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How to Create a Dental Practice Budget

June 16, 2022

When venturing into the world of private practice, as a dentist, you must exercise your ‘business head’ and take care of your dental office budget. Making revenue from the day-to-day operations of your dental practice without a formal budget and strategy, even the highest revenue streams won’t let you reach your full potential.

Understanding the cost of running a dental practice is not enough, so as the person responsible for the success of your business—and it is a business—it’s important to understand how to analyze finances, create a template for budgeting, monitor your overhead, and get the most out of your budget to increase profitability.

Creating Your Budget Template

While it can be tiresome to run a dental operatory and take care of financial planning, it’s a task that will encourage cost-saving benefits and support the business.

Budgeting is an extra task, yes, but it can be simplified if you’re able to produce a budget template. But what should be included? It starts by determining how granular your approach will be.

Depending on how large your business is, you could take different approaches to analyzing your expenditure. First, if you operate more than one dental practice, you’ll want to collate data based on location (i.e., create a separate budget for each premise that your practice operates).

You can also take this one step further and cross-reference your finances in particular categories to gain a holistic view of the overall business expenditure while comparing all facets of the business.

You’ll likely want to group costs into categories, such as:

  • Payroll
  • Marketing costs
  • Consumable or itemized supplies
  • Premises and utilities including: rent or building costs, maintenance, tax, energy, water, and electricity (if there are variable costs involved here, you may want to keep them separate from those that are fixed).
  • Outsourcing—including lab work and research as well as other external labor costs. This category may also include professional fees, such as legal, accounting, and consultancy.
  • Miscellaneous items that could be more specific to your dental office budget

Once this process is taken care of, you can set out your dental practice budget and calculate the costs based on sub-categories such as hygiene which will provide a better overview of these particular areas of expenditure within the business. Itemizing this data will provide a total figure for expenditure and break the overall costs into actionable groups.

Collecting this data alongside revenue is the first step to creating an effective financial plan for your dental practice.

Understand Your Dental Practice Overhead

What is overhead? You may be wondering why this term is so significant. Understanding what your overhead consists of and the percentage of your finances that it accounts for will provide figures that you can use to begin managing the overall costs of running your dental operatory.

Overhead is effectively your expenditure–and we’re not talking about you paying to have your teeth whitened. This word is the umbrella term for all costs to your dental practice before, as the owner of the business, you pay yourself. Overheads can be represented as the percentage of your revenue that goes towards the costs you’ve just calculated in your budget template.

Your percentage overhead is a good indication of how your dental practice performs financially, and when it comes to buying a business, this could represent the performance of a practice based on the industry average. Currently, the industry average of a dental practice overhead is around 61.9%.

Assessing a dental practice against this industry average (also depending on the value of the business), whether it is your own or you are looking to purchase or expand, will provide insights into its performance. If the revenue of the business is higher, the general consensus is that the percentage of overhead will be higher.

As an example, the percentage could reach around 64% for a business with annual collections of US$2mn or higher. In contrast, it would be deemed average for a dental practice receiving revenue of US$500,000 to US$1mn to incur a 60.1% overhead. Therefore, be sure to check the industry average based on your annual revenue calculation.

So, how can your dental practice use this data?

Whether you’ve begun to create your budget or you require a quick assessment of the year’s financial performance, your overhead can provide a quick indication of the costs involved in running your dental operatory. If the percentage is higher than the industry average, it could mean that you’re overspending on a certain category within your budget.

Industry information is only a guide to assessing where the dental practice stands. It’s likely that your overheads are higher than you expected, and there is room for the business to reduce costs and simplify processes. At this point, the next step is to look at exactly how you can cut costs. Understanding industry norms and trends will help with this.

Look For Ways to Cut Costs

Generally, payroll is the highest cost that a dental operatory will incur—and perhaps one of the most difficult ones to manage as your staff needs to be paid! It may be wise to review this cost category and devise a more effective way to manage staff. If, for any reason, you employ contractors or agency personnel, carry out an analysis of the benefits. Subcontracting work to labs or employing people from agencies can increase costs if not managed correctly.

Alternatively, you could be spending more than necessary on inventory, which could indicate that a leaner approach to stocking dental supplies may be in order. You may also find that digitizing processes in the dental office could reduce your need for consumables, such as pens, paper, and other stationary equipment, while increasing your efficiencies (meaning you can do more with less).

Alternatively, there may be fixed costs involved that could potentially be reduced. Take a look at your insurance payments and utility costs and see how they can be managed better or it may involve renegotiating pricing and payment terms. Maybe you are spending heavily on marketing with minimal reward as some channels may not be the most lucrative for your business.

How Can Procurement Software Help You Save Money?

As mentioned previously, digitization is an effective solution for minimizing some of the costs to your dental practice, but digital solutions can do much more than that when it comes to procurement. Consider procurement software as a way of collating, analyzing, and reducing the cost of running your dental practice.

Dedicated procurement software allows for a swift calculation of your spending across all of the categories within your budget, which will help you determine the areas of inefficient spend.

From the creation of your budget to spend management, procurement solutions can save you time when it comes to your annual budgeting period, with inventory management solutions tracking items going in and out of the practice. A digital approval process helps you ensure you stay within budget. And importantly, procurement software will also create ease when it comes to negotiating pricing, helping you reduce costs and bring down that overhead.

Save Money on Procurement With Method

Method Procurement is designed by dentists for dentists. The dedicated dental procurement solution helps practice owners, managers, and operatives to seemingly integrate inventory, payments, and all other procurement into an easy-to-use platform, which lets you spend less time on accounting while saving money on procurement processes.

Method Procurement could provide you with a Personalized Demo of its procurement software with continuous contact and support from the team to provide the best outcome for your dental practice.

Arrange now, and you’ll gain better insight into ways streamlined digital procurement can help you simplify repeated tasks while saving on the cost of your dental supplies.

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