Understanding Dental Practice Profitability

By Guest Author Jim Boltz, President, Zimmerman, Boltz & Company

While some dental practices are profitable by chance, most successful practices prosper because the dentist has taken the time to understand the business of dentistry.  Their success and profitability can often be credited to four key factors.

They learn to read and understand their financial statements.  As a dental accountant for the past 30 years, I’ve spent countless hours with dentists at their kitchen tables reviewing dental practice numbers.  If it seems overwhelming, start with the basics.  Become familiar with your Income Statement, Balance Sheet, Break Even Report and Cashflow Statement.

They know industry benchmarks.  Benchmarks fall into eight major categories including Revenue, Employee Costs, Cost of Services, Facilities, Marketing, Overhead, Break Even Point and Cashflow.  If your practice is well above or below an industry benchmark, you’ll want to know why and see if it is necessary to make changes.

They’ve simplified their thinking.  Profit equals revenue minus expenses.  A practice should collect 100% of collectible production and receivables should be between 1-1.5 times the average monthly production.  Make sure this is monitored monthly and your staff understands the protocol for receivables and collections.

They study management principles and processes.  It is critical that, as small business owners, we never stop learning.  With the dental and economic landscape constantly changing, it is important to stay on top of issues that may impact your practice.  Find books on leadership and management and encourage your staff to read them as well.

With so much time, energy and money spent on your education, it’s tempting to want to do the dentistry and ignore the business.  I encourage dentists to get to know their numbers, implement ways to measure and manage them, and watch their practice grow.