Dividing up the Dental Office Income – Part I of doing your Numbers

In last Friday’s blog http://wp.me/p2c8zv-m I discussed my late in life findings of paying yourself first, as a Dental Practice Owner. As I said, this was one of the best pieces of information that I learned during my career as a Dental Office Owner. Sadly, I learned it late in my career. But not too late!

What this means is that every day, every week, or every month, you should separate physically a fee to you, the dentist, as remuneration for being a dentist. This is distinct from your remuneration that you receive for being a dental practice owner.

Look at it this way. If you were working in someone else’s dental office, not owned by you, then you would more often than not be remunerated by being paid a percentage of your gross billings. This percentage is often adjusted for dental laboratory costs. But you get my drift, right? At the end of the day, as an assistant dentist, you get paid a percentage for drilling teeth. And that’s all you have to do! Nothing else! That percentage is for the act of dentistry!!

Depending on where you work, and your skill level, that percentage can vary. For whatever reason, down here in Australia, working as an assistant dentist you can expect roughly about a 40% commission. Traditionally that’s 40% for the assistant dentist and 60% for the dental office.

Now here’s the kicker!! As an assistant dentist on 40%, here’s what you don’t do….

An assistant dentist spends zero time doing wages, HR, salaries, annual leave, employee contracts, employee disputes or rosters.  They don’t do stock control. These tasks are performed, at a cost, by the practice.

An assistant dentist does not buy equipment from his percentage. Equipment, especially new equipment, like Cerecs, microscopes, cone-beams and lasers, are provided by the dental office.

An assistant dentist does not go without during a bad week. If takings are down, he still gets the same percentage, usually. In most cases.

Conversely, on a good week, the assistant dentist does not go out and blow his extra earnings on equipment. His percentage is still the same!

A non-dental mentor of mine advocated taking your percentage on smaller time increments. Daily was one he favoured! If you were paid well early in the day, well he advocated getting that separated into your personal account even during lunchtime of that day!

Sadly, a large number of dentists out there operate their offices the same way I used to. That was, using the misguided belief that “if there’s enough gross around, there’s got to be some net left over somewhere”.

Now, I was lucky…but a lot of dentists out there are not! What happens for them is as business owners they muddy the waters between their own salary, and business expenses. They collect a gross fee for the dental office. From this they then pay their dues, i.e. rent, consumables, staff expenses and insurances etc., and then, they see what’s left over!

So many doctors get to the end of a financial year, and often it’s much later, and then get their figures from their accountant, and work out, then and there, whether it’s been a good or bad year.

This is bad business!! If you want to do it correctly, and by that I mean if you want a better way, then you need to separate your fee for being a dentist. From that fee, you can then run your personal expenses separate to your dental office expenses!

Now you may need to set up trusts and service companies. Advice on this I will leave to those more qualified!!
However, in the first instance, it may just be as easy to separate into two entities. Joe Smith Dentist and Joe Smith Dental Practice and Dental Office.

Separating your personal rewards from the business costs and expenses should be your first step in heading towards your true financial rewards for your studies, your financial investment, and your risks, and also those costs incurred (separately) for your toiling in running the business.

Without this separation, you’ll find yourself spending your whole life running on the treadmill wheel, much like a gerbil…a lot of action but going nowhere!!

So, let’s briefly consider what you do with your 40% you take as a dentist. Take it daily, take it weekly. Transfer the funds, your percentage, into your own separate account, away  from what’s left, which is the dental office account.

The amount you leave for the dental office, their 60%, we’ll talk about how that is appropriated next week.

From this 40% amount, you need to separate the following:

  • An amount for superannuation/retirement planning. Work out your best tax concessions on this. You need to be putting money away for the future. From Day One. And if not from Day one, from today onwards.
  • An amount for taxation. Work out your tax liabilities on your dentist generated income…then put this away into a separate account.
  • From what’s left is what you live on. Separate your personal expenses into this part; cars, school fees, living, holidays etc. all go here. Don’t muddy the waters by accidentally or otherwise putting these expenses across (inadvertently or illegally) into business.

The most important idea I want you to take from this blog is the compartmentalization of the dental office income. Appropriating money into various accounts will make life easier for you, now, and definitely in the future. But you need to separate your income from the money the business needs.

Next week we’ll discuss the ratios in appropriating the 60% the dental office keeps.

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