Roger P. Levin, DDS, MBA
To maintain your practice success, you must be able to control your overhead and cut costs. Overhead is like cancer: it merely wants to grow and spread.
I think it is safe to say that it is a natural law that your overhead always will try to go up.
We may not all realize it just yet, but as dentistry becomes more competitive and clearly becomes a business, overhead control is more of a factor. In my father`s and grandfather`s dental practices, less attention was given to overhead control, because profit margins were typically higher and the practices were faced with less competition. Today, every quarter percent that you can save from overhead can make a difference in your profit margin.
I have made claims to our clients that, depending on their age, they can add $1 million to $3 million to overall practice revenues during the remainder of their careers. Take 1, 2 or 3 percent of $2 million, and then see if it is worthwhile to pay attention to your overhead costs.
Where To Begin
You must first look at your income statement and check off all superfluous expenditures, such as items used for labor, supplies, lab fees, and doctor benefits. Doctor benefits are included, because they should be seen as profit and not expense. If the expenditure is small and the item seldom is used, then it is superfluous. It is a common habit simply to ignore the small expenditures. After all, you think, they aren`t that expensive. But, have you ever aggregated these "inexpensive" items and totaled a yearly figure? They are, in fact, costing you thousands of dollars each year.
Large companies reduce costs in small increments. Reduce overhead in five cost centers and you may have a 3-percent cost reduction. Reduce overhead in 10 cost centers and you might have a 6-percent cost reduction. Six percent of $500,000 is $30,000-your profit has increased by $30,000, virtually overnight.
What to Look For
One of our clients had a practice with a $980,000 gross revenue and an 87 percent overhead structure when we started. One year later, the revenue was deliberately reduced to $610,000 and the practice profits had doubled.
Cost problems increase when a dentist assumes that higher revenues are the only goal of a successful practice. They do not put revenue in your office. In fact, many of the higher-revenue practices have collections way below their actual production.
The other problem is that some practices spend a lot of money to achieve higher revenues. This is not to say that a high-revenue practice cannot have an excellent cost structure, but more often than not, this is not the case. Instead, the practice has spent money to gain these revenues, but has never been able to convert this revenue into higher profit.
Action Steps
1. What can you do? First, take a look at your staff. As you know, your staff is an important part of your practice. They, in addition to the services you offer, reflect who you are and how you run your business. Team-building is essential, and having the best staff is critical to your success. Do you continue to give raises to employees because another year has passed? Has your staff grown in its ability to add value to the practice? If so, the money invested in your team will come back as increased profit in a well-run practice.
2. Evaluate your methods of purchasing supplies. There are many vehicles for buying dental supplies today, and all suppliers want your business. Instead of purchasing from 52 different suppliers, find someone who is serving you well and serving you fast-you do not want excess inventory.
Trade volume for price. Try to find someone you are willing to give all of your business to, and then offer them loyalty in exchange for pricing benefits. We do not want to rip off our suppliers, but we do want to buy intelligently. You should also have an information service that allows you to know what the different pricing structures are throughout the country.
3. Find a new lab if you are requiring a great number of remakes, slow service, etc. Talk to your dental lab about its services. But, be careful - the relationship between your practice and the lab is critical. The lab is your partner in the practice and isn`t just an outside source that sends you "stuff."
4. Evaluate your own benefits. Dentists should use the practice in any way that they see fit, but have a realistic understanding of what is true overhead and what is not. This creates a better business picture for overall analysis.
Summary
Any business today that is not watching its costs-and is only spending dollars to advance the business-certainly will find itself in trouble. Dentistry is no different; but, we can move faster to keep this from happening.
Dr. Roger Levin is founder and president of The Levin Group, a national, dental-management and marketing-consulting firm. He can be reached at (410) 486-1089.
