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Production and Overhead: Know Your Practice Numbers
One of the most powerful management tools a dentist can have is understanding the business numbers of their practice. Business numbers must be defined, monitored and analyzed on a monthly basis. They will reflect powerful information that can be used to take the practice to a new level.
Dentistry is a healing profession, yet the setting it is delivered in must be run as a business in order to provide the funds to deliver quality care, compensate the dentist and employees adequately, and provide a retirement for the dentist.
To meet the above business goals, all successful businesses define how many “widgets” must be produced, the amount of time they must be produced in, and the cost of producing them. This basic business plan is translated to dentistry in the following ways:
Number of Work Days Per Year
Decide how many weeks per year you will be out of the office for vacation, holidays and continuing education. I recommend that a dentist does not see patients more than four days per week for maximizing productivity. Once the average number of work days per month is defined, this can be monitored throughout the year. This ensures the dentist takes the appropriate amount of time away from the office for pleasure and education, while knowing a plan is in place for meeting production goals.
Production
Production goals should be defined for each producer in the office -- the dentist and hygienist. There should be a daily goal for the scheduling coordinator to meet when scheduling patients. This will balance out the number of patients and procedures performed each day. Some months may have more work days than others, so just looking at an overall monthly production goal is not enough. Daily production goals are monitored throughout the month and are a better measure of productivity.
To know how much production you need a year to meet your financial goals, do the following calculation:
Example: (Dentist income + Retirement Contributions + Overhead Expenses) / Collection Rate = Yearly Production
($130,000 + $22,000 + $240,000) / .98 = $400,000
$400,000 production per year / 180 work days = $2222 production per day
This total is divided among the producers in the office appropriately
$2222 production per day = $1572 doctor production/day + $650 hygiene production/day
$400,000 production per year / 12 = $33,333 production per month
This is an approximate number because the number of work days can vary each month.
Overhead Expenses
All financially successful businesses run on a budget. A monthly budget amount should be defined for each expense category of your practice. I recommend that the dentist reviews the profit and loss statement each month for the practice to monitor the budget and make adjustments when necessary. When expenses get out of control, it is usually the dentist's retirement contributions or salary that are reduced to make up the difference. Every staff member that purchases supplies for the practice should be given a dollar amount not to exceed each month. Overhead expenses for a general dental practice should not exceed 60-62 percent (in specialty practices this number can be much lower, depending on the specialty).
This is a simple overview of some important practice numbers. Other numbers that are important to define and monitor each month are: collection ratio, aging of the accounts receivable, new patients per month, treatment acceptance rate, percentage of patients in recall, percentage of crown and bridge production, and percentage of perio production.
If you have successful numbers in your practice, it is a reflection of satisfied patients. Satisfied patients return to the practice, accept treatment plans and pay for them. It is important for all team members to understand what the practice number goals are so they can help work toward achieving them. When goals are clearly defined, they are more likely to be achieved. Benchmarks for team performance need to be set! You cannot improve something unless you can measure it!
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