The largest expense in most dental practices is the staff. Why?
You can buy composite for as cheap as you like. You can tell your hygienist to only use one disinfectant wipe when flipping the operatory. (But seriously, you shouldn’t.) You can move your crowns to a new lab.
You can find ways to pay as little as possible in most areas of business, however, employees often don’t like it when they feel like you’re trying to get them to do work for you at a discounted rate.
Now what I said is true on the side of the employee, but from a business owner’s perspective, they should be paid what they’re worth and what is standard for their position and your location. I’m not encouraging you to be stingy or overly gracious to a financial fault.
So when you’re looking at a practice, how do you know if these expenses are well managed?
Staff expenses usually run around 28-30% of the office expenses. This includes staff salaries, payroll taxes and any employee benefits.
If you’re looking at an office that is notably lower than this range, perfect; you don’t have to touch a thing!
Plus, this means that you can step into the office on Day 1 and not be immediately stressed about paying your staff, student and practice loans, etc.
If you really wanted to, you could come in like the office’s knight in shining armor and, after a few weeks, maybe give some raises and still be considered “well-managed.”
Either scenario already creates loyalty to you from the staff because they either don’t see any changes in their compensation or they might even get a little boost.
One of my friends is a hygienist and let me tell you, she has frequently mentioned that staff loyalty has a noticeable correlation with patient retention and treatment acceptance.
This might make you wonder, “Well, if the staff are very well paid, won’t that mean that they’re extra loyal and the office production will increase even more?” The answer is no.
While compensation does contribute to an employee feeling valued, there is a cap on its impact on production. The graph for “employee compensation” and “rate of pay” eventually levels off and the office is just overpaying for no reason.
Staff expenses are not only the largest expense, but it’s the least likely to decrease. Why?
The longer a staff member has been on the team, the higher their wage is going to be. An assistant just out of her program is not going to make as much as a veteran of 25 years. Same can be said for any position of the office, especially the hygienist(s).
Additionally, it’s rarely recommended to step into the office and say, “Hey team, I’m the new head honcho. I don’t want to provide 401K or health benefits like the last guy did so that’s going to be gone”.
Do you think the well-trained, well-liked and reliable staff will stay? Highly unlikely.
You may get lucky and some of those seasoned staff members may want to retire within the first few years of your ownership, but don’t count on it.
If you’re looking at an office that is a little higher than average with their wages, before you write them off completely, I want you to consider a few things.
First off, some sellers become very generous as they approach retirement. Maybe they just want to leave their staff with a parting gift.
For whatever reason, it’s possible that not long before you started going through the financials, the doctor decided to give everyone substantial raises and insane Christmas bonuses.
Ask the seller when the last round of employee evaluations and raises were given. If it was recent, ask when the prior time was. Find out how often these employees are being given (and expecting to be given) raises.
The second consideration should be the value of the staff. If you’re looking at employee census reports and see that Joanne, the office manager, is making a pretty penny, there may be a reason for that.
Joanne may be getting paid more because she is so efficient at collecting outstanding payments from patients without being a bulldog. Maybe Joanne has the magic touch and can ask patients to fork over the dough and still send them on their way smiling. Someone like that is worth every penny.
Keep in mind, just because Joanne is worth it, may not mean all employees are. After a few months of ownership, you may be willing to swallow the cost of keeping Joanne, but to balance out those expenses, you may need to let a very inefficient, inexperienced dental assistant go.
Moral of the story: Pay attention to staff costs and don’t be afraid to ask follow up questions!