Practical Strategies for Managing Expenses in Your Private Dental Practice

May 9, 2022
January 26, 2024
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The first step of setting up a clinic or dental practice is to figure out how much money you need to run a clinic. Or the cost of a private dental practice.

Key Strategies to Control Costs and Boost Profitability

Having estimates on averages of costs is a good start. Initially, you will work with rough estimates. However, having values that are closer to the actual value of cost will help to factor in how much you will have to invest into the dental practice. Many factors affect the cost of a private dental practice.

One way would be to hire an accountant. An accountant will:

  • Budget for the organization and department. As well as, provide monetary insight into how best to run the organization with strategy
  • Evaluate financial operations to provide information for (money-based) managerial decisions
  • Prepare and maintain financial reports, both for the stakeholders/managers and the tax departments
  • Create and maintain payroll data. Additionally, they process monthly payrolls and bonuses
  • Conduct audits with internal and external auditors

Or you can estimate the costs of private dental practice on your own. In this case, there are a few things that you should know.

2 Points to Keep in Mind

1. Costs

This is the money you put into the clinic. The investment includes the initial investment and all subsequent money you have put into the practice. This would include the safety deposit of the office (if you have leased it, or a down payment if you bought land). The money for equipment, etc. This is what you would call a cash-inflow.

2. Revenue

This is the money your dental practice is generating. Now, this is the cash-outflow. The money that you are making every month from the clinic. A part of this will go into salaries for your employees, equipment maintenance, rent, etc.

The money you get after you pay everything off is the profit.Running a private dental practice is not as easy as identifying what an investment is and what revenue is. It is so much more complex. However, once you get a hang of what’s what, it won't be as overwhelming.

Figure Out Your Costs

  • Direct and overhead costs.

You can easily trace direct costs to an individual object. Whereas, overhead costs (indirect costs) are difficult to trace to an individual object.For example, inventory and supplies used for an individual patient are direct costs. Electricity is an overhead cost.

  • Product and period costs.

We associate product costs with a product or a service. And people associate period costs with time.For example, the cost of inventory used for treatment is a product cost. Period costs would be the rent that is incurred every month.

  • Variable and fixed costs.

Variable costs do not have a fixed rate. Whereas, fixed costs do not vary.For example, inventory is a variable cost. The more you need, the more you have to pay. The rent you pay to the landlord is a fixed cost. A single unit cost does not vary.

What Are Your Expenses?

  • Employees:

This includes all your staff members. From the front staff desk to junior dentists, janitors, and interns. Make sure that you factor in everyone's payrolls and pay them at the start of the month.

Marketing is not the only way to build a brand.

How you treat your employees and those who work under you speaks a lot. Pay a good wage and add bonuses when you can. This is going to be a periodic and fixed payment.

  • Rent and building maintenance:

This is going to be one of the first places you will have to put down money for. The real estate business is a very competitive domain. And if you don't book a place, someone else will. Whether you lease or buy the place, you will have to set aside a down payment/deposit.

Moreover, there will be maintenance charges in the place you choose to set up your clinic. Additionally, there might be percentage increases in rent every few years, if you have leased out an office for long-term use.

  • Equipment:

The cost of buying equipment is not going to be the only investment. You will also have to regularly have the equipment cleaned, checked up on, repaired, and maintained.

Moreover, you will have to either hire a trained professional to handle and operate the equipment. Or you will have to get your existing employees trained for it. Additionally, you will have to replace old equipment as new technology comes out every few years.

Costs related to regular cleaning and servicing will be periodical and variable costs.

  • Electricity and water:

If you have a predictable schedule, wherein you know how many customers you will have for the month, you can make a rough estimate for these costs. However, if you do not have a regular customer or if you have a sporadic schedule, it might be a good idea to set aside money for electricity and water each month.

Make sure you do not exceed the monthly limit. You can always save the leftover month into an emergency fund. You can use this emergency fund for months when you get a lot of bookings.

  • Phone and internet bills:

This goes without saying. Your private dental practice will need a contact number that customers can use to get in touch with you. Moreover, you will need a router for the admin staff members and other employees. Especially your marketing team, if you have one in-house.

  • Inventory and Supplies:

A clinic will need inventory and supplies. You can buy in bulk if you have the storage space. However, with storage, you must be careful that the storage area is dry, sanitized, and up to medical standards.

Some products will expire and you will have to throw them out. A customer might be allergic to a certain compound and you will have to provide an alternative. Moreover, you must consider hidden costs like defective items, overstocked items in inventory, and shipping charges.

How to Set Your Prices

  • Research prices:

Check what your competitors are pricing their treatment for. Most prices will vary with geographical location, the number of competitors, service quality, etc. you will need to list out all the services, and what they cost you for inventory, labor, etc. And what profit margin would you like to add?

  • Break-even and make a profit:

You must make back the money you invested into the private dental practice. And this is the first step after you start billing patients. Moreover, your timeline to break even is important. Because until you break even, you will not be making a profit. And you need the profit to sustain your practice.

Find a Balance Between Investment and Profit (Not Revenue)

At any given point in time, your profit should either be the same as the investment you put in, or more than that. This is to make sure that you have enough funds to take care of the costs of running your private dental practice.

If the revenue you make is less than the investment you put in, then you will be incurring a loss. Additionally, make sure that you set aside some money during the months you are making profits for emergencies. You’ll find the balance as you keep moving forward with setting up your clinic.

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