Owning and practicing in your own business has many challenges. One of the toughest is knowing how much you should pay yourself. Pay yourself too much and you compromise the cash flow needs of the practice. Pay yourself too little and you can’t meet your personal overhead requirements. Because of cash flow inconsistency, you may […]
Owning and practicing in your own business has many challenges.
One of the toughest is knowing how much you should pay yourself. Pay yourself too much and you compromise the cash flow needs of the practice. Pay yourself too little and you can’t meet your personal overhead requirements. Because of cash flow inconsistency, you may just end up taking the leftovers in your checking account at the end of the month. Dentist pay gets even more murky if multiple doctors and associates are working together.
Now that you have reconciled your first quarter financials, use the information in the following way to keep your practice healthy.
First, run a simple production report from your practice management software. For January through April, pull up your real production- this should account for any discounts or insurance adjustments. What is that number? If your goal is to maintain a healthy practice with high cash flow, your annual salary for this year should roughly resemble this figure.
If you are in the camp of just paying yourself the leftovers, you may want to use this metric to develop a regular salary for yourself. If you are a new dentist, or an associate trying to understand what a dentist should get paid in the first place, this is a right approach.
Surprised by the number?
I hope not. Using data simply in your practice can help turn otherwise emotional decisions into objectively informed choices. Using this approach allows you to make course corrections long before property and tax bills start to arrive. It can also motivate you to invest your time and resources toward improvement. What can you learn to move your patients to greater levels of health? What can you do to get a handle on your overhead? Is your team healthy enough to make a positive change also? You have plenty of time left in the year for progress.
How does your pay relate to the rest of your practice expenses?
Ever wonder if you are spending the right amount of money on other stuff around your practice? While every practice is unique, it is nice to have a simple standard to begin working. Sometimes, cash allocation criteria can be used to work backward. For example, you may be looking for a space to lease and want to know how much you’re going to need to produce to make the space profitable. Or you may be considering hiring another team member and want to know how much it will take to maintain or grow profit following the hire. Unfortunately, many consultants withhold these recommendations, so we dentists have trouble knowing if we are winning or losing when it comes to managing cash flow. I have published a calculator on the internet if you and your team need help as you start to make financial decisions to maintain a healthy practice. You can use it for free at waterfallprofitcalculator.com.
Good luck with the rest of your year!
