowns, and veneers are made indirectly (that is by a laboratory) than directly in the mouth. So an increase in laboratory expenses would indicate that the dentist is doing more of this type of work and simultaneously working 'less hard' for their money.
Aren't we lucky that what's good for the patient is also good for the practice? Most dentists find it less onerous to do a crown for $1200 (1 ½ hours work at net $900 after lab fee) than try to gross $900 from simple direct fillings. At the same time, the patient should be getting a considerably stronger, more aesthetically pleasing and longer lasting restoration than with a direct filling.
Dental supplies should amount to 5-7 % of gross production generated (not including implant supplies). Again, a higher percentage may indicate an inefficient or unproductive dentist or inadequate fees rather than a supply company overcharging. Occasionally however Prime sees some very poor ordering or inventory control of supplies. In fact we have seen supply bills go as high as 12-14 % before taking on proper management into their practice.
Facility expenses include rent, cleaning, water, gas, electricity, and security services etc and should also amount to 5-7 %. If the property is owned by the dentist, the rental figure should be a commercial rent and should not be accounted for by how much the dentist's company can get away with, or by how much the mortgage costs are.
Promotion expenses include newsletters, ads, yellow pages entries, etc and are normally 1% or less of production. However if the practice needs some urgent influx of new patients (- through going through a quiet period or taking on a new assistant -) then this expense can go as high as 3 percent due to an increase in advertising, marketing and promotion costs.
Major expenses should total between 44 % and 50 % of total production.
That brings us to minor expenses and discretionary expenses. Minor expenses include accounting/bookkeeping, bank charges, credit cards, continuing education, insurance (general liability, malpractice, overhead protection & workers comp), legal fees, office supplies, repairs/maintenance on equipment, subscriptions, telephone and other. These can add up to approximately 10 % of production, (depending to a large degree on what and where the C.E. courses are).
Discretionary expenses are those expenses that eventually disappear and include capital items of over $500 and any equipment under lease. This can be a real trap for dentists as all of us seem to want our toys - computers, cerecs, new surgeries, digital x-rays, air-abrasion units, lasers etc. All dentists should continually invest in their practices so that they keep up to date and don't fall behind. However, discretionary expenses should never amount to more than 10% of total production except under special circumstances.
The total expenses for running a practice should be anywhere from 50% to 75% depending on the amount of re-investment the dentist does in his/her practice and whether they go overseas for their C.E. This is using true cash flow figures for a practice----not accountant's figures (you'll notice that there's no depreciation figures, nor car expenses allowed for--not that these aren't legitimate for many/ most practices)
[Published Australasian Dental Practice, December 2002]