Time Out: Operating Costs by Khlayre Cairney

Understanding your daily operating costs per surgery can lighten and brighten your profits

by Khlayre Cairney

Overview
I’ve had the pleasure of working with a few dental practices over the past 18 months. All the businesses were healthy and profitable but their profile was similar in that they had grown over years with owners spending more and more time in the business, with less time on the business. A familiar story?

The challenge
As a business analyst, one of the ways I measure profitability is to assess fixed overhead costs, which obviously extends to business premises. Within that, I assess how each and every space gives a return to the business. Dentistry is no different in that each and every individual surgery needs to contribute to the overall profitability of the practice.

We may think we consider which surgery or which associate is most profitable, but drilling down into this can really highlight the important numbers to consider, which will make your practice more profitable.

Running the numbers
Let’s begin with the ‘known’ numbers within the practice: your overall annual operating costs, lab and materials, and associate percentages (which might vary depending on experience or length of time they’ve been with the practice). Daily operating cost is calculated by taking the annual operating costs and dividing it by the number of surgery days either ‘open for business’ or available during the year.

The list of ‘unknown’ numbers can vary; they might include the required income to break even, the income required to make 5% or 10% profit, etc. This might be a perceived number in the mind, but in a busy practice, does it translate to the profit and loss account?

Whilst there might be an ongoing battle around keeping lab and material costs down, the most valuable and interesting numbers are those relating to associate percentages. The difference between 50% and 45% or 40% can be 00s per week/month, meaning that every day the target is not hit, the surgery owner is actually making a loss on that associate.

Just to keep things simple, we’re going to assume the following figures:

• Annual operating costs for the practice of £250k per annum.
• 750 days (three surgeries, five days, 50 weeks of the year; 3 x 5 x 50).
• Works out as £333.33 required income to break even, per surgery.
• Let’s stay with easy numbers and make both lab and material 10% each.
• Given we have three surgeries, let’s also assume we have three associates: A, B and C.
• Each associate has a nominal target of £1,000 per day.

These profit margins are very slim at 50% but looking healthier at 40%; however, they very much rely on our associates actually hitting their nominal target of £1,000 per day.

I’m always interested in the numbers when things aren’t going as well as we might hope, because this really tests the business and starts to demonstrate break-even numbers.

Let’s look at the numbers if there was a drop in daily income—and again, for easy comparison, we will drop all three associates to £800 per day.

Understanding these numbers is really just the start of the journey, because it assumes consistency with regard to chair occupancy and all associates working full time, which we know is not the case! The reality of business is that there are multiple permutations to these calculations that will be very bespoke to your own practice and ways of working. However, if this has started to make you reach for your calculator, then it is a move in the right direction!