• Sona Wegner, MBA, Founder

Six overhead expense benchmarks to live by in your dental practice

Updated: Mar 27


Below 👇 is a preview of our course 'How to Calculate and Benchmark Practice Overhead' coming soon. At the end of the video, you can subscribe to be notified when we release the full course in June 2022.




What are Dental Expense Benchmarks?


I know this financial stuff is crazy confusing for most of you. You’re a dentist, putting your energy into your patients. You’re not reading financial statements for six hours a day like Warren Buffet. So when you get a Profit & Loss report from your bookkeeper, you’re a little lost, with no idea where to begin analyzing the thing.

And that’s where dental overhead benchmarking comes in. I’m going to teach you how to group together your expenses from your Profit & Loss report into a handful of categories. Then we are going to turn those categories into percentages, and compare your percentages against the average of other practices.


The dental overhead expense category percentages are as follows:

  • Personnel (Team) Costs 24-28% of Income

  • Facility Costs 10% of Income

  • Clinical Costs 12-14% of Income

  • Other Business Costs 11% of Income

  • Discretionary Costs 0-2% of Income

  • Owner's Compensation, Other Doctors & Profit 35-40% of Income

That’s what benchmarking is, knowing how you stack up against everyone else. Not only will you know where you stand, but you’ll have a clear visual of where to improve, and a valuable tool to measure your progress as you go.


Dental Practice Overhead Percentages
Real Client Averages for 2020

When you’re finished reading this blog post, you’ll know how to categorize your expense accounts from your Profit & Loss report to do your own benchmarking and analyze your Profit & Loss report in a way that will make a lot more sense to you.


You can also read my brief introduction post on How to Calculate Dental Office Overhead if you simply just want to calculate your total overhead and not break it down into categories yet.



The 6 Dental Overhead Expense Benchmark Categories:


Personnel Costs (Team) 24-28%


What it is:


This category will include the major expenses related to your team. You don't need to separate every tiny, itty, bitty thing like uniforms and continuing education. In fact, we prefer not to because you start to lose focus of the bigger picture. Simplicity wins here. Only separate what's essential, like the gross pay of your team is the major factor in this category.


Common Mistakes:


A huge mistake I see practices make when trying to compare their team costs to industry averages would be to include associates and other doctors in the mix. I know many dentists disagree with taking them out, but trust me on this, if you want to compare apples to apples against other practices, don't include your doctors in the team costs. I'll tell you where to put those costs later. The only exception to this rule is if you have an associate doing hygiene regularly.


Expense Accounts:

  • Gross Pay - Office/Admin 7-8%

  • Gross Pay - Hygiene 10%

  • Gross Pay - Dental Assistant 7-8%

  • Employer Payroll Taxes for staff listed above 2-3%

  • Pension Matching Contributions for staff listed above

  • Temps/Contractors (non-doctor)

  • Health Insurance for staff listed above

  • Answering Services (this is part of office/admin staff)

  • Collections Services if used regularly (part of office/admin staff)


Facility Costs 10%


What it is:


Facility costs are going to be a combination of your expenses that may or may not be included in your monthly lease payment. It will also have your equipment related costs and loan interest for the practice and equipment loans.


Common Mistakes:


The principal portion of your loan payments do not get included in your overhead expenses or facility costs. Only the interest portion of your loan payment should be recorded in your overhead expenses on your Profit and Loss report and it gets grouped into this Facility category.


If you own your building under a separate entity, you should be paying yourself rent. If you're paying the mortgage to that building entity through the practice, make that your rent for now (both principal and interest), but speak to your CPA to discuss the IRS regulations about a lease agreement and rent payments with your building entity.


Depreciation is included, but don't add it if you just purchased a CEREC and took section 179 for the full amount because it'll flood your benchmark and you can't see how you're doing otherwise. Better yet, replace the tax depreciation amount with book depreciation. Your CPA can get that for you.


Expense Accounts:

  • Practice Rent/lease 5%

  • Storage Rent

  • Utilities

  • Property Taxes

  • Repairs & Maintenance (both equipment and building)

  • Landscaping

  • Janitorial Expenses

  • Security Camera

  • Security System

  • Depreciation Expense

  • Amortization Expense

  • Loan Interest (no principal)


Clinical Costs 12-14%


What it is:


Clinical Costs are for all clinical related expenses like dental supplies and laboratory fees. Some practices will have many expense accounts related to supplies and lab costs, and others will only have two expense accounts for this category.


Common Mistakes:


Watch out for large equipment purchases or equipment loan payments that may have been accidentally included in dental supplies. This will creep up your supply benchmark and you'll keep scratching your head in confusion.


Expense Accounts:

  • Dental Supplies

  • Laboratory Fees


Other Business Costs 11%


What it is:


Other business costs will be your general business expenses that most businesses have, such as merchant fees, office supplies and advertising and it'll be the place you put expenses if they don't fit into the other categories.


Common Mistakes:


Sometimes office equipment will be placed in computer support or office supplies. Keep the big equipment purchases out of the expense accounts and on the balance sheet as assets unless told otherwise by your CPA. Then the depreciation from the equipment will be expensed and included in your facility costs benchmarks.


Expense Accounts:

  • Advertising & Promotion 3-5%

  • Office Supplies 3%

  • Bank Fees

  • Merchant Fees

  • Computer Support

  • Data & Software Processing

  • Licenses and Permits

  • Credit Card Interest

  • Accounting Fees

  • Payroll Service Fees

  • Telephone, Internet & Cable

  • Business Insurance


Discretionary Costs 0-2%


What it is:


Discretionary Costs are the expenses that are really at your discretion with how much you want to spend and it's not exactly part of running the practice. This will be things like an auto lease and business gifts. If you need to cut practice costs short-term, Discretionary costs would be the first place to look. Our discretionary category would also include the costs you would pull out of expenses when doing an EBITDA valuation.


Common Mistakes:


Discretionary costs category includes items that many will think are part of running the practice and put them in other business costs. These will inflate your other costs and it's important to get these in their own category so you can monitor them to keep them under the 2% industry average because it's easy to over-do discretionary costs.


Expense Accounts:

  • Auto Lease

  • Auto Expense

  • Travel Expense

  • Continuing Education

  • Business Gifts

  • Charitable Contributions


Owner's Compensation & Profit 35-40%


What it is:


Owner's compensation and profit is all of the doctor's earnings and benefits for owner and non-owners. The profit (or net income) of the practice is included with owner's compensation. Add your "other income" here too, like interest earned. As I said earlier, doctors and associates don't get included in the personnel category because Owner's Compensation & Profit is where you'll put associate compensation as well.


This category includes all doctors and their benefits.


Common Mistakes:


Don't include draws or distributions in this category because draws activity are already included in the profit of the practice amount of this category. In other words, as tempting as it is to put draws in your expenses, draws belong on your Balance Sheet under equity, not your Profit & Loss report.


Expense Accounts:

  • Officer Gross Pay

  • Officer Payroll Taxes

  • Officer Health Insurance

  • Officer Disability Insurance

  • Officer Life Insurance

  • Officer Portion of Pension Matching

  • Family of Owner Gross Pay

  • Family of Owner Payroll Taxes

  • Family of Owner Health Insurance

  • Associates Gross Pay

  • Associates Payroll Taxes

  • Associates Health Insurance

  • Associates Company Pension Matching

  • Doctor Contractors

  • Profit or Net Income (automatically calculated at bottom of your Profit & Loss)


Calculating Percent of Income:


I thought I should quickly explain how to calculate the percentage of income for those of you who really hate number crunching. If you use QuickBooks then you can click a box in your Profit & Loss report options to add a column with the percentage of income. It will say something like "% of income". But here is the formula:


Expense / Income = % of Income

The expense divided by total collections equals your percentage of income for that expense.


Example: Dental supplies $30,000 / Total Collection Income $600,000 = .05 or 5% of income (.05 x100 = 5%)


Checking Your Math:


When adding your expense accounts to these categories, there is a way to check everything is correct. Add up the percent of income of all 6 categories and they should equal 100% of income. If they don't then either your Chart of Accounts wasn't set up correctly for your Profit & Loss report or you forgot to add expenses to your categories.

 

The secret to improving all benchmarks above:


There is something really important you must understand if you are going to start monitoring your dental benchmarks with our method above. The benchmarks are just your results. Those results are made by the systems and processes you have developed in your practice. Then those systems are controlled and improved by your team. And you are the only one in control of improving your team.


You can't directly impact overhead benchmarks, and if you try, it won't be sustainable. You must focus on improving your team, and your team will improve your systems, then your systems will improve your results and bottom line.


 

Consider joining our private membership community


If you want to learn more about dental overhead percentages, and get support from our team and a group of percentages-minded people, then become a member of our new private online community. 👇



Inside our new community membership, other dental professionals like you come together to learn and support one another, get answers to questions, and learn from the experts.

  • Meet and support one another

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  • Participate in self-development

  • And much more.





 

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Bookkeeping for Dentists Founder

Sona Wegner, MBA ❤

CEO, Percentology

20,395 views

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