Until recent years, orthodontic practices could maintain sufficient levels of profit and income without putting much effort into controlling costs. There may have been significant waste, but orthodontists were nevertheless able to thrive.
Now that the orthodontic market has become more competitive, you owe it to yourself (literally) to take a more business-like approach to practice management. This means taking control of spending in order to minimize how deeply overhead cuts into your revenues.
Your Target: 49%
How much of practice revenue do you spend to cover fixed expenses? If you’re not tracking this number, I suggest you start doing so. This will inject a much-needed element of fiscal discipline in how you’re running your practice as a business.
Based on Levin Group’s vast experience with orthodontic practices, we recommend an overhead target of 49%. If yours is higher, you can—and should—do better.
Three Strategies for Maximizing Net Income
To take greater control of your overhead, you and appropriate staff members should focus on these three methodologies for keeping more of what your practice earns:
- Redesign management systems to achieve greater efficiency.
Inefficient systems waste your resources. By improving administrative protocols, you’ll be able to accomplish more (production) with what you already have (fixed expenses, such as payroll, utilities, etc). Increase revenue without increasing costs and your overhead, as a percentage, will decline.
- Create and stay on a detailed operating budget.
Start with your projected revenue for the upcoming budget year, then draw up a budget that allows for spending 49% of that total. Include categories for all expenditures. Review current spending levels so you can pencil in how much to allocate. While you’re at it, scrutinize past expenses to identify waste and areas where you can make cuts. This process will probably require a lot of revisions and recalculations, but it’s worth it. You’ll end up with a realistic budget. Then, you must stick to the budget!
- Calculate “return on investment” before committing to major new expenses.
Some new technologies, staff positions, or other significant investments will pay off. Others will not. Resist impulse buying, take sales pitches with a grain of salt, and calculate ROI carefully (perhaps with an assist from your accountant). Otherwise, you may end up increasing overhead without seeing a corresponding growth in revenue.
You may think a lot about how to increase production but, on the other side of the coin, controlling overhead will be just as financially rewarding for your practice. OP
Attend Dr Levin’s new seminar, “The Business of Orthodontics… Simplified.” Learn the systems essential for ortho practice success in Orlando on October 28 or Dallas on November 18. See the complete seminar schedule by clicking here.