Whether you are looking to buy a dental practice or do a check in to your existing practice’s strength, overhead costs can be an instructive factor to review. In fact, reviewing a practice’s overhead can give you an insightful look into a practice’s overall health and wellbeing. While it will not tell you everything, it is a great starting point to delving deeper into the practice and its operations.
Overhead costs are one of the many numbers practice buyers and owners will need to juggle. So, what are overhead costs of a dental practice? Let’s take a closer look here.
What are the Overhead Costs of a Dental Practice?
Overhead costs are those costs associated with the running of a business. They are the costs of doing business and include those expenses you need to pay to run your dental practice. Overhead expenses include everything from staff costs and equipment to marketing and practice space maintenance. These expenses can be divided into two central categories: fixed overhead expenses and direct, or variable, overhead expenses.
Fixed overhead expenses are those business costs that will stay pretty consistent and will remain consistent regardless of how busy, or not busy, the practice is. Fixed overhead expenses include things like:
- Telephone services and other practice management costs
Direct, or variable, overhead expenses are those business costs that will fluctuate with the workload of the practice. For instance, variable overhead expenses of a dental practice can include things like:
- Dental supplies
- Lab costs
- Staff salaries
Because of variable costs, larger practices tend to have more overhead expenses. As a practice grows, there will be additional needs such as bringing on additional staff members to help manage the client load. There will also be more demand for things such as dental supplies as there will be more clients to service.
When you are looking to buy a dental practice or are simply taking a look at the overall well-being of your own existing practice, you can start by looking at and reviewing the practice’s overhead costs. On average, overhead costs take up about 60% of a practice’s profit margin. If a practice has overhead costs that exceed the 60% mark, it is worth asking more questions about why this may be the case. Has the practice lost track of the money going towards overhead costs? Is it simply due to the fact that the practice has grown bigger and, thus, has higher operating costs? After all, an increase in overhead costs is not necessarily a bad thing if they are associated with a practice’s increase in revenue. An increase in revenue and an increase in overhead costs can still mean a practice has increased its overall profit margin.