Increased revenue equals increased profit. This is an obvious way to increase the profits of your dental practice, but there's another way that is often overlooked: decreasing your expenses. You might be surprised how much you can increase your net profit if you start reducing costs elsewhere.
The general formula you should always keep in mind when evaluating the business aspects of your practice is: bottom line = total revenue - total expenses
Here are five steps to help you become more business-savvy and increase your profitability.
1. Organize your finances
Be realistic with your current situation and dig deep into your monthly reports to understand your income and expenses. Analyzing where you are spending will help you decide what areas you can target for savings.
2. Vendor relationships
Has your office manager or have you reviewed your relationships with your vendors recently? It's worthwhile to take a look at these to find areas for improvement.
Perhaps it's a change in the way you're purchasing supplies. Is there a new service that might be better for your business that you've never explored? Is there a better process that your vendor could provide to you that saves you money?
3. Review your staffing
According to the ADA's 2009 Survey of Dental Practice (see the chart on page 10 of the survey), the total salaries, wages, commissions, bonuses, benefits, and employee taxes added up to 29.4% of gross billings for independent dental practices. What percentage of gross billings are these expenses for your practice?
If this number exceeds the average cited above, you should consider reviewing and looking for ways to decrease this expense. However, this doesn't necessarily mean you need to cut your staff levels. Consider these approaches:
- Review all of the tasks in your office and see if you can eliminate or consolidate any of them.
- Consider introducing new technology to reduce manual tasks and maximize efficiency.
- Cross-train each staff member to avoid temporary hiring.
4. Set a supply budget
As a benchmark for budgeting, dental supplies should be 6% or less of your gross revenue. For example, if your revenue is $100,000 monthly, you should aim to stay under $6,000 per month for consumable supplies.
A few ways to decrease supply costs are as follows:
- Ask for free goods.
- Order only what you need.
- Find a better and more cost-efficient product.
- Always pay on time to avoid finance charges.
Putting your expenses on a credit card instead of paying via other methods can also help, as you can delay the payment depending on your credit card (of course, this is only beneficial if you pay your credit card bill on time).
5. Track, track, track
Assessing your expenses on a regular basis will help you stay on top of your budget. There's always room for improvement, so continue to evaluate and be open to ways of saving!
Chloeann Gordon is director of corporate development at Wazu Holdings.
The comments and observations expressed herein do not necessarily reflect the opinions of DrBicuspid.com, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.