Within a dental practice, there are endless things to track and monitor. So where does one start to evaluate production, compare performance versus similar practices in the local area, evaluate pricing, and practice profitability?
As Profit Coaches for Dental Practices, our members within the Dental Accounting Association are asked these questions all the time. Here’s how we typically approach this process and how we monitor performance and production.
First and foremost, the Dental Accounting Association uses one standardized set of industry benchmark costs, one chart of accounts, and one business intelligence system (SIKKA) to evaluate production, standardize reporting, and evaluate pricing. That said, here are the key numbers to watch:
Dental Practice Overhead
Typically, the first place to evaluate profitability is examining dental practice overhead and getting control over areas to prune costs. While most aspects of overhead change infrequently, there are inflexion points when overhead can be reduced dramatically. These is worthy of a discussion with your Dental CPA for guidance and recommendations on how to cost reduce key drivers of dental practice overhead.
Profit and Loss Statement
While every business owner uses a P&L statement as a starting point to evaluate profitability, one key ingredient is that the underlying categories need to standardized and categorized so your P&L can be compared to similar sized dental practices. Comparing a typical P&L to another dental practice requires that expenses and categories are classified the exact same. Absent of this standardized approach, you will be comparing apples to bananas.
Within the Dental Accounting Association, we use one standardized chart of accounts so we are comparing apples to apples.
Most dentists know where they stand on this category but having outside comparisons never hurt.
To properly evaluate, personnel costs need to be broken down by departments; chairside, hygiene, clerical, etc. Second, outsourced services such as temps should be part of this category as well.
Other Key Cost Categories
- Variable Costs (include dental supplies and lab fees)
- Facility and Equipment Costs
- Discretionary Costs
- Owner’s Comp
As part of the dental profit coaching, we like to review key performance indicators (KPIs) of the dental practice to compare and contrast profitability. The SIKKA software makes this process easy for us to evaluate this as well.
The last piece of this process is reviewing fees charged by procedure. This is where SIKKA software excels and helps us pinpoint opportunities.
Selecting a Dental CPA for Profit Coaching
While working with a local generalist CPA is convenient, a general CPA does not have the time, interest or in-depth knowledge of the dental industry to provide dental practice profit coaching. For that matter, they often don’t have all of the resources to take full advantage of all the tax breaks available for a dental practice. For example, our members provide boutique capabilities like cost segregation and/or put you in touch with commercial real estate experts who focus on the dental industry to save even more money at no additional cost to you.
Dental CPA’s are trained to take full advantage of the tax law for dental practices and they collaborate with other dental vendors to take it several steps further. Like operating your dental practice, there are economies of scale by working with dental practices and working with boutique providers for dentists. Your Dental CPA provides some of these boutique services in-house and will introduce you to dental experts at the right moments of your practice horizon.
FREE E-Book – The First Few Transitions as a New Dentist – If you’d like to gain more insight into the lifestages of a dental practice and how a dental CPA can help you minimize your taxes while maximizing your wealth, request our free eBook. It’s free.