Where Does the Money Go? Understanding Expenses with Profit First
May 20, 2024
Do you find yourself in a situation where money seems to come in and go out of your dental practice at lightning speed? Bills never seem to stop, payroll sneaks up on you, and there's always a supply or lab bill waiting to be settled?
It's just the way things are in this business - there's always something to spend money on. But have you ever wondered where all that money actually goes?
The chart of accounts can look overwhelming, with so many items listed. To make sense of it all, I like to take a step back, take a breather, and organize the chart of accounts. Organizing your expenses alone will help you understand your practice's finances much better.
Breaking Down the Expenses
There are two major categories of expenses, and each has its subcategories. Let me walk you through them.
Fixed expenses remain relatively stable in dollar amount each month. However, the percentage of these expenses compared to collections will vary. If collections increase, the percentage decreases, and vice versa.
The three subcategories of fixed expenses are:
- Team Compensation: Salaries, benefits, and bonuses for your team.
- Occupancy: Rent or mortgage, utilities, and property insurance.
- Equipment & Physical Resources: Equipment leases, repairs, and maintenance.
Try to keep your fixed expenses at 40% or less of your collections. Ideally, this should be 35% or below.
Variable expenses, as the name suggests, fluctuate each month. The goal here is to keep the percentage stable while the dollar amount changes based on usage. Naturally, if you produce more, you’ll spend more on supplies and lab fees.
The subcategories for variable expenses include:
- Dental Supplies: Materials, tools, and consumables.
- All Laboratory Expenses: Outsourced lab work and related fees.
- Marketing: Advertising, promotions, and patient acquisition costs.
- Business Administrative Expenses: Office supplies, software, and professional fees.
Aim to keep your variable expenses at 27% or below. Please note that the percentages provided here reflect a practice that accepts insurance plans and assignments of benefits. If you run a fee-for-service or cash-based practice, your percentages will be lower.
Take Control with Profit First
By understanding and organizing your expenses, you can gain better control over your practice’s financial health. If you’d like to learn more about the Profit First system for dentists, head over to www.profitfirstdentist.com.
Are you ready to take control of your practice finances? Visit www.profitfirstdentist.com and tap the 'Free Resources' tab to download the first two chapters of my book for FREE! I can assure you that this method works!
Check out the latest Profit First YouTube videos on this topic:
-Barb Stackhouse, RDH, M.ED.
Mastery Profit First Professional
"I’m Barb Stackhouse, author of Profit First for Dentists. You might recognize me as the professional behind the Profit First approach for dental practices. I’m passionate about helping dentists implement this effective cash flow system, which is why I wrote the book. My goal is for more dentists to read it and integrate this system into their practices because it genuinely works."
-April Stroink, BComm, RHU, EPC, PFP
Advanced Profit First Professional
With over 25 years of financial expertise, April Stroink helps in transforming the financial health of dental practices across Canada. As an experienced Profit First coach, April is committed to helping you increase your profits, optimize your cash flow, and achieve financial peace. She believes that your business should enrich your life—enabling you to create the life and business of your dreams without compromise.
