THE MILLIONAIRE DENTIST PODCAST

EPISODE 3 TRANSCRIPTION

Announcer:

Hello everyone. Welcome to the Millionaire Dentist Podcast, brought to you by Four Quadrants Advisory. On this podcast, we break down the world of dentistry finances, and business practices to help you become the millionaire dentist you deserve to be. Please be advised, we do speak with an honest tongue and may not be safe for work. Now here's your host, Alan Berry.

Alan Berry:

Hey, welcome to episode number three of the Millionaire Dentist Podcast. I'm your host, Alan Berry, and joining me today is Jason Smith and Brogan Baxter, President and COO of Four Quadrants Advisory. So how are you guys doing today?

Jason Smith:

Excellent.

Brogan Baxter:

Doing very good today, Alan. Thanks.

Alan Berry:

Nice, nice. So looking at these notes, it looks like we're going to be talking about the subject of overhead. Jason, I thought you had a few thoughts on that.

Jason Smith:

One thing that we're really known for, and not to make this about us, but is that we... When dentists come here, a couple of years later, their overhead is much, much lower. Your average general dentist has terrible overhead. As an example, typically they're in their mid-70 percentile someplace. The practice management gurus out there will say you should probably be sub-65%, which we still think is high. We think it should be sub-60% and we're adamant about getting there because when you get down close to 50% in overhead and general dentistry, then on a million dollars in production, especially if you're a fee-for-service, you're making a half a million dollars. And frankly, you're probably doing that in three days a week, which is a pretty nice lifestyle, so it all starts to intertwine.

Jason Smith:

But the first thing that we've got to attack with anybody's given overhead is figure out what the heck is the problem? What's making them plagued as a... Literally we will find people, even if we take on a new client, they're 52, we will find that they've been habitual offender of high overhead. And what we also find is if somebody has not figured out how to get passed that themself, they never will. So then your income potential is a general dentist long-term. If you don't learn how to be a great manager of overhead, you're in trouble.

Alan Berry:

Brogan, maybe you could tell me a couple of things that would be considered a part of the overhead equation. I'm sure a lot of our listeners already know some of those elements, but what plays into the overhead?

Brogan Baxter:

Well, there is a lot of things that play into it. A lot of people don't know their overhead. They don't know what that is. They know it's not good. One of the big complaints is that, when someone comes here, is that they're not making what they want to make. They feel like they're working harder and not necessarily smarter, being more efficient.

Brogan Baxter:

So overhead certainly is a large factor when it comes to practice profitability and we use a very conservative approach, meaning we don't back out a lot of the doctor benefits, retirement plan matches and things of that nature, health insurance benefits. We don't back out a lot of that stuff with ours. But across the board, the biggest factors, generally speaking, the biggest areas, employee cost is number one. That's generally anywhere between 15 and 25% depending on what someone's overhead is. So for the most part, that's a third of their entire overhead. So that's the large one.

Alan Berry:

So do you find that a lot of dentists are overpaying their employees then?

Brogan Baxter:

Not necessarily overpaying. Could be overpaying, could be overstaffed. Another factor in that could also be lack of productivity in the practice. So if they're not doing comprehensive cases, if they're not driving production up, if their fees are off by a dramatic amount, those things all play into the overhead equation. It's not just simply expenses, it's not just cut your expenses to get your overhead down. You could cut expenses to get overhead down. You could also increase your revenues or ideally both.

Jason Smith:

Sometimes though, Alan, it can be a factor and a given doctor might just go 20 years straight of giving staff people raises and there isn't a correlation to... Overhead has to, or excuse me, production has to go to this level before I give raises next. So sometimes there is just a haphazard lack of strategic planning on how and why we give raises. And that can get somebody in a lot of trouble because you could have somebody that has a fairly loyal staff, and let's say they've been a dentist for 15 years and they don't want... Dentists hate transitions and change and so they don't want to fire anybody. And we're not implying they should fire anybody, but they have to get in a position where they can turn that staff and that practice into producing enough that they can lower their overhead and they can be highly profitable in that staff.

Jason Smith:

And so if, generally speaking, staff costs are high already, then there's a lot of other things we're going to have to do to combat that to start seeing those changes happen.

Alan Berry:

Now, when you're talking to clients of yours that maybe have some staff that have a little bit higher income than they need to have, is that a difficult convers... Do you help your clients, talk to them about how they talk to their staff about doing that? So let's say a dentist has a great employee, but they're making too much money. Do you tell them how to approach this conversation with the staff member?

Brogan Baxter:

There's certainly some coaching and some massaging that has to go into that message. That's never really a winning proposition, leading with that, especially as a first-year client. That being said, if we've exhausted all the other opportunities, possibilities, or whatever the case may be, it might turn to have one of those conversations. And it doesn't necessarily mean you have to cut their pay, but what it means is maybe that your pay raises aren't as large to keep them more in range with market rates.

Jason Smith:

For example, Alan, they could have three PPO health insurance plans and they're only reimbursing them at a 50% rate. Well, if that made up, let's just say, half your practice, you could really have crappy health insurance plans killing your overhead because you're not pure fee-for-service. So half the business you bring in you, you have to write 50 bucks off every hundred you produce. That also, too much business like that, too much, what I call cheap business like that, can also totally just absolutely devastate your overhead.

Jason Smith:

So how you fix that in a situation like that for a quick... Just to go a whole other way on how you might attack overhead is we've got to make sure we have enough new fee-for-service patients. So do they have a current marketing plan? Are they doing SEO stuff? What's going on there? What are they doing on their local community? Because can we, through the numbers, look at how many patient visits they have a year? Can we figure out that we've got a plan form to start getting rid of some terrible dental insurance plans that would inevitably drive up their overhead if they had enough new patients? That's another way to attack that.

Alan Berry:

It's always been my understanding one of your biggest overheads in life is taxes. Is taxes part of the overhead equation, or is that a whole other beast in itself?

Brogan Baxter:

It's really a different beast in itself. Any successful dentist is going to have to pay taxes. People come in here and talk about they have tax problems and they don't have tax problems. They're not making enough to have tax problems. It could be mismanaged poorly, absolutely. I see that a lot. It's not a tax problem. Taxes are taxes. The percentages stay the same, they don't change. So no, tax is not necessarily part of the equation when you're dealing with overhead, but it is money in money out.

Brogan Baxter:

And one of the things that actually impacts overhead more than a lot of other things that I see is just poor decision-making. Dentists that will make a purchase of something without taking into consideration where bank account balances are, where their overhead is for the year, what the revenues are at. There's no systems, there's no process as to how we purchase, when we purchase, how we pay for it. That whole decision process, we call it the $5,000 rule, and that decision process can really get you in a lot of trouble.

Jason Smith:

And really what that piece of equipment should do, what's the expectation for your practice if you buy it. For example, right now, a good example of that is an i-CAT machine that does a CAT scan of your head. A lot of doctors that place implants like those and a lot of periodontist as well as oral surgeons and some general dentists. We even have some general dentists that have those machines. They're very, very expensive, well over six figures. If you're not placing a lot of implants a month, you're not going to make money on it. That's just not a piece of equipment, for example, you need to have unless you have a real business plan behind it. It should change your practice. A Cerec machine that mills or crown as is kind of in that same category as far as if you integrate something that high tech.

Jason Smith:

So back to what Brogan was saying is we see a lot of people who feel pressure or they want to have that technology first. Dentist's are very techie people, generally, so they'll end up with a lot of equipment, a lot of debt, and there's no correlation with where their production is versus the equipment they have. For example, you can look at everything they have, the type of equipment they have, and you could easily look at a case in an example like that in argued that they should have another 350,000 annualized production a year.

Jason Smith:

So, making overhead work the right way in a given dental office is a lot of proactive planning and really specific planning to that doctor and really working with him to be able to tell him what to do and what not to do and listening to what they're trying to accomplish. There's no silver bullet.

Brogan Baxter:

Jason brought up a good point. There are targets you need to hit when it comes to overhead. Generally speaking, very blanket statement here, we like everybody to generally have overhead below 60, 62%. specialists should be three to 5% lower than a general dentist. Your big areas are staff's always number one, rents generally number two, and then interchangeably either labs and or dental supplies are third and fourth. Generally out there, for the dentists that are listening to this, you want your supply cost to be a 5.5% of your total gross production. That's a nice number to strive for.

Brogan Baxter:

But getting your overhead down is not just one thing. It's kind of like your golf game. The higher your handicap, the higher your overhead, the easier it is to start making some major headway in that. But as you start shaving those strokes down and you become that low handicapper, shaving those last few points off overhead become very, very complicated.

Alan Berry:

I imagine it takes a lot of time, too. A lot of many years, I would assume, or what's the usual turnaround time? If you have a client comes in that's got a high overhead and they need to get it down, what's... I know I'm sure there's a lot of variables that play into it, but is there a ballpark that it usually takes up time?

Jason Smith:

There is going to be an immediate impact in that first year. But sure, there are some habits in play that are going to have to be broken in regards to that. But there will be significant changes in two years, and by that third year, that can be a real game changer in regards to overhead.

Brogan Baxter:

Yeah, usually we're talking, depending on how high it is, mid to upper single digits in the first year, year and a half. And then it will settle into the lower single digits over a period of time until we get it down to where it needs to go. Some of that is geographic specific, in different parts of the country. But generally speaking, if we can stay around that 60%, that's a really nice number that a lot of dentists out there don't get.

Alan Berry:

Wow, wow. That sounds like this is a topic that you could probably talk about for a couple of days. It's very involved, very complex. So thank you so much for stopping by and thank you to the listener for tuning in.

Announcer:

That's all the time we have today. Thank you to our guests for their insight and for sharing some really great information. And thank you to you, the listener, for tuning in. The Millionaire Dentist Podcast is brought to you by Four Quadrants Advisory. To see if they might be a good fit for you and your practice, go on over to fourquadrantsadvisory.com and see why, year after year, they retain over 95% of their clients. Thank you again for joining us and we'll see you next time.