Dental Practice Budgeting: Take Control of Spending in 2024

As the new year approaches, dental practices, among all other businesses, are presented with an opportunity to reflect on their financial strategies and determine if they are set up for profitable success in the future.

Dental Practice Budgeting: Take Control of Spending in 2024

While some may view budgeting as limiting overall spending, others see it as strategic decisions that help achieve business goals and financial objectives. Taking control of your spending in 2024 will be the key to unlocking the financial health and stability you need to continue running a successful operation.

The Value of Early Budgeting for the New Year

Budgeting for the new year is one of the most important activities to prioritize for your dental practice. It allows you to anticipate what financial needs you have upcoming, predict your cash flow, and determine how much money should be set aside to support any expected and unexpected expenses.

Starting to budget now allows you to:

• Analyze the current year’s performance: Take a look at how you did in 2023. This can help you identify what decisions worked in your favor and which should probably not be repeated again in 2024. Identifying your wins and shortfalls will help build up your own set of practices that can maximize your success in the future.
• Set realistic financial goals: Budgeting early gives you a comfortable amount of time to set achievable goals. Whether you want to increase how many patients you treat, offer a new service, or improve your collections operation, having a clear goal identified early on can help guide every other decision you make to help you achieve it.
• Adjust to market changes: The dental industry faces market fluctuations just like any other business in the country. Changes in the economy, insurance reimbursements, and patient needs are always evolving with the times. Instilling a proactive budgeting philosophy for your dental practice can help you adapt to changes in the economy without letting it set you back or catch you off guard and waste money.

Integrating CapEx Into Your Budgeting

Capital expenditures (CapEx) are classified as expensive purchases that a dental practice makes to maintain or improve its services. For example, new dental chairs, advanced imaging equipment, or any renovations to the structure of your practice could be considered CapEx.

Here is why CapEx needs to be part of your budgeting for 2024:

• Long-term planning: CapEx is not your everyday purchases that you have likely grown accustomed to. These are expensive items and often require a large upfront investment. Not planning for these can disrupt your cash flow and potentially put your practice in a compromised financial position.
• Tax considerations: Depending on what you purchase, there may be tax benefits. Capital expenditures often depreciate in value, which may allow you to deduct a portion of the costs from your taxes each year.
• Stay competitive: Staying current with dental technology offerings can be the key to your practice’s success. Patients want to get the most innovative treatment with the latest and greatest advancements in the industry. Budgeting for CapEx items allows you to invest in these areas strategically and not be surprised by any unforeseen costs.

FAQ

Q: How Do I Make a Budget for a Dental Office?

A: Start your dental office budget by reviewing your historical financial statements to better understand your revenue streams and expenses. You want to break down each cost into either a fixed or variable expense and forecast your revenue based on a combination of historical data and new growth goals.

If you have any plans for capital expenditures, include those now. Then, allocate funds for unexpected costs to ensure you have the flexibility to cover anything that you aren’t expecting at this time. Revisiting this plan and adjusting it when needed is highly recommended to make sure you are meeting your financial goals.

Q: What Is the Biggest Expense in a Dental Office?

A: Typically, staff salaries are the largest expense a dental office consistently faces. Because the operation requires dental hygienists, assistants, and office staff, it’s a significant portion of funds to prioritize each month.

In addition to the salary of each employee, a practice must also pay for benefits and payroll taxes. Because these are largely predictable expenses, it’s essential for dental practice owners to prioritize managing their labor costs to ensure they always have enough staff to deliver excellent patient care.

Q: What Is a Good Profit Margin for a Dental Practice?

A: This will range from practice to practice, but on average, a good target to shoot for would be between 25% and 40%. This margin reflects a practice’s profitability after all operating costs are taken care of, including staff salaries.

To achieve and maintain a good profit margin, dental practices must keep on top of their expenses and optimize their services to ensure each margin is as profitable as possible. Having regular financial analysis from a professional can help to keep identifying new opportunities to boost margins and increase profitability over time.

Q: What Is the Average Overhead for a Dental Practice?

A: 60% to 70% of a practice’s revenue can typically be attributed to an average overhead spectrum. The reason why this is so high is because it includes all the costs that are required to keep the place running. This includes the practice’s rent or mortgage, utility bills, staff salaries, dental supplies, equipment costs, and any marketing or promotional campaigns running to bring in new clients.

The exact percentage will vary based on the dental practice and where they are located geographically. The more in tune a dental practice is with their overhead costs, the more likely they are able to improve their profitability over time and achieve peace of mind from financial stability.

Contact Vigor Financial for Dental Budgeting Services

If you own a dental practice and want to ensure you are budgeting properly for the next year, contact the financial professionals at Vigor Financial. We understand how stressful the financial health of a dental practice can be and want to take some of the burden off your plate so that you can focus on running the practice while we take care of the finances. We look forward to helping your dental practice achieve an even more prosperous future in 2024.

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