Dos and don’ts for practice leadership: Understand how to work with overhead

As practice CEO, the dentist has primary responsibility for setting the operating budget. An essential element in budgeting is overhead. This “cost of doing business” can drive practice growth or drive the office into the red, depending on how skillfully the dentist controls it.

Distinguish between fixed and variable overhead. Fixed overhead -- rent, payroll, most utility costs -- can erode profits if not controlled, so it should be kept to 59% of revenues. Expenses beyond this level are “fat” that should be trimmed. Variable overhead varies with production. The more the practice produces, the higher the variable expenses, such as disposable supplies, collections-based staff bonuses, and lab fees. Variable overhead bears scrutiny, to prevent waste, but it goes hand-in-hand with growth.

Don’t reduce overhead too much. The expression “You have to spend money to make money” is true. To succeed these days, a practice must invest in attractive office space, modern technologies, effective marketing, and adequate staff. If a dentist gets carried away cutting expenses, the results can be high stress, inefficiency, and decline.