How to Calculate Dental Office Overhead
Updated: Oct 15, 2020
Too often, dentists are super focused on production, but they are not monitoring their dental overhead expenses, which is a huge factor in what you get to take home. That kind of mentality will force you to work harder. If you are increasing production, but not improving your practice systems to get better control on practice overhead expenses, you may be spinning wheels.
The first step in controlling your dental overhead expenses is to measure it. A very simple way to monitor how efficiently you and your team are running things would be to compare your practice overhead expenses to industry averages and get a good benchmark. You can't improve what you don't measure.
How to calculate your dental office overhead
Put your Profit & Loss report in front of you and take the following three steps to calculate your dental office overhead:
Cross out all expense accounts related to owners and doctors.
Add up the remaining expense accounts together.
Divide the amount from step two against your total income then multiply by 100 for the percentage.
To get more in-depth help for the three steps above, use my instructions below.
Exclude Owner and Associate expenses (Image Below)
The most important part (and often done wrong) of finding the correct overhead percentage of income would be to take out the compensation related to the owner and associates in the practice. Put your Profit & Loss report in front of you and put a line through the following expense accounts:
Gross Pay - Owner / Partners
Gross Pay - Associates
Gross Pay - Family members of owner
Employer Payroll Taxes - Owner / Partners
Employer Payroll Taxes - Associates
Employer Payroll Taxes - Family members of owner
Contractors - Doctors
Health Insurance - Owner / Partners
Health Insurance - Associates
Health Insurance - Family members of owner
Disability Insurance - Owner / Partners
Life Insurance - Owner / Partners
Pension Matching - Owner / Partners
Pension Matching - Associates
Note: If you don't have some of these expenses separate on your Profit & Loss report, you will need to find the costs of these expenses and pull them out of the expense accounts they are in. However, to consistently stay on top of your overhead averages, I recommend creating separate expense accounts for the items below in your Chart of Accounts.
Add up all of the remaining expense accounts on your Profit & Loss report without including owner's and associate doctors.
Divide the total overhead expenses you got from step two by your total collection income stated at the top of your Profit & Loss report.
Note: The example Profit & Loss report I used above is a single doctor general practice and he runs his practice like a well-oiled machine, with his amazing team constantly streamlining and improving the practice systems together.
The total overhead percentage will give you a great starting point for knowing where you stand against the industry average in your expenses. It will help you find your weaknesses and measure your progress as you and your team work towards improving your practice systems. Most practices run at about 60-65% overhead, but you can do better.
Going one step farther and narrowing down your overhead percentage into dental specific benchmark categories to compare to will allow you to see dental key performance indicators inside of the overhead percentage. Read our blog explaining how to find the six overhead expense benchmarks to live by in your practice.
Thank you for reading!
Sona Wegner, MBA