Posted:
12/5/2018
Mr. Kirk Behrendt
Cash is to your practice what oxygen is to your life. Without it, you won’t survive for long in business. Dentists, for years, have used the term “overhead,” which really is not a sufficient term to use anymore. It doesn’t give us a true understanding of the profit behind the practice.
Two practices may have seemingly identical 55 percent overheads, but could have different profitability and different nets. One practice may have significantly more profits, while another struggles. That’s because of something called the “profit deception zone.”
The profit deception zone consists of the expenses that don’t show up on a profit-and-loss statement. It’s the added little things that compound, such as debts and note payments. These things take away from profitability.
What is the profit deception zone?
Being the architect behind the future of your practice requires you to have an acute awareness of what your true numbers and true overhead are. Just striving to produce more won’t give you the net result. It’s probably going to make you work harder. You might make a little bit more money, but with tightening reimbursements from PPOs and the changing industry climate, chances are you’re going to be working harder—and for less money—in the future.
The profit deception zone consists of important annual expenses that don’t factor into your P&L statements. These may include the note on your practice, the note on your building, the note on a building renovation or the note on a high-end piece of equipment, like a cone beam computed tomography (CBCT) machine.
Although all of these expenses represent substantial investments in the future of your practice, the profit deception zone can ultimately lead to a dentist servicing too much debt, reducing the overall profitability of the practice and adversely impacting quality of life.
Dentists who rent their building, forgo renovations and hold off on purchasing the latest technology may be able to lose less money to the profit deception zone. While it’s advisable to make investments in the future health of your practice, it’s also important to know your number and understand the amount of debt your practice can comfortably service without cutting too deeply into your margins. Click here to download a handout showing why "True Profit After Debt (TPAD)" is the only profit indicator that matters.
The goal is not to make more money—the goal in dentistry is to have a better life. When you have more profits, and when you have a better practice, you do have a better life. Ready to learn more? Join me at the Hinman Dental Meeting on Thursday, March 21, to see my course, "Optimizing the work life balance" and find out how it all truly works.
Kirk Behrendt is the founder and CEO of ACT Dental. He consults with dentists across the globe and speaks on how they can improve their quality of life and operate more efficient and effective practices. Over the past two decades, Kirk has dedicated himself to creating tools and developing processes designed to preserve the profession of dentistry. He has spoken at every major dental engagement in the United States. Kirk also hosts the “Best Practices Show” podcast.
Click here to view his course lineup for the Hinman Dental Meeting, March 21-23, 2019.
