Episode 793: What is the Difference Between Overhead and Cashflow? 

 Kiera breaks down overhead versus cash flow by walking listeners through an actual overhead calculator piece by piece. She also provides insight on how to reduce your practice’s overhead, pay your doctor(s) 20%-30%, and maintain profitability — all at the same time.

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Transcript:

Kiera Dent (00:00.758)

Hello, Dental 18 listeners, this is Kira. And oh, I hope you guys are having such an incredible day today. I hope that you are just, you know, living your best life. I think so often we get so stuck on all the different things we have to be doing or we should be doing, that I hope you just are enjoying life. I hope that you really truly are taking this time to enjoy because I had an interesting experience where I attended a funeral and it was for actually a dentist and...

their family, so the dentist, it wasn't the dentist who passed away, it was their family, and I just, I think I was just reminded of just how, just how quickly life can change. It was a very sudden death, it wasn't, I mean it wasn't someone who was old, it was very young, and in the course of a week three people had passed away, and all of them were young people. I'm talking under the age of 30, all three of the people who passed away, and

I went to one of the funerals and I just thought like, gosh, life can change so quickly and we hear about it so often. And so I'm here today to ask a simple question before we dive into some dentistry of how can we truly enjoy and embrace because it's this weird dynamic, right? We have the dynamic of, you know, well, we're going to, we never know when we'll pass away. We never know when that final time will drop on us.

But what we do know is we know that it will come at some point. And so how can we live more in the moment? How can we live more and enjoy more and be more fulfilled as opposed to hoping that we make it to our late 90s, 100, 110? And I don't know, I think because if we're constantly living in this like go, go mode, who knows when I'm going to die? And what if I died tomorrow? There is a balance to it. But just asking the question, I mean, I think that there was so much. I saw a lot of

of death last year. I saw a lot of people pass away and it's just been on my mind of how can we enjoy more? How can we enjoy this time more? How can we be, I guess, just living the life that we've always wanted to live as opposed to the one that we think we should be? I think is where I'm going to leave you with that puzzling question. And with that, let's dive into overhead versus cash flow, shall we? I really love overhead versus cash flow. I really, really love

Kiera Dent (02:21.546)

helping people understand numbers. And so I'm just excited for you guys to really hopefully understand your numbers more. I remember when I went to a conference one time, I did not understand my numbers whatsoever. I didn't understand, I didn't feel like I knew, I felt like I was dumb. And I had this illusion that I would rather not know my numbers as opposed to knowing my numbers. I thought, no, I'm going to be happier if I don't know my numbers.

When that was just a freaking facade guys, they did a study and I've shared the study. It's probably my favorite study. Ryan Isaac with Dennis Advisors told me about it and what it was is it was about these snakes in this video game and there were rocks and under these rocks was a snake. Again, it's a video game and if there was a snake underneath this video, underneath this rock, the participant would get zapped and they watched people's heart rates and when people knew that they were going to get zapped, their heart rate was obviously high.

but there was actually a higher, more stressed heart rate when they didn't know if there was something under it or not. And I've thought about this so much of, we actually are more stressed and we might not realize it when we don't know what's going to happen as opposed to when we do know what's going to happen. So even if your numbers are bad or they're not great, you really can, it's actually less stressful for you to have that happen.

So what I wanted to do today is help you guys understand like what is overhead and how can I improve my cashflow and team members, this is something you should know. And so I'm gonna do a share screen. I will explain it for those of you listening, but I'm gonna just try and share this with you just so that way you guys can see on here. So if you guys want, I will show this. Hopefully you guys can see that. This is a really awesome overhead calculator. And what you do is overhead are all the expenses.

to run the practice. And so when I think about overhead, I also, I have differing opinions, doctor salary versus non-doctor salary being included. So for this example, we're just going to say that doctor salary won't be included. Doctors, I like doctor salaries, but be to be hopefully at 30%. In this example, you'll notice our total overhead is at 60% with the doctor at 20% for a total that would be 80% total of the total cash, leaving us a 20% quote unquote profit. However, of that,

Kiera Dent (04:45.71)

profit, debt services and different things like that come out of that profit, including taxes, okay? Also taxes come out of the doctor's salary. But here it has like Dental A team our goals if you were to get to a 60% overhead. I prefer offices to be at a 50% overhead. But just so you can see here are the goals. So for payroll, ideally 30% or less for all of our payroll plus fringe benefits.

Dental supplies, 5% or less, labs, 7% or less. You can combine those if you're in an implant practice, so that way you could be around 12 to 14%. Facility and equipment at 8%, advertising 2%, unless you're in growth mode, then we definitely want that advertising to be higher. Office supplies, less than 1%, insurance at 0.5%, legal and accounting 1%, bank charges and fees 3%. Reason we put that there is because oftentimes that's what our merchant fees are. So let's bake that in. Otherwise you can do ACH transfers and you could hopefully minimize that.

phone internet utilities 0.5, and then all other miscellaneous at two to give you a 60% overhead. Then what we'll do is we'll actually fill in those numbers, which is super, super awesome for you guys to be able to see that. And I love this calculator because then you'll see, here's what it is, total overhead. We've got it kind of in different areas. So if you're profit, that's not your overhead. Overhead are all of your expenses. So in this one, we've got that 60% overhead, meaning with doctor's pay, 20%.

We come down here, our net profit on this practice, once we go through our debt services are 5%. Our total expenses are 25%, leaving us a net profit of 75% on there. And then right here, it shows the net profit is at 10% on his, okay? So here we're coming down, we see our net profit of everything. There's also no, the collection amounts on $100,000 practice. So we've got the different pieces here. And for those of you listening, the total profit, if we have 20% or above,

you're in champion status with a 50% overhead or below. That's like champion status, that's the gold star standard. This cruise at 10% profit and 51 to 65% overhead, the watch out zone is the 5% total profit and your overhead between 66 and 80%. And then the danger is that our total profit is below 5% and our overhead is above 80%. Reason being is because in those, the doctors probably aren't getting paid.

Kiera Dent (07:04.15)

The team is stressed out, we can't afford things, we're really stressed, we're probably living in lines of credit, and that's a really, really stressful area for you guys. So, like I said, this one we want the 20% overhead, excuse me, the 20% profit and a 50% or below overhead is really where we wanna be. Now, in this example, so for those of you looking here, I have a practice, their collection amount's 100,000, and of those percentages, so like payroll 30%, it's 30%...

of our total collection, not of profit, but our total collections of 100,000. If we produce 150,000, but we didn't collect 150, we only collected 100,000, that's where we really need to dive into that because we didn't collect enough. And oftentimes if you will collect more, you can, guess what, reduce your overhead. If you produce it, you should collect it. I believe like none of us would ever wanna work for free, so why are we doing that with our production and collection?

So in this office, you can see they have it 25,000. So their payroll is sitting at 25%. Amazing, they're a positive 5% based on the goal of 30%. Now, if we wanna get this overhead down from 60 to 50, we would wanna trim these goals down to get it down to 50%, okay? Dental supplies are at 3.46%, labs are at 9.88. We allow 7%. And again, all these goals are just goals.

Every practice is different. So I'm a huge believer of, we gotta set these goals and what's realistic. Maybe your payroll is lower. Maybe your labs are higher. Maybe your facility is super, super expensive. Maybe we could negotiate that rent or your lease on it. Maybe our advertising, we gotta crank that up or maybe we're doing well because we've got walk by traffic. Whatever it is, these goals for your overhead percentages can be adjusted, they're not fixed. But these are close to industry standards for you. So when we come down this whole practice,

on $100,000 collection, they're at 46,941 of how much their total costs. Now that's not including doctor and that's not including debt services. So they're sitting at a 46.94% overhead. That's a great sexy number. And notice though, in this one, the labs were at 9.88%, even though we only allow for 7%, that's okay. They were negative 2.88, but on their facility, they're only at 4.3 and we allow for eight.

Kiera Dent (09:23.53)

So that's where they're making up the difference of that. So when you come down, we can see we're a positive 13% on our overhead, which is fantastic. That means doctor could get paid more because we have it and you actually have more profit in the business because we don't have as much on our debt services. Now, if you buy other things, that's fine. Hopefully when we buy things, it offsets the production.

with that and we actually able to generate more. But I just really love that because then we can see on this practice, their net profit is at 18.06%, which is amazing. And then right in there, they're sitting almost at that champion status. Their overhead's below 50%, but their profit due to debt services is not at that 20%. Now, people always ask me, Kira, should doctors be a part of that? Should doctors not be a part of that? Should their pay be a part of it? Should not? And I always say,

Listen, would any of you ever in your wildest dreams ever, ever want to work for free? And most of the time the answer is no, I would hate to work for free. So I am always pro doctors treat yourself just as good if not better than you would be as an associate, as an owner. Yes, you might have to make some different changes, you might have to do some different things, but yeah, you should be paying for yourself. We should be paying you as a doctor. You're producing

Why would we not do that? So I oftentimes also really love when doctors pay themselves as associates, quote unquote. So in case you ever had to hire an associate to replace you, you would actually be able to do so confidently. So hopefully, again, let's quickly go through overhead has specific percentages and office managers, you absolutely 100% need to know these numbers because you should be acting as like the C, COO, CFO of your practice.

you should know these numbers to make sure that the practice is profitable. Because when we have profit for team members to also know when we have profit in the practice, that means we have more availability to do things. None of us ever, ever would want to be living paycheck to paycheck. That's beyond stressful. And can you imagine if we did that to our poor practices, if we put them in this stressful state where, oh, my gosh, they are getting wild?

Kiera Dent (11:28.306)

they are getting where we can't afford to hire new team members. We can't afford to buy the supplies that we need. That is a very stressful state to be in and none of us want to be there. So I really want you guys to pay attention to that, that we need to make sure that our practice is taking care of and profitable. The reason we like 20% profit is because we've got to be able to pay for our taxes out of there. We've got to be able to pay for reinvesting in the business, hiring new people, being able to buy things for the practice. And we want to make sure we've got that good, clean buffer there.

Doctors, I really do love when you will pay yourselves as associates, so if you ever were to hire an associate, you could easily replace yourself. I've done that as myself as a consultant for years, and it gave me confidence to know, oh my gosh, I could hire another consultant. This is what it would cost. I can replace myself and still be a profitable business. Because with overhead, even if your overhead's there, we wanna pay you and we don't want all of the overheads eating all the funds and you actually don't make any money. So I really want you guys to...

to pay attention to that because I think it will help you so much more. So big players in our profit is if we're producing a lot but we're not collecting, that's gonna obviously hurt, right? If we've produced 150,000 but we didn't collect 100,000, we only collected 100,000, we left 50,000 on the table so we easily could increase our profit by just collecting the money that's owed to us. Now, make sure when you're looking at your production that you're actually putting it into net.

not gross. I know it feels really good to look at those high numbers of what we'd get paid if we weren't with insurance, but we can't collect that. And I'd rather you not base your goals on that. I'd rather you base your goals on true numbers that you can actually collect. So that's step one. Step two is you got to collect the money that you produce. So team members, we've got to be sending out those statements. We've got to be collecting it in. I like you guys to have that AR really, really low. We should never have more than one month's worth of collections in our total AR. So if we're

collecting about a hundred thousand a month, our AR should never be above a hundred thousand. So I really, really want you guys to watch that and to see that and to be able to figure out, oh my gosh, this is where maybe our overhead's higher because we're just not even collecting it. Second is looking at our expenses. Are we running up over time? Are we over staffed? I never liked to think we're over staffed. I like to pay my team really well, but like let's check and make sure is every team member there. Are our hygienists producing what they need to produce?

Kiera Dent (13:52.286)

What about our labs and our supplies? Could we reduce those? Could we work with a buying group and get those supplies reduced? What about our facility? Could we, like I said, negotiate that lease a bit more? What about our utilities? Is there any way we could get those reduced any way that we could cut down on our supplies? But we have to be careful that when we're cutting, we're not cutting things that are essential. Like I always think of, is my expense providing?

more production or possibility. Like a lot of people are like, oh my gosh, cut consulting. And I'm like, yes, you absolutely can cut consulting, but consulting literally will tell you how to reduce your overhead, how you can actually get those bills paid faster for your claims and your collections, how to increase your treatment plan, case acceptance, what different areas can you do to reduce the costs? So if it's a cost like that, that's actually paying for itself, I think that's a worthwhile cost.

I look at, you know, like scanners, Itero scanners or maybe a cone beam. Can those generate revenue in the practice? And if so, as long as it's paying for itself, it should be on the PNL or a profit and loss statement. So hopefully that helps you guys understand the difference with overhead, but then cashflow comes in with all the rest of the debt services. Even if our overheads in check at 50% or 60%, we only have 40% of that still remaining. We've got to pay our doctor.

And we also have to pay for all the debt services. So that could be our practice loans, that could be our student loans, all those different things. And that's where we usually get stuck on cashflow because we're like, ah, our overhead's in check, but we have all these other debt services that are really, really hurting that cashflow. So that's the two-edged sword for you to figure out, where is it? Is my overhead in check? And if my overhead's in check, fantastic. What are maybe some of those additional pieces that are causing cashflow? So then it's like, well, what do I do if all those things are in place?

A couple options you can do. Are you ready? You can increase your case acceptance. We can always increase our case acceptance. We can check our diagnosis. Are we diagnosing enough for the goals that we need to do? Like we could increase that production and collections and that's obviously gonna get us more cashflow if we can do that. Can we add in maybe PRP? Could we add in our artificial intelligence AI to help us diagnose and close more cases? Could we make sure that all of our patients are actually coming back for their hygiene visits?

Kiera Dent (16:09.774)

Could we look to see, is our collection percentage where it needs to be? Any of those things, you can actually boost it up and that's gonna help your profitability for sure. Could we look to say, could we add in procedures, maybe laser on all of our SRPs and that would actually be a better patient care and it would increase the production in our practice. Now, I always say if we're going to add it, we have to look to see, well, how much would a laser cost to add to the practice? How much is that going to cost us? And then how long will it take us to be able to pay for that laser?

Is that a cost worthwhile bringing in? We think like, oh my gosh, it's great. We have to look at the cost. Just like if you're going to buy a house or a car or we're going to invest in school, we have to look to see, okay, what is the cost of it? And how long is it going to take me before we pay that back with that cost? So that's really where you're gonna get stuck on that cashflow. And this is something I am literally obsessed on figuring out. I'm obsessed on helping offices understand what their overhead is.

I'm obsessed with helping you know where is your money going? How can we have it there? Is it sitting in our AR? Is it sitting in our overhead? Is it sitting in our debt services? Are we paying our doctor? Can we pay our doctor? And what do we need to produce to be able to do that? And then instead of it being this scary, scary number, let's break it down to monthly, let's break it down to weekly, and let's break it down to daily, and then even hourly. Because that feels so much more attainable, like, oh, yeah, all I need to do is just throw in an extra crown. Oh my gosh, I can absolutely do that.

I know I've got probably 52 crowns out there in my unscheduled treatment, just getting one more person to say yes to that, is like they need the treatment, so why not? This is how you can really flip your practice around and have it be greater for you and have your overhead reduced, pay your doctors, like I said, 20 to 30%, and then also be able to have that profitability. So as you're looking through your numbers, if this feels like mumbo jumbo, reach out hello at thedentalateam.com.

We have a client and I'm so proud of her because we had a conference and I remember we were going through overhead because I'm really big on Numbers because I believe numbers guide you I believe numbers are the secret to your success numbers are literally We're all the like the devil is in the details of your numbers And so we can make your practice great just by knowing those numbers and so this client She was just like I just don't even know what my overhead is. And so we spent time we worked together

Kiera Dent (18:29.514)

We broke it down. I showed her like, what is your BAM? Like, what do you have to produce to pay for all the expenses of your personal life and your professional life? Like, what does that number actually look like? And to have her leave and to have her over the course of the year, she knows who she is. She's a huge podcast advocate, massive, so, so proud of her. But in just less than a year of consulting, she knows her numbers. She's hit her highest goals that she never thought she'd be able to hit. And she's confident in her numbers.

That to me is success. You knowing your numbers, you being able to look at your numbers and not stress, like, yeah, it might be ugly today, but guess what? I would rather know the down and dirty ugly today because that gives you the roadmap of where we're going to improve. And it's small improvements made day after day after day that lead to the great results you're looking for. So I want you guys to commit this year that you're going to become a numbers master.

that numbers will not be scary for you, that you will no longer be shackled to it. Like guys, don't live in the false illusion that not knowing your numbers is actually secure. It's not, you're actually more stressed out not knowing your numbers than you are when you know them. And when you know them, you can actually make better decisions. You can know, can I hire this person or can I not hire this person? You know what you can do or what you can't do. And so I just wanna have all of you commit to that. And if you don't know how to do it and you don't know where to start, this is my like, I'm reaching out a hand to you and saying, come join me.

I would love to help you. I'd love to have you walk out of here one, two years later, saying I know my numbers and I'm confident and I know how to run a business successfully and I know what's required for me to actually be successful, to live the life I wanna live, to have the cashflow that I need for myself personally and also for our business. To me, that's my greatest wish for you. So reach out, hello, at thedenaliateam.com. Be like that client where you have your best year.

You know your numbers, you know your overhead, you know your profit margins, you know what you can or can't do, and then you can find a way to actually change that. That to me is success. That to me is business freedom that I believe that every owner should have. So reach out, hello, at thed Hopefully you guys now have a better understanding of what overhead is, how to look for it. Those scenarios hopefully helped you. And as always, reach out. If I can help in any way I'm here for you, this is what I'm passionate about because you knowing the numbers is the secret sauce to you living the dream of a life.

Kiera Dent (20:47.01)

that you've always wanted and that you deserve to live. So reach out, hello, at thed And as always, thanks for listening. I'll catch you next time on the Dental Team Podcast.