The adage for business is “You need to spend money to make money,” but is there a limit before you see diminishing returns? Answer: There is.
All of us need to address costs that are not directly attributed to the increased sales, profits, and quality of work. Did you know that “overhead” costs that increase over time often are the single source of burden on practices if nobody addresses their existence in your practice or your bottom line?
For many Michigan dental practices, “overhead creep” is nearly impossible to overcome without watchful oversight, positive encouragement, and improvements to your team.
Let us explore some of the reasons dentists find it difficult to spot the trend of “overhead creep” and reduce overhead eroding their profits.
Determine the Source of the Extraneous Costs
Our experience is that when your overhead is high, you are either overspending or underproducing. The first step to resolving your cost issues is figuring out what is causing them.
The term “overhead” refers to any practice operating expenses you are paying. According to our statistics, the overhead range in Michigan for all practice types is between 50-80% of net revenue. Our average client ranges from 60-65%.
If your overhead cost is at the high end, it might be time to reevaluate your expenses. Evaluate the salaries of your staff to ensure it only accounts for about 22-25% of your gross revenue. Perhaps review the amount of equipment or supplies you order regularly and, on occasion, shop your purchases to confirm the best pricing. Like cell phone plans and cable costs, it is necessary to shop the market occasionally. Once you know the source of your additional expenses, you take measures to mitigate them to make your overhead more manageable.
Cost restructuring is an excellent way to reprioritize expenditures so you can better mitigate overhead. However, it is far from the sole consideration you need to make.
Evaluate Your Staff For Value
Another issue that can arise for your office is a staff that does not create a value to the practice commensurate with their total cost. (Call us for a wage benefit review). We’ve all had employees who endorse the “not my job” philosophy and are unwilling to accept additional responsibilities or change. That is not to say that it is somewhat tolerable in good times, but for times where things are a little tougher, this unwillingness to change can be a detriment.
Determining which of your staff are willing to step up to the plate can help you “weed the garden” by replacing or combining staff that does not provide a fair value proposition to your practice, patients, and other team members.
If you find that some of your staff is unwilling to adapt, you might need to find new employees who can. However, hiring is definitely a cautionary tale during these times that you need to consider only after you understand the true costs. Once you determine to move forward, ensure that the selection is made confidentially not to disrupt your office. Also, know that most owners find that their remaining staff is relieved after replacing sub-performing employees.
In addition to separating the great employees from the below average, you would be amazed how you might restructure payroll expenses by streamlining positions—for example, the front desk of your practice. When a patient enters, it takes roughly 10 minutes to check in and then check out. An 8-hour workday translates to a 480-minute day. If you regularly see less than 40 patients a day (total), one person can handle front desk interactions.
Restructuring your staff to avoid redundant roles can help balance out the percentage of gross revenue that goes into salaries. As a result, overhead costs become more manageable.
Peak Performers Can Help
Expenses are an inescapable part of operating a business. One way or the other, you will be paying for services or resources needed to keep things running. In some cases, reducing overhead will require you to restructure your staff or expenditures and ensure that it’s operating at peak proficiency. If you need help finding more help, Peak Performers is here to help. We conduct confidential searches for dental practices in the Midwest, ranging from administrative staff to Associate doctors. So, contact us today and see how we can help bring your staff to its peak.
