Better Budgeting: Crushing Overhead for Profitability
Your practice is a business, and every business has overhead. All of those expenses that keep your business going – utility bills, office supplies, payroll – make up your overhead. But how do you get that number to a point that helps you increase profitability? SmileMakers has advice to help get you started.
STEP 1: Calculate your overhead
The first thing you’ll want to do is dig around and find the average overhead (or the range) of local practices in your industry. This can vary between professions, but it’s common to see numbers between 40 and 60 percent.
Now that you know what others are doing, you need to figure out where you land. Consider all the expenses that go into your business within a normal calendar year – bills, cost of supplies (office and practice), employee pay and benefits. Add these numbers to get your total overhead. Now divide that by your total revenues. The result is your overhead percentage. Do you fall within the average range for your industry? If not, why? If so, are you comfortable with where you are, or do you need to improve?
STEP 2: What’s your business philosophy
Before you start cutting corners to lower your overhead, it’s helpful to consider your business philosophy. There are two general philosophies. Which are you?
- You have to spend money to make money.
- You run a tight ship.
Neither one is wrong or any better than the other. In fact, an office with 40% overhead and an office with 60% overhead could theoretically turn out equal profits. But it’s important to figure out which best reflects your business style, so you know which end of the range you should fall under. If you spend more money on running your business, you should be selling more services, which will increase your overall profits. If you’re conservative with your spending, your profits will likely be lower, but so will your overhead.
STEP 3: Consider cost vs. benefit
There’s absolutely nothing wrong with a high overhead if you can reasonably justify the expenses. Like we said, selling more services might require spending more money, but your profits should be higher as a result. Consider what you gain from these expenses and decide what’s worth the spend and where you could make cuts.
For instance… if you’re only open 3 days a week, do you need an office manager? Or could those responsibilities fall to the front desk person? Could that high-tech gadget bring in new patients? Or is it a technology that’s used for a rarely needed service? Should you splurge for the best medical tools, or the best patient management software? The point is to weigh the costs and consider what those expenses will bring you in terms of new patients and patient retention, a well-managed schedule, diversity of services and peace of mind. When an expense has these types of benefits, it ends up paying for itself.
STEP 4: Test these ideas
By now, you should have a clear idea of what you’re spending and what you’re making. And if you feel that you could be doing better, it’s time to implement a few of these suggestions into your practice.
- Review employee job descriptions – Figure out how long tasks take, ensure that staff members’ skill sets and interests are being fully utilized, and reorganize duties to increase efficiency.
- Automate the office – Another way to increase efficiency with your staff is to automate certain processes. Whether it’s a text to confirm program, or signing up for Autoship with SmileMakers, you can streamline your business to save you time and money.
- Optimize your schedule – Filling your schedule with back-to-back appointments might seem like an easy way to increase profitability, but consider giving yourself a 5 to 10-minute buffer between patients to regroup, update medical charts, make notes, or even use the bathroom. This also gives you wiggle room in case an appointment runs behind schedule, making patients pleased with your promptness and more likely to return.
- Evaluate your products and supplies – Where do you spend top dollar? Where can you spend less? Reading customer reviews before you purchase products is always a wise choice, but if you can get the same quality from another brand, it might be worth it to switch.
- Negotiate prices – Companies often negotiate with loyal customers. If you’re interested in a bulk purchase, or if you let them know you’re considering switching to a less expensive brand, your current vendors might be willing to make a deal.
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