Dental Office Costs and Overhead Expenses Breakdown

After a few years of working with a dental office, you might be interested in starting your own practice. This can be incredibly overwhelming if you’re not sure where to start. You know that you’ll need all the important equipment, from patient chairs to X-ray equipment. You also know that you’ll need to hire staff. But you might not have an idea of what the overall costs will be for your dental office expenses.

There are many things to consider when opening your own practice. It’s important that you have an understanding of not only the costs to open your office and keep it open but also the overhead expenses associated with keeping the practice operating. Having a full picture of the dental office expenses will help you run a successful office. With the help of financial services, this can be an easier process.

What Is Overhead?

You might not be familiar with what overhead is. Overhead is any of the expenses that are ongoing. So, they’re the various repeat expenses that you can count on owing within a certain time period, typically monthly. Overhead expenses can be difficult to track and predict due to their nature. Things like labor or staff pay, utilities, supplies, and more are a part of overhead expenses.

Calculating Overhead

As mentioned, it can be difficult to predict overhead costs, but there are ways that you can try to estimate these things so that you can create a plan. Overhead expenses will end up coming out of your profits, so you’ll need to know how much this might be. The following are all things associated with overhead costs:

• Advertising
• Continuing education
• Credit cards
• Dental supplies
• Insurance
• Lab expenses
• Licensing
• Loans
• Marketing
• Mortgage expenses or rent
• Office supplies
• Staffing

You’ll want to consider your own budget when thinking about each of these things. There are guidelines as to what you should be spending on the major parts of the overhead. These guidelines should be seen as benchmarks, places to meet and not exceed so that you can make sure you’re managing your budget and staying within your means. Those benchmarks are as follows:

• Clinical costs should be at most 14% of business income
• Discretionary costs should be at most 2% of business income
• Facility costs should be at most 10% of business income
• Personnel or staff costs should be at most 28% of business income
• Associates and owners’ profits should be at most 40% of business income
• Other business costs should not exceed 11% of business income

While totaling these categories up equals more than 100%, the goal is to make sure that some of these areas are under the maximum benchmark. Personnel is one of the areas where there can be the most variance, as it depends on the size and pay of your staff. This can include payroll, taxes, health insurance, pension expenses, billing services, contractors that aren’t staff, hiring costs, and answering services.

Staff costs are more than just the hygienists who are assisting with the patients. You also need to be sure to consider office or administrative workers and any assistants that are in the office as well. A financial service can assist you with locating and estimating these numbers.

Increasing Revenue

You may be in a circumstance where you’re planning to open your own office, but you need some direction. There are really only two ways that you can increase your business’s revenue: you may perform more services or procedures, or you may raise your costs. These can be detrimental and beneficial in equal measure.

If you perform more services or procedures, you may run the risk of burnout. In some cases, only the head dentist can perform some procedures aside from basic cleanings. This can become very labor intensive and may require a lot more work. This could eventually lead to the need to hire more staff, which will lead to higher labor costs.

If you raise costs, you’ll see more money coming into your practice, but these changes in costs will likely be noticed, particularly for patients who might not have dental insurance. You may price some of your patients out and will need to either consider losing them or you’ll need to advertise and open up the practice for new clients. These things can lead to higher costs in other areas.

FAQs

Q: What Should Overhead Be in a Dental Office?

A: Overhead is the continuing expenses of the business. These are expenses that you’ll pay each month, quarter, or year. These are things like payroll, rent or a mortgage, business supplies, and more. Overhead for a dental office should be no more than 65%. This still allows for profits for the owner and other people associated with the business. It lets some part of the income be banked for future improvements to the business.

Q: What Is the Biggest Expense in a Dental Office?

A: There are certain benchmarks that a business should meet in order to make sure that all areas are covered. Payroll is typically the largest expense of any dental office. Staff, from hygienists to administrative staff, keeps the business running, which accounts for the expense.

Q: How Do You Determine the Value of a Dental Office?

A: There are a few methods by which the value of a dental office can be determined. These can include income before taxes, depreciation amortization, discounted cash flows, or the capitalized earning method. In each of these, you’ll need to have a breakdown of your earnings and expenses.

Q: How Can I Reduce My New Dental Practice Overhead?

A: Quality is an important consideration when thinking about overhead. You know that you want your practice to continue providing quality services, so you don’t want to reduce the quality of equipment. However, you may consider spending less on office equipment and automated messaging systems, reducing the need to hire additional staff, and, as an extreme solution, consider a smaller, less expensive space for your practice.

If you need help managing your expenses, Vigor Financial provides many different solutions, such as bookkeeping and other financial services. Contact us today to find solutions for your business.