Hey! That got your attention, Principals, Associates and Practice Managers I suspect…
The simple answer is two-fold:
- The Associate along with the Principal and the Practice Manager have to understand the true cost of opening the Associate’s surgery for a day.
- The Associate has to be willing to work hard and not discount the fees or give the treatments away.
Let’s have a look at the true cost of opening a surgery for the day.
Here’s a typical three surgery practice.
- Principal works 4 days/week grossing £1200/day for 46 weeks/year grossing £220,800
- Associate works 4 days/week grossing £1000/day for 46 weeks/year grossing £184,000
- Hygienist works 4 days/week grossing £550/day for 46 weeks/year grossing £101,200
Total Practice Gross = £506,000
The Lab Bills are 8% of turnover = £31,680/year
The Materials Bills are 6% of turnover = £42,240/year
The Fixed Costs are £228,000/year.
(These are bang-on average bench-mark figures from hundreds of Breathe Clients!)
In this example, if the Principal pays his/her Associate 50% after lab and his/her hygienist £33/hour:
The Principal’s profit will be:- £74,450/year
The Associate will earn:- £84,640/year
The Hygienist will earn:- £45,540/year
Well, that’s hardly fair! It’s equivalent to the Principal being a 33% Associate in his/her own practice. He/she might as well sell it now, get an Associate job and earn (on a 50% contract) circa, £101,000/year!
This pattern is being repeated up and down the length of the UK. Principals are getting to resent their Associates and Hygienists who are rushing to the moral and ethical high ground crying, “but I’m worth it”. The Associate’s percentage is still a terribly emotive number in an Associate’s life, some seem to see it as a measure of their worth and let it determine their self-esteem. Some seem oblivious to the idea that 40% of a big number is better than 50% of a smaller one!
Anyway, back to our Principal in the above example, the real problem here is not the Principal, the Associate or the Hygienist, it’s the practice fixed costs and by their very nature it’s hard for the principal to do much about this. They’ve increased through CQC compliance and materials inflation and, in reality, they are likely to continue rising.
If you are still with me, here’s the really important bit and I strongly recommend Principals to do this:
Let me show you how to find out how much your practice costs to open per surgery per day…
First, calculate your fixed costs from your most recent profit and loss accounts. Your fixed costs are your total costs less:
- Your Drawings (and tax savings)
- Your Associate’s Pay
- Your Hygienist’s Pay
- Lab Bills
- Material Bills
Then (in the example above the fixed costs are £228,000/year, absolutely typical for a practice this size.) Work out the number of days in a year the practice has in order to recover the fixed costs, this is the number of days the three clinicians are working, which is 552 days.
So, in this example, £228,000 divided by 552 days means that the cost of opening one surgery is £413/day.
Now let’s look at a day in the life of this practice for the Associate:
So, our Associate grosses £1000/day, his/her lab bills are 8%, that is, £80, leaving £920 to split 50%:50%.
The Associate gets £460, happy boy/girl!
The Principal gets £460 from which he/she pays all of the materials, (6% of £1000 = £60) leaving the Principal with £400.
The surgery costs/day are £413,
Leaving our unhappy Principal with Minus £13…
That’s the problem. What’s the solution?
Our unhappy Principal has 2 choices,
- To reduce the Associate’s %
- To increase the Associate’s daily gross
If the Principal reduces the Associates percentage to 45%
Associate grosses £1000/day, his/her lab bills are 8%, that is, £80, leaving £920 to split 45% to Associate 55% to Principal.
The Associate gets £414, not quite so happy boy/girl!
The Principal gets £506 from which he/she pays all of the materials, (6% of £1000 = £60) leaving the Principal with £446.
The surgery costs/day are £413,
Leaving our slightly happier Principal with £33.
So, What Does An Associate Have To Do To Receive 50%?
(Last set of numbers!) If the Associate raises his/her clinical game, works faster, or longer hours or offers higher value dentistry and thereby lifts his/her gross to the same as the Principal, £1,200/day, he/she can have 50%.
Here’s the maths: Associate grosses £1200/day, his/her lab bills are 8%, that is, £96, leaving £1,104 to split 50% to Associate 50% to Principal.
The Associate gets £552, very happy boy/girl!
The Principal gets £552 from which he/she pays all of the materials, (6% of £1200 = £72) leaving the Principal with £480.
The surgery costs/day are £413,
Leaving our happy Principal with £67.
So my friends, once and for all, will all you associates stop moaning about your percentage and all you principals stop moaning about your associates. Please will you get together and share the numbers so that you can all understand when an associate is profitable and when he/she isn’t…
If you are an associate or a principal and you would like some help with keeping everyone happy and profitable, please contact me:
e. simon.hocken@breathebusiness.co.uk
t. 07770 430576.
With All Good Wishes,
Simon.