By Mathew Ryan
Financial Planner and Analyst
Four Quadrants Advisory
“Apple Pie” is a phrase that rolls off our lips with a smile.
How about “Meat Pie”? Not so smiley?
Change the adjective, change a lot!
“Overhead” isn’t such a bad word until you place the word “high” before it. After all, overhead is the operating expense of the enterprise that provides a living for you, your staff and their families – you gotta spend money to make money. But high overhead can undermine your practice by squashing cash flow and ruining plans for a transition or retirement.
So when does overhead go from controllable to destructive? And how can you keep from crossing that threshold in the first place? These are two questions we grapple with on behalf of our clients every day. And keeping it in check is central to what we do. We define that line as 60%
If you just gulped silently to yourself, it’s OK, you’re not alone.
Read the Guide: Financial Planning for Dentists
Dentistry is one of the five most expensive startup businesses in the United States, according to Inc. Magazine. Controlling overhead has gotten much more difficult with additional write-offs from insurance companies and their increasing control in a practice. Many of the clients we worked with arrived initially with an overhead above 75 and 80% or higher.
The causes of high overhead must be identified as early as possible or else a dentist will carry that overhead number over their heads like a dark cloud for the rest of their career. So here are three keys to bringing that overhead down from the stratosphere and into a lockbox.
1. Upgrade to comprehensive “dental” chart of accounts
2. Accurate reporting by month-end of the following month
3. Forensic analysis to make quick and timely decisions
With overhead BELOW 60% a new formula emerges: the lower your overhead the higher your cash flow; the higher your cash flow the better your income; the more you make, the more your practice is worth . . . I think you can see where this is going.
From a planning standpoint, the lower your overhead is, the wealthier you are and the healthier your practice is. What is your overhead currently? What have you done to lower it? Let us know by contacting us directly.