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Showing posts with label dental overhead. Show all posts
Showing posts with label dental overhead. Show all posts
Thursday, March 21, 2013
Dental Overhead Benchmarks by Category
A dentist recently asked us what the typical overhead percentages should be for an office by categories. Here are two helpful spreadsheets we came up with: Dental Overhead Benchmarks (based on production) and a Dental Overhead Benchmarks Based on Collections.
Monday, August 1, 2011
2010 Dental Overhead Benchmark - Our Observations - What has Changed?
We’ve started the process of compiling our dental practice benchmark statistics based upon 2010 data and the initial results compared to five years ago are a little surprising to us. Since 2005 the US economy has gone through a downturn, a recession by most standards, and we were curious to see how that may have impacted the benchmark statistics for dental practices. We know that over the past five years there’s even more technology that practitioners are buying and using (i.e. new dental equipment and computers.) We’ve summarized some of our preliminary findings and provided commentary as to why we believe these changes have occurred. You can take the dental overhead benchmark survey here.
1. Revenue:
So far the mix of dentistry to hygiene production has increased in favor of the doctor, which means 76% of production is dentistry while 24% is hygiene. Five years ago it was 75%-25%. The surprising statistic though is the adjustments or write-offs. Five years ago the “average” practice was writing off 13% of their gross production and it’s increased to 17%. The main reason for our surprise is that during these last five years we’ve seen an increase in practices attempting to reduce or eliminate their PPO participation. That said, certainly the recession may have “forced” some of those practices back into PPO participation and we’re also seeing practices providing more incentives or discounts for cash paying patients.
2. Labor:
This area provided another eye opener. As a percentage of gross production (same denominator we’ve always used in our surveys), total labor expense (wages, payroll taxes, benefits including their education and training) dropped from 26.7% down to 22.7%. Assistants, hygienists and front desk combined showed a decrease while administrative showed an increase, possibly due to the treatment plan coordinator position and other types of positions. Both payroll taxes and benefits have also shown decreases. Another reason is that with the additional “higher end” procedures like Invisalign, implants and full mouth cases, the dentistry production per hour may be higher with the same or lower labor rates. We also know many practices stopped raises at some point over the past three years if not for all three years because of the recessionary trend.
3. Facility Expenses:
Total facility expense actually increased from 4.8% to 6.4%. Rent jumped by nearly 1% and the other costs like repairs, security and utilities all increased as well. We can only surmise that many had their rent agreements already in place as of 2008 and 2009 when the recession hit and we know landlords had no obligation to re-negotiate leases therefore, rent increases continued while procedure fees and revenues either revenues either flattened or declined (revenues). Generally utility costs have been going up following a trend by utility providers to raise their rates.
4. Lab and Dental Supply expenses:
Both lab and dental supplies have dropped by nearly 1% to 5.4%. Five years ago lab was 6.3% and supplies were 6.1%. we suspect lab has decreased in part due to the use of Cerec type machines since we’ve heard time and time again that labs had been increasing their prices. Dental supplies are harder to explain so we won’t even try.
5. Other Costs:
In total they went from 12.7% five years ago to 8.8% for 2010, nearly a 4% point drop. While a few categories increased like collections expenses (CareCredit) and advertising and promotion (practices simply doing more advertising) most of the other categories have dropped. Some of the categories that dropped are insurance, office supplies and postage (more electronic mail), professional services (more owners doing their own bookkeeping and payroll processing), telephone (more cell phones, less answering services, better technology and more competition).
Overall, total overhead went from 55.6% five years ago to 48.8% in 2010 based on gross production. That’s a rather significant decrease that was unexpected.
As we mentioned above, the dentistry to hygiene production ratio increased from 3.2:1 to 3.3:1 and even the hygiene production to their wages increased from 2.6:1 to 3.2:1. Hygiene wages have either held flat or come down in most areas of the country due to the economy and the cost of their procedures have gone up over the last five years. Many practices have used consultants to increase their hygiene department production and to boost assisted hygiene.
While many practices have been hurting over the past couple of years, they have done an excellent job on controlling their overhead. These practices have added higher end procedures and increased profitability within their practices. That’s a great sign for the industry and one of the main reasons we’re seeing more activity from the larger dental corporations buying up practices.
Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com
1. Revenue:
So far the mix of dentistry to hygiene production has increased in favor of the doctor, which means 76% of production is dentistry while 24% is hygiene. Five years ago it was 75%-25%. The surprising statistic though is the adjustments or write-offs. Five years ago the “average” practice was writing off 13% of their gross production and it’s increased to 17%. The main reason for our surprise is that during these last five years we’ve seen an increase in practices attempting to reduce or eliminate their PPO participation. That said, certainly the recession may have “forced” some of those practices back into PPO participation and we’re also seeing practices providing more incentives or discounts for cash paying patients.
2. Labor:
This area provided another eye opener. As a percentage of gross production (same denominator we’ve always used in our surveys), total labor expense (wages, payroll taxes, benefits including their education and training) dropped from 26.7% down to 22.7%. Assistants, hygienists and front desk combined showed a decrease while administrative showed an increase, possibly due to the treatment plan coordinator position and other types of positions. Both payroll taxes and benefits have also shown decreases. Another reason is that with the additional “higher end” procedures like Invisalign, implants and full mouth cases, the dentistry production per hour may be higher with the same or lower labor rates. We also know many practices stopped raises at some point over the past three years if not for all three years because of the recessionary trend.
3. Facility Expenses:
Total facility expense actually increased from 4.8% to 6.4%. Rent jumped by nearly 1% and the other costs like repairs, security and utilities all increased as well. We can only surmise that many had their rent agreements already in place as of 2008 and 2009 when the recession hit and we know landlords had no obligation to re-negotiate leases therefore, rent increases continued while procedure fees and revenues either revenues either flattened or declined (revenues). Generally utility costs have been going up following a trend by utility providers to raise their rates.
4. Lab and Dental Supply expenses:
Both lab and dental supplies have dropped by nearly 1% to 5.4%. Five years ago lab was 6.3% and supplies were 6.1%. we suspect lab has decreased in part due to the use of Cerec type machines since we’ve heard time and time again that labs had been increasing their prices. Dental supplies are harder to explain so we won’t even try.
5. Other Costs:
In total they went from 12.7% five years ago to 8.8% for 2010, nearly a 4% point drop. While a few categories increased like collections expenses (CareCredit) and advertising and promotion (practices simply doing more advertising) most of the other categories have dropped. Some of the categories that dropped are insurance, office supplies and postage (more electronic mail), professional services (more owners doing their own bookkeeping and payroll processing), telephone (more cell phones, less answering services, better technology and more competition).
Overall, total overhead went from 55.6% five years ago to 48.8% in 2010 based on gross production. That’s a rather significant decrease that was unexpected.
As we mentioned above, the dentistry to hygiene production ratio increased from 3.2:1 to 3.3:1 and even the hygiene production to their wages increased from 2.6:1 to 3.2:1. Hygiene wages have either held flat or come down in most areas of the country due to the economy and the cost of their procedures have gone up over the last five years. Many practices have used consultants to increase their hygiene department production and to boost assisted hygiene.
While many practices have been hurting over the past couple of years, they have done an excellent job on controlling their overhead. These practices have added higher end procedures and increased profitability within their practices. That’s a great sign for the industry and one of the main reasons we’re seeing more activity from the larger dental corporations buying up practices.
Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com
For more information or to sign up for our newsletter, please contact arose@dentalcpas.com
Friday, August 7, 2009
Dental Overhead that Should be Monitored Monthly
If you are just getting started, what are the top 5 or 10 things to measure?
It’s really not that difficult to prepare your own monthly monitors to track the key statistics of your office so you can watch out for trends, both positive and negative. I know some offices do it weekly, I just caution them that trends in such a short period of time can be misleading and difficult to draw any real conclusions from.
On the financial performance side of things, on a monthly or quarterly basis:
1. Gross production, adjustments & collections by provider-(do this monthly)
2. Month end aged A/R balances
3. Hygiene gross production vs. hygeine compensation
4. Percentage of staff compensation to revenue
5. Percentage of dental supplies and lab to revenue
6. Percentage of total overhead to revenue (excl depreciation & interest expense for new practices)
7. Percentage of actual collections to adjusted prod (your collection percentage)
8. Percentage of adjusted production to gross production (or percentage of production adjustments to gross production)
9. Ratio of doctor’s production to hygiene production
10. Monthly net cash flow
This first appeared on New Docs.
It’s really not that difficult to prepare your own monthly monitors to track the key statistics of your office so you can watch out for trends, both positive and negative. I know some offices do it weekly, I just caution them that trends in such a short period of time can be misleading and difficult to draw any real conclusions from.
On the financial performance side of things, on a monthly or quarterly basis:
1. Gross production, adjustments & collections by provider-(do this monthly)
2. Month end aged A/R balances
3. Hygiene gross production vs. hygeine compensation
4. Percentage of staff compensation to revenue
5. Percentage of dental supplies and lab to revenue
6. Percentage of total overhead to revenue (excl depreciation & interest expense for new practices)
7. Percentage of actual collections to adjusted prod (your collection percentage)
8. Percentage of adjusted production to gross production (or percentage of production adjustments to gross production)
9. Ratio of doctor’s production to hygiene production
10. Monthly net cash flow
This first appeared on New Docs.
Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com
For more information or to sign up for our newsletter, please contact arose@dentalcpas.com
Tuesday, October 7, 2008
Increased Compensation Models for Dentist in Office
I have purchased a practice a couple years ago, and the previous owner (who I get along with great and couldn't be happier that he is still around) is now requesting that he increase from 30% production to 40% production. The reasoning is fairly deep, but I'll give somewhat of an explanation.......
He does regret that he sold the practice, and now we want to expand the practice and really put a lot of energy into it. He states that he feels that in order for him to be able to do all of this, he feels that he should have an increase in his pay. Any thoughts would be appreciated.
The overhead for him will NOT be 60%, it will be less. To find out how much less, run the numbers, it's not that tough. I suspect at MOST, as a percent, the additional cost for his production is somewhere between 30-40%, lets say 40%, he gets 35%, that's a total of 75%, so you're still getting 25%. Meet him in the middle and move on.
If in fact the OH for his production IS 60% you have bigger issues then his compensation.
This may generate some lively debate, here it goes. Lets play with some real #'s:
Lets start off with a typical one doctor practice, hygienist does $200k, doctor does $600k, total is $800k with overhead at 60% that's $480k. Of that overhead, generally, somewhere between 25%-30% is FIXED, which means, 30%-35% is variable, or driven by production.
Let’s assume we add another practice on top of this IN THE SAME FACILITY AND we don't have to add space or equipment. You simply schedule the use of the facilities accordingly. So you add another doctor that does $600k and an additional hygienist that does $200k for a total of $800k. The total practice revenue is now $1.6 million. What ADDITIONAL overhead costs have you added? Generally it's just the variable piece between 30%-35%, in my response above I suggested as high as 40% ADDITIONAL overhead by adding another doctor. So on the ADDITIONAL $800k, the ADDITIONAL overhead is $320k, giving you total overhead of $800k (original $480k+add'l $320k=$800k). $800k overhead on a $1.6 million practice is 50% overhead. This is NOT uncommon with multi-doctor practices. IF overhead with one doctor is 60%, you SHOULD see an improvement in overhead percentage when adding an additional doctor or adding additional revenue.
First, that's why I suggested that if the ADDITIONAL overhead being added for the 2nd doc is 60% (not 40% at most) then you’ll have bigger problems.
So, if that additional doctor (with hygienist mind you) is generating $800k AND the additional overhead is $320k that leaves $480k on the table to use towards the doctor's compensation. If you are paying 30% of $600k, that's $180k, you are left with $300k as the profit, not a bad deal. If you bump it to 40% of $600k, that's $240k leaving you with ONLY $240k. Heck, now you're EQUAL in compensation to that doctor. So even if you settle for 35%, you can still earn MORE off that additional doctor than what the other doctor is making.
If you want to play with percentages only, the additional overhead to add the additional doctor might be 40%, you pay them 40% of THEIR revenue (which equates to 30% of the $800k in additional revenue) that leaves 30% of the total additional revenue falling to the bottom line.
Now, I’ve tried to keep it simple, certainly there may be additional payroll taxes IF the doctor is an employee, maybe they negotiated additional professional expenses that YOU agreed to pay (insurance, dues, CE, licenses, etc.) however, those won't come close $240k or $300k.
By the way, the additional overhead items as I see them?
Lab and Supplies - 15%
Assistants, Hygienists and FD - 20% (many times the additional labor cost falls below the typical labor cost as a percentage of overhead)
Other Miscellaneous Expenses - 5%T
otal additional Overhead - 40%S
o even if you believe the additional overhead is 50% and you agree to pay the doctor 40% (of his revenue, or 30% of the total) still that leaves 20% of $800k or $160k. Still making money.
Anyway, that's how I see it and I’ll say it again, you can analyze your specific situation and determine what the additional costs are by having that doctor there and calculate what their contribution is to the bottom line to help you determine what impact an increase from 30% will have.
I believe the impact to your bottom line by this additional doctor, who you're currently paying 30%, is greater than the 10% that some believe.
Good luck.
This post first appeared on DentalTown.
He does regret that he sold the practice, and now we want to expand the practice and really put a lot of energy into it. He states that he feels that in order for him to be able to do all of this, he feels that he should have an increase in his pay. Any thoughts would be appreciated.
The overhead for him will NOT be 60%, it will be less. To find out how much less, run the numbers, it's not that tough. I suspect at MOST, as a percent, the additional cost for his production is somewhere between 30-40%, lets say 40%, he gets 35%, that's a total of 75%, so you're still getting 25%. Meet him in the middle and move on.
If in fact the OH for his production IS 60% you have bigger issues then his compensation.
This may generate some lively debate, here it goes. Lets play with some real #'s:
Lets start off with a typical one doctor practice, hygienist does $200k, doctor does $600k, total is $800k with overhead at 60% that's $480k. Of that overhead, generally, somewhere between 25%-30% is FIXED, which means, 30%-35% is variable, or driven by production.
Let’s assume we add another practice on top of this IN THE SAME FACILITY AND we don't have to add space or equipment. You simply schedule the use of the facilities accordingly. So you add another doctor that does $600k and an additional hygienist that does $200k for a total of $800k. The total practice revenue is now $1.6 million. What ADDITIONAL overhead costs have you added? Generally it's just the variable piece between 30%-35%, in my response above I suggested as high as 40% ADDITIONAL overhead by adding another doctor. So on the ADDITIONAL $800k, the ADDITIONAL overhead is $320k, giving you total overhead of $800k (original $480k+add'l $320k=$800k). $800k overhead on a $1.6 million practice is 50% overhead. This is NOT uncommon with multi-doctor practices. IF overhead with one doctor is 60%, you SHOULD see an improvement in overhead percentage when adding an additional doctor or adding additional revenue.
First, that's why I suggested that if the ADDITIONAL overhead being added for the 2nd doc is 60% (not 40% at most) then you’ll have bigger problems.
So, if that additional doctor (with hygienist mind you) is generating $800k AND the additional overhead is $320k that leaves $480k on the table to use towards the doctor's compensation. If you are paying 30% of $600k, that's $180k, you are left with $300k as the profit, not a bad deal. If you bump it to 40% of $600k, that's $240k leaving you with ONLY $240k. Heck, now you're EQUAL in compensation to that doctor. So even if you settle for 35%, you can still earn MORE off that additional doctor than what the other doctor is making.
If you want to play with percentages only, the additional overhead to add the additional doctor might be 40%, you pay them 40% of THEIR revenue (which equates to 30% of the $800k in additional revenue) that leaves 30% of the total additional revenue falling to the bottom line.
Now, I’ve tried to keep it simple, certainly there may be additional payroll taxes IF the doctor is an employee, maybe they negotiated additional professional expenses that YOU agreed to pay (insurance, dues, CE, licenses, etc.) however, those won't come close $240k or $300k.
By the way, the additional overhead items as I see them?
Lab and Supplies - 15%
Assistants, Hygienists and FD - 20% (many times the additional labor cost falls below the typical labor cost as a percentage of overhead)
Other Miscellaneous Expenses - 5%T
otal additional Overhead - 40%S
o even if you believe the additional overhead is 50% and you agree to pay the doctor 40% (of his revenue, or 30% of the total) still that leaves 20% of $800k or $160k. Still making money.
Anyway, that's how I see it and I’ll say it again, you can analyze your specific situation and determine what the additional costs are by having that doctor there and calculate what their contribution is to the bottom line to help you determine what impact an increase from 30% will have.
I believe the impact to your bottom line by this additional doctor, who you're currently paying 30%, is greater than the 10% that some believe.
Good luck.
This post first appeared on DentalTown.
Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com
For more information or to sign up for our newsletter, please contact arose@dentalcpas.com
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