How to Calculate Dental Office Overhead
Too often, dentists are super focused on production, but not putting as much thought into expenses, which is a huge factor in what you get to take home. That kind of mentality will force you to work harder because if you are increasing production, but not controlling practice overhead expenses along the way, you may be spinning wheels.
A very simple way to monitor and control how the office is spending would be to compare your practice overhead to industry averages. You may hear different approaches to finding your overhead percentage, but follow the 3 steps below if you want to do it like industry experts and compare apples to apples to the industry average of 60-65%.
Exclude Owners and Associates
The most important part of finding the correct overhead percentage of income according to industry experts 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 circle the following expense accounts:
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.
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
Add up all of the expense accounts without including owner's and associates (that are not circled from step one).
Divide the total of the expenses from step two by your total collection income at the top of the Profit & Loss report.
Example: $600,000 expenses from step 2 / $1,000,000 collections = .60 or 60% overhead percentage.
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 areas to improve in your practice. Going one step farther and breaking down your overhead percentage into special categories, you can see 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.