Chris Barrow’s Blog

Dear Dentist:
Now I think its time to be getting into more advanced budgeting, including how to calculate the costs of associates and hygienists when preparing a budget for your practice.
If you are a single-handed dentist doing all the work, it is relatively simple to prepare a budget and set yourself revenue targets. But, with extra people involved in your practice, each getting a portion of your revenue, it can be far more difficult to accurately estimate your profit for the year.
In terms of budgeting, moving beyond a single-handed dental practice does take some extra work – for example, there are far more variables to consider when figuring out the costs of associates and hygienists.
Once again, the key is to prepare as much as possible in advance.
In a dental practice, there are what I would call 2 major ‘buggeration’ factors when it comes to preparing a budget:

• Making provisions for the likely income and expenditures of associates.
• Making provisions for the likely income and expenditures of hygienists.

In your practice, when you’re preparing your budget a year in advance, how do you take into account the income from associates and hygienists, especially since there are so many variables?
Dear Coach:
Let’s start with the hygienists. Dentists can chose to hire hygienists as either employee with a salary, or on a self-employed basis to receive a percentage of the fees per patient.
The disadvantage of paying them a salary is that you have to pay national insurance, holiday pay, sick-day pay, etc. And if patients don’t show up, you’ll likely have to pay the hygienist anyway, regardless of the fact that you did not generate an income.
The main advantage of self-employed hygienists is their income is dependent on the number of patients they see. So, you would not have to pay them unless the practice generated an income.
However, there is a risk with having self-employed hygienists - there is potential to draw more attention to your practice in terms of taxes. The ‘tax man’ may look at your practice and decide to call the hygienists ‘employed,’ in which case you would be liable for any back taxes and national insurance. In my practice, I prefer to steer clear of this risk all together, so my hygienists are on a salary.
Dear Dentist:
How do you calculate the expected income and costs for employee hygienists?
Dear Coach:
You first need to take into consideration how full your appointment book is, or your level of utilization. If you have 50 percent of your available appointment times filled with patients, you’ve got 50 percent utilization. If you’ve got no gaps at all, you’ve got 100 percent utilization.
So for employee hygienists, if is particularly important to strive for the highest level of utilization. Whether you are at 50 or 100 percent, you will still be paying the hygienist the same amount.
In terms of preparing your budget, once you have an estimated level of utilization, you can determine your pricing strategy based on how many hours your hygienist will work (allowing some time for illness or no-shows), minus the expenses associated with employing the hygienist.
The biggest problem with employing hygienists is achieving the maximum utilization possible to ensure they are profitable to the practice. You can only determine this from looking historically at what your utilization rate has been over the past year. If you’ve got empty appointment books, you’ve either not got enough patients, you’re not selling enough hygiene treatments or you’ve got too many hygienists.
Dear Dentist:
Is it easier to budget for salaried hygienists than for self-employed hygienists?
Dear Coach:
Not necessarily - you can build a spreadsheet model for either scenario. With self-employed, you would look at the percent they are getting paid, rather than the number of hours they are working.
Dear Dentist:
So, when you’re constructing your budget for your practice, you’re making an assumption about the utilization rate for the hygienists?
Dear Coach:
Yes. Most dentists are between 60 -90 percent. You of course always want to aim for 100 percent, but it is important to look at what it has been in the past, and develop your budget based on a good estimation of what it will be for the coming year.
Dear Dentist:
So, how does one specifically find the numbers needed to make provisions for a hygienist in our practice?
Dear Coach:
It is a matter of looking at their financial contribution to the practice, and look at the numbers in your budget spreadsheet to ensure they are generating a profit.
For example, if they gross £1,000 a day and their cut is £400, which leaves the practice with £600. You also need to take into consideration the additional costs of the material and additional finance charges (such as credit card charges), which may be another 1.5 – 2 percent of the gross income.
What is left is the gross profit from that hygienist, and that has to pay for the additional costs of your time in managing them, reception staff, equipment and wear and tear - basically, you have to take into account all the costs associated with them being in your business. This is really the only way to work out whether your hygienist is providing a profit or a loss to your business.
Dear Dentist:
So, with the hygiene team, the first step is to determine how you will pay them, then construct a budget based either on the number of hours they will work or a percent of the fees.
In terms of having an associate, it is unlikely that they would be hired on an employee basis - the paradigm is that associates are self-employed and usually get 45 - 50 percent of gross revenues. So, how do we make provisions for associates in our budgets?
Dear Coach:
The pay structure for an associate situation is a little more complex, but the budgeting concept is pretty much the same as it is with hygienists.
An associate is going to produce a certain amount of money per day. And the expenses will be subtracted from this number - lets say 50 percent would go to the associate, plus there’s the finances charges, the cost of employing extra nurses, the dental materials, etc - what’s left is the amount of money that’s available to contribute to the additional overhead costs for this associate.
Again, you need to take into account the basic costs of having this person in your practice, including your time in managing them, the additional reception costs, equipment, wear and tear, and all the other expenses that occur in your business.
Such costs will vary dramatically in each practice - but if you don’t take these figures into account, you can’t get an accurate idea how much profit your associate is bringing in.
Dear Dentist:
How do you determine how much these overhead costs will be?
Dear Coach:
A good way to start is to look at the breakdown of your fixed and variable expenses on the professional budget you created last time. There are of course some costs that are difficult to pinpoint exactly - like how much time it takes you to manage extra people, how much extra time a receptionist will have to spend, etc.
It may be difficult to come up with an accurate number the first time around. But, if you keep an eye on the trends on a continual basis, you will be able to see patterns over time and make adjustments if necessary.
Dear Dentist:
What if you have a dental practice with a number of associates and hygienists?
Dear Coach:
Obviously, the more people you have working for you, the more complicated it is to determine how much profit each team member is generating for the business.
I’ve found an effective way to do this is to set up your budget from a single-handed dentist perspective. Ask yourself, ‘What would happen if I didn’t have any associates and hygienists?’ Then take everyone out of the equation but you and the minimum skeleton staff needed to run your business.
What would your business look like? What would the costs and expenses be?
From there, each time you add a person, make an effort to determine the additional costs of having that person there. Doing this will help you determine the specific costs associated each person, and see the difference in the overall profit with just you vs. the overall profit with associates and hygienists.