Overhead costs in dental practices have been on the rise for decades, a troublesome trend that is affecting the majority of dentists at every stage of their practice life. Staffing a dental practice is a major component of overhead.
Whether you are early in practice ownership or the middle of your career, this may result in serious cash flow problems that can have negative repercussions on your financial situation and lifestyle.
High Overhead Can Affect Your Retirement Plans
Perhaps you can’t afford to sufficiently fund retirement, take enough, if any, vacation time, establish savings or be adequately prepared for your children’s educational expenses. If you are an older dentist ready to retire, you may find you don’t have enough savings for a comfortable retirement, or worst of all, you may discover that there is no market for your practice, because the practice income cannot support the income needs of a new purchaser.
Is Your Dental Practice Going to Be Hard to Sell?
A dental practice with a level of income that cannot support the needs of a new purchaser is a very common scenario. It happens because the income needs of the retiring dentist are less than those of a prospective younger purchaser. That’s because the retiring dentist has already eliminated his educational debt, funded his retirement plan, finished raising children and paid for their education.
Younger dentists who are buying a dental practice may be facing most or all these expenses. Additionally, they will have acquired debt service to purchase the practice, causing the anticipated practice profit after the sale to be inadequate for their cash-flow needs.
Is the Cost of Staffing Your Dental Practice Out of Line?
To find out where your overhead problem lies, Henry Schein Professional Practice Transitions performs a true cash analysis as part of the full dental practice valuation. We often discover one of the most significant contributing factors is excessively high staff costs that result in reduced profit.
In 1980, there were approximately 1.3 dental assistants per dentist in the US labor force. In 2010, that number skyrocketed to over three dental assistants per dentist.
Staggering increases also have been noted in the ratio of other (non-hygienist) personnel per dentist as shown in the graph below:
How to Control the Costs of Staffing Your Dental Practice
Does having more staff equate with a higher level of patient care and service? Not necessarily. What are the ways you can bring staff costs in control, without sacrificing the level of care and service provided? There are three proven ways to accomplish this:
You cannot compensate for a lack of qualified personnel by increasing the quantity of unqualified personnel.
- Hire right. Train right.
Although you will need to pay highly qualified personnel more than inadequately qualified personnel, they will more than compensate for it in what they are able to accomplish. This will prevent the need for over-staffing. Even with higher wages, the most highly competent employees will often accomplish the same as two less competent employees. This approach is certainly more fiscally efficient than having two lower paid, incompetent employees.
- Invest in staff training and education
When you spend the time and money to train, cross train, and educate your staff, each staff member will be able to maximize his or her full potential. Qualified personnel can and want to work at peak performance, and they are excited about learning and being challenged.
- Invest in leadership training for yourself
As an effective leader, you will be able to create a great work environment for your staff. Truly excellent staff members value an exceptional work environment as much as monetary compensation.
Start Building a Stronger Dental Practice Now
No matter what stage of practice ownership you are in currently, you need to examine the true cash flow of your practice. As a dental practice owner, you should have a current Practice Valuation that is updated annually, providing you with essential information such as a true cash-flow analysis that will help you evaluate where costs are out of line and the changes you need to make to improve your practice’s cash flow, profitability, and marketability.
Contact A Henry Schein Professional Practice Transitions Professional
Have a question about selling, buying or transitioning a dental practice? Contact us online and have a Henry Schein Professional Practice Transitions Expert help you take the stress out of buying or selling a dental practice.
Henry Schein Professional Practice Transitions, Inc. is a national leader in dental practice transitions. A subsidiary of Henry Schein, Inc. they provide expert guidance for selling and buying dental practices, assessing partnership and associateship opportunities, and performing dental practice appraisals and valuations.