Episode Description
This one's for the business owners out there! Kiera discusses all things overhead — what's normal, what's high, how to lower it, and what overhead even means in the first place. She then goes into specific tips of what it takes to lower that overhead quickly and responsibly.
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Transcript:
The Dental A Team (00:00)
Hello, Dental A Team listeners. This is Kiera and oh I hope you're ready for today's podcast today's podcast is one that I Love but you might not love it But guess what after today you're going to love it and you're going to know why because this is an episode for the business owners out there and office managers and team members guys, I
Love, love, love, love, love talking about overhead. What's normal, what's high and how to lower your overhead and what does overhead even mean? And I know that this is something where maybe you've heard it in the past and guess what? One of the greatest tools to learning is remembering. And so today I'm gonna walk you through how we get overhead and how we're able to lower it fast. ⁓ I have found when consulting hundreds and hundreds of offices, the number one pain point is cashflow. We actually just created ⁓ like,
amazing little graph and document of how offices are looking at things and how we, this is like just a pyramid. And if you guys are watching, we're going to see how good I do. Gosh, I'm not, okay, Paul, it's not pretty enough. I won't share it yet, but we actually built this like pyramid to show kind of a proven path from chaos to control and how we go.
Like what is the base layer that causes offices the most amount of stress and how it goes up. so base layer of this triangle is cashflow and profit stability. Then after that, it's time delegation or removing the doctors a bottleneck. Then we go up to systems and consistency. Then we do leadership and CEO transition, and then it's legacy and optionality. So, and this was like really fun because I like put it all together and I was like, okay, guys, I figured out what causes Dennis the most. Like we're talking hundreds and thousands of offices and putting it together.
And then our marketing team was amazing and Paul, shout out to him, he took it and he was like, all right, here, here you go. This is what it is. And what I looked at is so many people come in and like, here, we need systems, like, because we don't have cash. So they think that the systems will get them the cash, but knowing the right system. And this is oftentimes where it feels like whack-a-mole is we're putting in the wrong system, trying to get the outcome. And so it's like putting in the correct lever to be able to move. And then you're like, well, I need a leadership team.
But if you're on cashflow row, you're not thinking about a leadership team. You're like, I gotta get out of the burning bush. But if you're on cashflow positive, you're like, gosh, I'm just like stuck in all the weeds. Well, great, we need like to build you a leadership team and we need to get systems in place for you. And we need to look at which systems are not working. And so that's why I wanted to go into overhead for you today of how, like what is overhead and how is it working for me or against me? And how do I get this down fast, AKA more profit for you. And that's not because we wanna be rich and like,
whatever, I want you to actually be very wealthy. You like put in a lot of time and effort, but we want you to be making profit as a business. If you're not making money, it's a hobby and it's a liability and it's stressful. And we need to get you out of that stress zone so you can do the best dentistry, the best care. So when I look at offices, a lot of times they're not under producing, they might be overspending. And when I look at profitability, there's three levers. We need to produce more, collect more, or reduce our spending. are the three ways to get there.
And so that's how we're gonna look at these. Those three make more profit. So when I look at this and when I look at your biggest pain point that most offices are struggling with is cashflow. And why? Because you were taught to be a dentist, you weren't taught to be a business owner. So you're like, great, I made money, but I don't know how to spend the money and I don't know what I'm overspending. I was talking to someone and ⁓ this is a dear friend to me and she's running her business and this is like leading me into a possible other business idea that's been percolating for me. She was like, Kiera.
She's not in dentistry. She's in a different industry. she's like, Kiera, I made 200,000 this last year. And I was like, dang girl, I'm super freaking proud of you. And she's like, I took them 48,000. And I was like, what? She's like, yeah. And I said, well, hold on. She doesn't have employees. She's solo. And I was like, but why? Like, okay, 200,000, let's take taxes out of there. Even if you're sitting at 37%, which you're not, let's just.
we'll chunk 40 out of that, okay? Like let's do 40%. So was like, that's like 80. That's like really high. You probably are like 60,000 out for taxes. So we'll put you at 200,000 minus 60,000. We're at 140. Where did you spend like a hundred grand? And she was like, Kiera, I don't know. I don't know. And I thought to how many business owners feel like her? How many people feel like, but I made this money, but I don't have it and I don't know why.
Like gosh, 200,000 only taking home 48. Like you might as well go work for someone else. She's like, I worked more. I'm not with my family. I've done all these things. And I feel like that's how I feel so many dentists feel. They're like, I'm working harder than I was as an associate. I have all this stress. I'm not sleeping. I'm not with my family. And I'm not even making the money that I want to be making. And so I'm just really pro of like, Hey, there are solutions and there are ways. I think understanding what overhead is, understanding how business works.
and using it within your dental office is going to help. So, Dental A Team, I'm obsessed with helping you guys have your best lives. ⁓ Our job is to help you hit profit goals, control costs, not always have to produce and work more. Like let's work smarter, not harder. ⁓ And really it's just to positively impact the world of dentistry. We call it the Yes Model. So focusing on you as a human, earnings and profitability, and then systems and team development. Your business should truly serve your life, not the other way around. And so, ⁓
Let's just like dive into what is overhead. I don't want any of you to be like my friend and honest. I'm going to get that friend out of that dilemma. I'm like, I think this is how I was. I think that it comes from, right? Like, why do we build companies? We build them out of like necessity for ourselves. We build them out of like things that we had. We build them from like, I've been there, done that. And here's how I'm going to help you. But we also need to learn how to be really strong business owners. And something I feel like I've been really proud of and something I'm really grateful for is
The language of business has actually made a lot of sense to me. was good with math. used to, you guys ready? Another random Kiera job. ⁓ I was a math tutor for quite a lot of my life actually and taught littles. I didn't go, I was not into calculus. I was doing algebra, geometry, like little kids. I had a whole tutoring business. Like that was another business I started up. Cause I found out what they were paying me as a tutor versus what they were charging the client. And I was like, heck no, I'm doing my own business. It is really hard to do marketing in case you're wondering for tutoring, but.
I got my little business over the summer and drove around all these houses. ⁓ But math has always kind of made sense to me. Like one plus one equals two. And I like it because with math, maths, it's very fun. And so when I look at overhead and I look at targets, I'm like, all right, what does it mean? So overhead is the total amount of money that it costs to run a business. Okay. So that's what overhead is. And you know what? These are pretty slides. So I think Paul will be just fine.
⁓ We actually have an entire presentation that we did on like preventing cashflow leaks and what is like the dentist profit plan? So I'm gonna actually show you guys if you're watching awesome. I think this will be a fun thing for you to see
Okay, so what is overhead? And I think these slides just break it down really simply. And if you're audio listening, great, I'm gonna tell you what's on the slide. So what is overhead? It's all the costs to run a practice. So we're talking payroll, rent, labs, supplies,
anything under the roof.
It does not usually include Dr. Pay. Now I'm gonna throw a disclaimer. I am not a CPA. Talk to your CPAs about this. I'm gonna just tell you how Kiera has learned it and how it's made sense for me when it didn't make sense, okay? So that's overhead. And I get annoyed with the overhead and this is why I prefer to talk profit versus overhead because the fact that it doesn't include Dr. Pay annoys me per CPA usual guidelines. Now I'm not saying all CPAs, but usually this is like how it is. It's all the costs, but they don't include Dr. Pay because you're a business owner. So like, why should we pay you?
Now, what is profit? Profit is the total after overhead and doctors are paid. So I like doctors to be paid 30 % of production. Think about it, that's what associates are usually paid. You can be 35%, I don't actually care. Like whatever it is. So in this simple equation, we would do revenue or production, AKA collections, minus overhead, minus doctor pay equals profit or available funds, okay? So if we're in a practice and we produce and collect, because if we produce but we don't collect, remember that's gonna hurt.
⁓ 100,000, we minus 50,000 of overhead costs like our rent, our payroll, our supplies. We pay our doctor 30%, so 30,000. We would have profit with air quotes of 20 grand. Okay, I did perfect easy math for you. If our doctor was 30%, if our overhead was 50%, our profit would be 20 % on $100,000 practice, okay? So these are the levers. We either increase production, decrease costs or increase our collections. That's how we're gonna do it. Now, what is cash flow?
Cash flow is profit minus debt services, okay? This is where it gets weird, because you're like, well, it says I'm profitable and my overhead's good, but I have no cash. Well, this is why, because we have debt services, which oftentimes like our student loans and sometimes they're building loans. Those are debt services that don't actually get included in overhead. And this is a CPA, it's how it gets like deducted down and all of that. So like you can deduct certain things, but that doesn't mean the cash is taken out. It got.
written off, do tell the like laws that are way beyond my pay grade. So profit minus debt services is cashflow. So debt services are practice loans, equipment loans, student loans sometimes are or may not be included in this. You got to check with your CPA and your personal expenses. So what happens is we have a business and this business is producing 2 million for us, okay? Our overhead, let's say we're like really kicking it and we're at 50 % overhead and our doctor is being paid like rock on, doctor's paid.
So we've got money left over, but then on that leftover, yes, doctor, your business is doing well, but you as a human also have expenses. You have your life expense, you've got your student loans, you have all of this, which is why you don't feel like you've got cashflow, not to mention taxes, okay? So when we look at this, what is an ideal over it? And this is where it gets like really hard, like my overhead and my cashflow, and like my overhead's good, but I don't have cash. Well, it's because we haven't like put it all together for you and we haven't made it to where like, okay,
What is John's personal life? What are your costs? What are our debt services? What are the costs of the business? Great, now we set our office goals. And sometimes you have to be careful because your life expenses might be more than your business can produce. And I know that that's annoying and I'm really sorry, but we have to also live within our means of what our business can do. We can't squeeze out our business when we're looking at it and we're like, well, shoot.
you might be overspending. again, I'm not here judging. There's no judgment here. I just want to be realistic. One plus one equals two, always in math. And that's why I enjoy it. So when we look at this, our goal is to have you profit 20 % and an overhead of 50%. Remember, 50 % overhead of the cost, 30 % doctor pay, 20 % profit. That does not mean you're taking home 20 % of that profit and of doctor pay. You owe taxes on that. So that's super fun. Take that out. Just like my friend, right? We took taxes out. And then from there, we got to pay our debt services. We've got to have our life. Then whatever is left.
Over is your cash. That's why it's hard. So this is where people are like, I don't get it, Kiera. No, you do. And I'm gonna teach you, okay? So we wanna have those. Now, when we have an overhead calculator, what we do is we wanna get this to 50%, 60%, like that's great. Cause the less we spend, the greater our profit is, right? Like if I make a hundred dollars and I only spend $20, I have $80 left over. That's great. But if I have a hundred dollars and I spend $80, I don't have $20. We made a hundred.
but how are we spending? So again, it's either increased production, increase our collections, because your production might be there, but if your collections are lagging, you might not have as much cash. Why? You produced it, but we didn't collect it. That's a big problem. But if we produced and collected what we need, then what's our spending? And I will tell you, usually expenses can be pretty high. So we look over here, and on this example here, I've got it at 60 % total overhead. So like our payroll should be about 30%, dental supply should be about 5%, lab should be about 7%.
facility equipment 8%, advertising 2%, office supplies 1%. Like break this down however you wanna adjust it. Your rent might be so hard, bank charges I hope that they're less than 3 % for you. But all these add up and you can adjust these and these can be moved around and say like maybe if we only had our payroll at 25%, I'm not here to say pay your team less. We just are looking at like what things can we do? In this scenario on the screen, doctors only at 20 % of this and their profits 10%. Well, it's because our-
Our overhead is at 60%, we're high and we have debt services of 5%. That's why. So costs really do matter. So if we collect 100,000 and our overhead before we paid our doctor was 73,000, our overhead is 73.82. That's without even paying our doctor. Well, then our doctor got paid 20%, okay? So 73 plus 20, we're at 93%. Woohoo, we're living on the edge there. We have debt services at 5%, this poor doctor is negative.
They got 1.18 % on a $100,000 collection month. They're not quite negative. Like their total overhead over there, it's like not where we want it to be. So it's negative based on the thing, but their net profit on a hundred thousand is 1100 bucks. Well, that feels like junk. Like, yeah, I got paid 20 grand, but after I paid everything out, my total expenses for this, and this is where I think people get weird. And that's even before we paid taxes. My overhead was 73, my doctor salary is 20,000.
my debt services were 5,000. So we add all that together and that's how we get up to that 98, which leaves us with 1176. That's annoying. They're not doing good. This is where the cashflow crunch happens. So when we look at this, and this is why I really love to show you like what is cashflow, what is overhead, and hopefully you're able to see that. And if not, hopefully I explained it well enough for you. And I wasn't just talking on the screen. I tried to make it to where you guys could hear it and see it. But when we look at this, this is where I get annoyed because like, okay, what can I do then to reduce it? I just told you.
We either look at what are we spending and I just gave you some parameters. So can I get my payroll or my supplies or my labs down? Can I give my team a 4 % of collections from last month and that becomes our supplies? Yes, you can. And we can start tracking that. So there's little things we can look at and we can see what can I reduce down? How can I trim this down? And honestly, trimming your overhead. So we stop spending. If you're a CE junkie, great. We give you a budget of X amount of dollars and that's all you get to spend. The rest doesn't. We look to see where are we overspending?
Maybe we are overstaffed and so we need to increase our production based on the amount of staff members that we have. I love team versus staff, but like, let's look at that, okay? So let's look at it and let's find out where is one or two categories on your P &L that are out of it. And if you need an overhead calculator, be sure to reach out. Hello@TheDentalATeam.com. I love to share that with people. So review your P &L, look at it. Let's look at our overhead, see where we are. Your goal is to be at a 50 % overhead before a doctor's paid or a 20 % profit, okay? Now we look at payroll.
Are there ways that we could look at this? Are there ways that we could cut it down? Can we make it to where people are not clocking in, clocking out too much? How are we going to be able to have this? And this like 30 % is all fringe benefits, everything included in there. So what can we do on there to make sure that we're profitable in that? Can we like look at other ways? Can we outsource things? Like our hygienists are expensive. So is there a way that we can maybe outsource some billing? Again, not to say to fire team members. want our team members. Teams are assets. They're not liabilities. But what things can we get creative on?
no overtime, that's a no-go. People only work 32 hours. We work on four-day work weeks and we rotate. There's a lot of different things you can do, but looking at that, committing to it. And then the next thing is like, let's figure out what is our true BAM of the company, including cost of the company, cost of paying our doctor, cost of our debt services, and then let's work backwards. Okay. That's how much we need to produce. And this is how much we need of profit. Then what do need to do on diagnosis and production on the top half?
and scheduling and creating a block schedule for that. Now, if you're like, I don't love numbers, Kiera, and what you just said was so awesome, but so scary, great. Reach Hello@TheDentalATeam.com. want to talk to you because when you can say and truly feel it in your bones, I love numbers and numbers loves me. You are going to feel so much more confident as a business owner. The reason people get scared on overhead and profit margins is because they don't understand the language of business. They don't understand how money works. They don't understand how taxes work.
So I decided I was so sick of crying in December. I said, that's it. I'm not gonna cry in December anymore. I'm going to become a tax expert on this. So what I do every single month is we have our overhead. We know what our overhead is. I know what Kiera's pay and comp is. So we take that. I also take taxes out of there. I have buckets set up of how much we're gonna put in of savings. I've got a BAM for our company. And I did not do this overnight. I make sure our collections are there, our productions there. We make sure that our overhead is in check based on industry standards.
We start to trim away one or two or 3 % from there. So we trim and make sure we've got all of our ducks in a row. Our collections are at 98%, our production's where it needs to be based on the cost of the business and our overhead, we've trimmed it down, we're getting it to 50%. You can also get your overhead lower by increasing your production. Could I do better higher dollar per hour procedures? What can I do to get my dollar per hour up 50 or $100 per hour more? Can we do same day treatment that's gonna help our patients? Absolutely yes.
What about our hygiene? Are we taking x-rays at the right time? Are we doing fluoride and fluoride therapy? Are we blocked scheduling correctly to make sure that we're hitting our numbers? Is our case acceptance, could we increase that? Yes, these are the ways that you get there and these are ways that you do it quickly. And so knowing your benchmarks, knowing how cash works, knowing how overhead works, knowing how this works, this is half the battle guys. Like just listening to the podcast high five, like pop the confetti. I wish I could like sprinkle confetti for you. This is half the battle.
So you learning it and committing to like, want you, I have a doctor and we were like profit and production. That's all we're going for. And that's what we talk about because this is the base. If we can get your cashflow up guys, everything else falls into place. Like truly it really does. And then we're able to do more things because cash is there. We know you're taken care of. You're more stable and confident. And I remember Ryan Isaac with Dentist Advisors. He and I were chatting, gosh, we're probably talking like 2019, 2020. And he said, team members, you want your doctors to be so profitable because when a doctor is confident in their cash.
they are confident in their business and they're not stressed out. Now, that doesn't mean that you can't have like spending problems. I've seen that with other doctors, like business is doing great, but we have a spending issue. That's a you issue and you need to like have discipline on that. But I will tell you being confident in your cash, being confident in your profit, being confident in your overhead, what those mean is half the battle. And this is what I actually obsess about. So we actually teach our doctors. ⁓ We have an overhead calculator. We look at your overhead every month. We have scorecards for you.
We teach you, we look at it, we have goals that we set together. We look at your diagnosis, we look at your case acceptance, and we figure out which lever will be the fastest, easiest to move with you. And this is how we're able to do it with you guys. So reach out, commit to being like cash is king, profit and production. You are going to be a profitable practice and you're gonna make the money that you deserve to make and that you want to make. And we're gonna just do a backwards equation with you. We're gonna figure it out and we're gonna lock down. I have a CPA and she said, Kiera, I will recommend Dental A Team all day, every day. She said, you have made my clients more profitable than.
any other consulting company, that's because we are going to be obsessive about profit and production and you getting your overhead down. So reach out, Hello@TheDentalATeam.com. And as always, thanks for listening. I'll catch you next time on the Dental A Team podcast.