Ask the Expert: Practical strategies to reduce dental practice expenses

Dear Vlatka: I am four years in to practice ownership, and I fear I have been spending too much money to advance my practice. I added another treatment room and hired a new hygienist. I find myself with higher revenues, but it is not necessarily translating into higher profits. What am I doing wrong? – In Pursuit of Reducing Expenses

Dear In Pursuit: It may be time to exert some discipline over expense management to improve overall profitability. As you’ve discovered, it costs quite a bit to operate a successful practice. By keeping expenses in check, you can add thousands of dollars to your bottom line.

Start by obtaining a full picture of how much you’re spending. What percentage of practice income is going toward fixed and variable costs?

You can compare your expenditures to industry benchmarks:

• Fixed expenses, like rent, insurance, taxes and utilities, should account for about 4-7% of production.
• Variable costs, such as payroll, lab fees, dental supplies and office supplies, should run you around 45-55%.

Industry-wide, practice overhead averages around 62%. Dental consulting firm Levin Group recommends a target of 59% for general practices. How does your practice stack up?

After you’ve mapped out your expenses, look over your list for ways to reduce spending. There may be obvious cuts, particularly to variable costs – dollars saved there go directly to increasing your profits. 

For example, it never hurts to make sure your distributors are staying competitive on pricing. Consider renegotiating contracts or joining a purchasing group. You could also reduce your overall interest expense by consolidating and refinancing existing loans.

Cost control should not be solely your responsibility. Share your new budget with your team so that they too understand the importance of expense control. They may have good suggestions for changes to practice spending habits; they may also voice potential patient care considerations. If you’re an associate, think about ways you can help your owner reduce expenses too.

Once you’re managing both drivers of practice profitability – revenue and expenses – you will be in a solid, competitive position to fine-tune your vision for your practice, your patients and your future. 

Since 2004, Ms. Puljic has worked with privately held companies to deliver innovative, industry-specific financing and cash management solutions to meet their diverse needs. As the national director of industry programs for BMO Harris Bank, she leverages her background in commercial credit underwriting and structuring to add value, foster long-lasting relationships and – above all – help dentists realize their vision for practice success.

Editor’s note: This article is provided by BMO Harris Bank, the ADA Member Advantage-endorsed provider for practice financing. Call 1-833-276-6017 or visit bmoharris.com/dentists for more information.