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The 43-Percent Overhead Practice by Douglas Carlsen, DDS

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by Douglas Carlsen, DDS

There is a humble general dentist from the Chicago area virtually no one has heard from until now. Dr. Richard (Dick) Reid, 56, has never grossed more than $800,000 in his suburban Chicago practice, yet has consistently netted more than $400,000 a year from 1997 to 2011 with 43 percent overhead. He’s worked 28 hours per week until the last two years, cutting back to 20 hours with similar income and overhead. Reid has consistently saved more than 20 percent of his net for the last 20 years. How on Earth has he done it?

Dick does not advertise, nor does he self-promote, yet he’d like to help dentists and is available for assistance and consultation. Like Dr. Howard Farran, he’s passionate; in Reid’s case, about the follies of dental management and finance in the U.S. I recently traveled to Naperville, Illinois, to view this fervent devotee of proper dental systems. His organization is elegant and non-distracted. Herein, is an overview summary of the voluminous examples Dr. Reid provides supporting his 43 percent overhead fundamentals.

For more detail, a YouTube video is available at www.youtube/_DoerMyHudE. Alternatively, search “Doug Carlsen Channel” at YouTube.com or view the video in the comments section of this article on the online Dentaltown Magazine October edition.

Dick, you have a lot to say about conventional financial wisdom purported in the dental media. Please comment.
Reid: First of all, we know that general dentists’ overhead averages about 65 percent, with some dentists more than 80 percent. Consultants struggle to get dentists below 60 percent. This is crazy! With proper planning at an early age, 50 percent or below is not only feasible, but desirable. We, as a profession, have bought into the idea that more than 60 percent overhead is normal. I totally disagree. Runaway overhead has been the elephant in the room since the 1980s, creating a great amount of stress for us all.

I get so tired of being compared to the $1.3-1.5 million practice. I represent the average dentist who produces $700,000 per year. In all my reading over the years, I find dentists so overwhelmed with the daily work that they don’t take the time to pay attention to the business of dentistry. If one doesn’t, he or she is destined to work longer, save less and have a lower standard of living in retirement. In this economy, it’s imperative that dentists spend money wisely, especially involving large capital expenditures.

What is your life and practice philosophy?
Reid: First, I have strong faith in God and pray daily. It’s important to realize that the spiritual side of one’s life, no matter what your faith or beliefs, is vital.

I’m into common-sense business fundamentals. “Please” and “thank you” work wonders. We greet patients with a smile and say hello the second they enter the office.

Honesty and integrity are paramount. Remember, you are selling yourself every minute of every day.

We project a happy atmosphere. I personally thank every patient every visit and tell him or her I’m glad to see them. If we’re running late, we apologize. We pay attention to office décor, music selection and cleanliness. Our staff relates well.

It’s important to know your office financial specifics. You and I talked about many dentists who have real fear about finances. Having a firm grasp on day-to-day costs and receipts is critical.

Also, please realize that you cannot divorce your business life from your personal spending habits. Personal spending can ruin one’s ability to save.

Tell us specifics about your office.
Reid: Our average gross from 1997 to 2011 has been $719,000 with average net over $410,000.1

I’ve had one three-operatory office during my career. Relocation costs of anywhere from $150,000 for a very small office to more than $500,000 for a medium or larger office would have severely curtailed my ability to save over the last 20 years. Once I had my original loan paid, I was able to save more than 20 percent of my net income per year.

Our fees are in the 80th to 90th percentile, reflecting our great service. We pay higher-than-average lab fees, and consequently rarely have remakes – $175 for porcelain, $200 for e.max.

I do not own a CEREC or lasers.

Financially, I conduct all business with a handshake and a smile. We don’t have signed treatment plan contracts and never will. We do not have extensive treatment plans; I have a basic “bread-and-butter” practice. I tell patients what they need and we get 95-percent acceptance with a soft-sell approach.

My staff members are hardworking, efficient and caring. My hygienists’ and office manager’s salaries are appropriate for the area. I do not provide medical benefits; yet have always provided fully funded profit sharing/401(k) benefits. We have one office manager; we don’t need that extra “helper.”

Hygiene production should be three-times their salary and hygiene has always produced more than 33 percent of my total production.

Our overall accounts receivable is three weeks production. We do all collections in-house.

We have a healthy recall system and fill any holes in the schedule quickly.

We spend zero dollars on advertising.

Our expenses for office and dental supplies, rent and lab bills are much lower than the average office as a percentage of gross. We do not keep a large inventory of supplies and all office and dental equipment is maintained on a regular schedule.

I don’t own my space and never wanted to. I’ve heard several anecdotal stories of runaway costs associated with office buildouts. I’m currently very happy I made that decision, as there is a very small market for practices selling in excess of $1 million in this economy.

Please detail how you monitor the practice’s finances.
Reid: The dentist needs to check office receipts and billing procedures daily. This takes very little time once initiated. Any large equipment purchase should be thoroughly evaluated by a third party before purchase.

Have an office expense appraisal done by a competent professional. This is imperative. Next, know your office statistics: especially salaries, lab costs, and office and dental supplies.

Please comment on your retirement savings system
Reid: I never wanted to work past age 55 (poor market performance has added three more years), so I knew early on that it was essential to save a lot of money in order to retire before 60. I created a plan in my 30s to accomplish that goal.

It is important to accelerate savings from age 50 on (with the government helping to defer more) and to add your spouse to the payroll, if possible, maximizing salary reduction tax savings.2

One needs to have a retirement number in mind as early on as possible and a plan on how to make it happen. I invest with Vanguard funds and rebalance annually.

But it all comes down to personal spending. It’s imperative to know where your spending goes and how it relates to your savings.

Finally, please comment on debt.
Reid: I never had a home mortgage that was greater than my net income. Also, I’m a firm believer in Brian Hufford’s goal of 20 percent savings per year and that debt should never be high enough to inhibit 20 percent savings. As Hufford indicates, your financial health will be hurt if your personal or business debt is too high.

Please note that Dr. Reid does not live a spendthrift existence. He has a large home in an upscale neighborhood, owns a condo in Chicago and drives luxury autos.

Dr. Reid can be contacted at 630-800-6191 or mcr2454@hotmail.com for further information and assistance.

References
  1. Carlsen has seen Reid’s IRS documents.
  2. Reid’s total state, federal and self-employment taxes for 2011 were 28 percent.
Author's Bio
Douglas Carlsen, DDS, has delivered independent financial education to dentists since retiring from his practice in 2004 at age 53. For Dentists’ Financial Newsletter, visit www.golichcarlsen.com and find the “newsletter” button at the bottom of the home page.

Additional Carlsen Dentaltown articles are at www.towniecentral.com. Search “Carlsen.” Videos available at www.youtube.com/user/DrDougCarlsen. Contact Dr. Carlsen at drcarlsen@gmail.com or 760-535-1621.
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April 2024
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