As a dental practice owner, recognizing the specific costs of operation is a critical part of keeping the business running. Dental office overhead breakdown information can provide some insight into this. When you understand what you are paying, and where those costs come from, you can make better decisions about managing your practice.
What Are the Average Expenses of Dentists?
Every business has costs of operation. A dental office has them as well. They are the costs of keeping your doors open to serve patients. What many people do not realize is that they have some control over many of those costs. To save money, you need to understand where it is going.
A first step, then, is to look at your dental practice as a business first. While the clinical side of care is very important to your success, managing the business is also necessary. Take a look at some of the details you need to keep in mind before moving forward.
Most dentist offices incur both fixed and variable overhead expenses. A fixed expense is one that stays the same month after month. These are expenses that do not change if your dental practice is open or not. The most common associated fixed expenses include rent or mortgage costs, insurance costs, and utilities (though these have some change in dollar value each month). These expenses are those you cannot reduce, without significant effort such as refinancing a loan. When considering cost-savings measures, fixed expenses are not the focus.
Variable expenses are the opposite. These are costs that you have more flexibility with even if they don’t seem like it. When you look at a dental office budget or your profit and loss statement, you’ll notice many types of expenses fall into this category. Variable expenses change as your patient load changes. One example is lab costs. You’ll spend more on lab costs when you have more patients in your office. Also, the more specialized your dental practice is, the more likely you are to have related costs to that specialization. For example, your lab costs, again, can change if you start using more crowns or dentures. You may not have a lot of control over variable costs – you can’t just eliminate most of them. The Dental CFO can help you understand and manage these expenses entirely.
Understanding How Practice Volume Affects Variable Expenses
As you consider your dental overhead breakdown, remember to factor in volume. As noted previously, lab costs rise when you start selling more of that product or service, for example. That’s not a bad thing, though – you want to see an increase in lab use because it means you are doing more business.
However, the average dental practice overhead will start to come down in some cases with volume increases. As volume picks up, you’ll start paying more for these types of services. That does not mean your costs will go up significantly.
Why Categorizing Overhead Expenses Is Important
Dental office overhead is a term used to define all costs associated with running a dental practice. These costs should be monitored and will appear on any monthly income statement created by an accountant. When that statement is created, the accountant will track and organize them into specific categories. This is important for multiple reasons, especially because it can help to provide insight into what your expenses are and, as such, how to plan around those expenses and reduce them whenever possible.
The other key factor to consider is what the dental office overhead means. Having an accurate picture of those costs helps you to have an accurate picture of your profit margin. Being able to see what these costs are in relation to profit is a good way to know the value and overall health of your business.
A secondary benefit of categorizing fixed expenses is that it allows you to make better decisions for tax planning. It allows for your accountant to be able to recognize ways to reduce taxes using those costs.
The key factor here is being able to track and organize those costs. The best way to do this is to have an accountant or Certified Public Accountant who has specialized industry experience and specialization in working with dentists. Your dental CPA will work to understand each one of your expenses and then will work to categorize them in an effective manner.
How You View Expenses is Important
Highly successful dental practices look at overhead expenses as investments. They understand that the purpose of expenses are to make the practice profitable. Like expenses are not all equal. For example, the largest expense in most practices is payroll expense. While you may pay two different employees the same compensation it is unlikely that they each provide the exact same benefit to your practice. In fact, it is possible that one or more employees are worth much more than they are being paid. However, it is also possible that one or more employees are actually costing you money (profit). In the same way cheaper supplies or lab costs may not provide the quality needed to help your practice perform at the level you desire.
Therefore, every expense should be examined in light of the return it is providing. The cheapest alternative is certainly not always the best alternative. Cutting costs is not the goal. Spending money wisely on expenses that most improve your bottom line is the key.
The Benefits of Writing Off Overhead Expenses
Overhead expenses can be a lucrative write off for your taxes. A write off is a business expense deducted from your tax obligations. Some of the most common expenses that may apply in your situation include:
- Advertising costs
- Education and training necessary to continue your practice
- Rent and lease payments
- Contractor costs
- Employee benefits such as health insurance costs
- Travel related expenses for your business
- Supplies – even the postage on invoices you send
- Supplies for the operation of your business
It’s important to know that tax laws change often. What you can deduct may change from one year to the next, or the amount you can deduct may change. That’s another important reason to have a professional available who understands your practice to help you with the decision-making process.
As one of the biggest methods to reducing your tax obligations today, many dental practice owners need to realize the value of investing in a dental CPA. This professional will provide insight into the financial management of your company on an ongoing basis and track those overhead expenses as they do so. Tax write offs for dentists are one of the most valuable tools available and your dental practice CPA can help ensure you get the best deductions possible.
When creating a budget log fixed expenses. Make sure to understand your variable expenses, as well as the business expense categories. Or, instead of doing all of this leg work yourself, utilize the value and benefit of a dental CPA.
The Dental CFO can help you not only understand your overhead expenses, but use them to reduce your taxes and provide you with the best possible access to tax deductions, cost-savings measures, management guidance, bookkeeping and growth opportunities. Reach out to us today to learn how we can help you.