It's important for dental practice owners to know what their breakeven is - the point when your income covers your expenses. There's more complexity to the calculation than you might expect, so I thought I'd write about a recent meeting I had with a dental practice owner to discuss breakeven numbers for their practice.
We calculated what I call a “bottom up” break even number. We started by looking at what they wanted to earn personally, based on their living and lifestyle expenses and loan payments, anticipated taxes, and how much they wanted to invest in the 401(k).
Then we looked at the practice numbers. They’ve been owners for a partial year so we annualized income and expenses, then broke out overhead vs direct expenses, talked about other outcomes they wanted from the practice and discussed their anticipated practice equipment purchases. We also factored in their debt coverage for buying the practice.
We broke out direct expenses – the direct costs of care and treatment - because they increase with production and that has to be built into a dynamic breakeven formula. This is helpful later when calculating the costs of growth.
At that point we were able to calculate what they needed to collect in the practice to make all of that happen. We broke it down on a daily basis, then calculated how much of that should be hygiene vs. doctor per day. We looked at their past collection percentages to figure out what that would mean in daily production.
With these numbers we can start to talk about staff compensation and bonuses, and where their goals will be.
Calculating breakeven is just the first step in using your financials to help you run your practice.
We can help get you there, book a call or zoom with us to learn more.