Practice overhead has been rising for decades, affecting dentists at every practice lifecycle stage. If you are early or midway into your ownership life, this may result in cash flow problems where you can’t afford sufficient retirement funding, take enough vacation, grow savings, or prepare for your children’s education expenses. If you are a dentist ready to retire, you may not have enough saved for retirement or find there isn’t a market for your practice as the net income cannot support a purchaser’s financial needs.

This last scenario occurs as a retiring dentist often needs less, financially, than a purchaser. The retiring dentist has eliminated educational debt, funded retirement and finished raising children. Younger purchasers face most to all of these expenses, plus practice acquisition debt service, which may leave post-purchase profits inadequate.

Where does the overhead problem lie?

It is known that staff costs make up the largest component of overhead. We find that high staff expenses are either due to overpay or over-staffing. In 1980, there were approximately 1.3 dental assistants per dentist in the US. By 2010, that number skyrocketed to over three. Increases also have been noted in the ratio of other (non-hygienist) personnel per dentist.
No matter what stage of ownership you are in, you must examine the true cash flow of your practice. If staff (or any other) costs are out of line, make changes. What will bring staff costs under control without sacrificing care and service?

Hire Right, Train Right.

First, hire excellence to prevent over-staffing. Although you must pay highly qualified personnel more, they will make up for it in productivity. The highest performing employees will earn higher wages, but should accomplish more than two less competent employees. Having one highly paid, competent employee is therefore more fiscally efficient than two lower paid, incompetent employees.
Second, invest in training, cross training, and educating your staff, so they can maximize their potential. Qualified personnel want to work at peak performance and are excited about learning and being challenged.
Third, invest in leadership training for yourself. As an effective leader, you will create a great work environment for your staff. Truly excellent staff members value an exceptional work environment as much as monetary compensation.

Where do you start?

Obtain a practice valuation that includes a cash flow analysis and have it updated annually. We can then help evaluate what changes would be best made to maximize practice potential and profit. Reach out to your local Henry Schein Professional Practice Transitions consultant – they are experienced at performing practice valuations and will develop one to meet your needs.