Today is blog post eight of nine in this series of 'The Business of Owning a Dental Practice,' so just one more week to go.
Our topic this time is “Where Does the Money Go?” If you’re like many of the dentists I speak with, they tell me the money seems to flow in and then out just as fast. The bills are never ending. Payroll comes around all too soon and there’s always a supply bill and a lab bill waiting to be paid. It’s the nature of the business – there’s always something.
But really, where does the money go? The chart of accounts has a lot of different items listed and can seem so confusing. Let's step back, take a breather and do some organizing with the chart of accounts.
Organize your expenses and you’ll find that alone will help you understand the numbers better. First I want you to understand there are two major categories of expenses and then within those categories are subcategories. I’ll explain.
Start with the Fixed expenses. A fixed expense means it doesn’t change much in the dollar amount each month. Since the amount stays consistent the percentage of these fixed expenses to collections can vary. If collections increase, the percentage goes down. If collections decrease, the percentage goes up.
There are three subcategories to the fixed expenses. They are Team Compensation, Occupancy, and Equipment & Physical Resources. I recommend keeping your fixed expenses 40% or less of collection.
The second major category is the variable expenses. And as you might guess, the amount of these expenses can vary from month to month. With variable expenses the goal is to keep the percentage the same with the dollar amount fluctuating based on usage. It would make sense that if you produce more you’ll spend more on supplies and lab.
The subcategories for the variable expenses are Dental Supplies, All Laboratory expenses, Marketing, and Business Administrative expenses. I recommend keeping your variable expenses 27% or below.
The percentages I gave you here reflects a practice that is contracted with insurance benefit plans and is accepting assignment of benefits. A completely cash or Fee For Service practice would have lower percentages than these.
If you want to learn more about Profit First for Dentists, check out the website here associated with this blog post.