When you think of increasing the growth of your dental practice, what comes to mind? Improving your efficiency? Getting more patients? Increasing production? Not many dental practitioners think about their overhead costs when considering business growth and development. This, however, is not a very good business move.
The overhead level of your practice has almost as much importance as your production level.
How Important Is Overhead?
Overwhelming overhead costs have killed several businesses worldwide, and it continues to do so. Everything you spend on overhead is a form of negative cash flow, and if it gets too high, your business will struggle to grow. Let’s put it this way; if you make $200,000 revenue in a month and your overhead is 80% your revenue, then your income automatically reduces to $40,000. Maybe you had a target of expanding your practice when you have made a million dollars in net income. Then it’ll take you over 2 years before you can consider expansion.
However, if you are running at an overhead level of 50%, then you’ll be making a net income of $100,000 monthly. And under a year, you’ll cross your million dollar target and expand your business.
That’s how vital overhead is to your business.
Can Overhead Become Uncontrollable?
The truth over overhead costs is that it grows over time. As your practice grows, you’re bound to employ more staff, buy newer, more expensive equipment, and pay higher utility bills, and so much more. Although there’s no harm in purchasing the latest dental equipment to better serve your patients, if you don’t have to, you shouldn’t. If you’re just starting your practice, there’s no need to schedule a staff vacation – at least not yet. You don’t need that massive building when you use only 2 offices actively. Are you getting the idea? When you don’t pay attention to the overhead costs, it can become uncontrollable and overwhelm your practice.
If you are not sure about what constitutes your overhead, you can consult with a dentist CPA Chicago.
How to Manage Your Overhead
Managing overhead is pretty easy, on paper at least; just set a limit and stick to it. When a new fiscal year starts, evaluate your books and decide on the limits for expenses with your dentist CPA in Chicago.
For instance, you can set an overhead limit of 55 percent of your revenue, and when you get to that level, try your best not to exceed it. No matter how good that “tax-free” dental conference in Cancun looks, or how much the salesperson presents that state-of-the-art dental table to you, just look away.
Although with the growth of your practice comes an increase in overhead, you can still keep it under control. Make plans with your dentist CPA Chicago. Stick to those plans and adhere to your spending limits while increasing your production. Always remember that your overhead is just as crucial as your productivity. Keeping an eye on it can even give you insights on how to reduce it and save money.