Ep. 35: Four Big Mistakes Dentists Make with Finances
With inflation and rising costs recently, being sharp with your finances is more crucial than ever. So in this week’s episode, Jeff discusses common financial mistakes dentists make that can be very costly in the long run—as well as some tips on how to tighten up your practice’s overhead.
Topics:
4:07 – A Profit & Loss Statement is NOT a good representation of your overhead or budget
9:12 – Things you should never outsource
11:21 – Underutilizing the things you’re already paying for
16:02 – Failing to consider long-term impact before making financial decisions
Links:
Morning Production Meeting document - https://www.mgeonline.com/morning-production-meeting-download
Learn more about MGE – https://www.mgeonline.com
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Questions From This Episode
Why is running your practice off your P&L a mistake, and what should you use instead?
A P&L only shows what already happened, it's after the fact, while your overhead sheet is what lets you actually plan ahead of time. A large annual expense can make a single month's P&L look alarming even when the practice is perfectly on track, if that expense was already accounted for in the monthly overhead. Overhead tells you what it actually costs to run the business; the P&L just tells you whether you stuck to that plan.
What financial tasks should stay in-house instead of being outsourced?
Payroll processing is fine to outsource, but calculating what the team should actually be paid, tracking bills, and reconciling bank accounts should stay in-house. Handing off account reconciliation specifically means not finding out about a real financial problem until weeks after it happened, once the accountant finally delivers the numbers, by which point it's too late to catch it early.
How do you tell the difference between actually needing a new piece of equipment and just wanting it?
Look at the real financial case before buying: how many procedures would this equipment actually support each month, and would that volume cover the payment. A practice adding a fourth operatory to fix production problems, or buying a same-day crown machine while only doing three or four crowns a month, is often solving the wrong problem, since the real issue is usually scheduling efficiency, staffing, or an underused resource that's already being paid for.
Why is it risky to make a major financial decision, like relocating your practice, without gaming out the long-term impact first?
Because an expensive move or purchase made on assumption rather than analysis can quietly turn a profitable practice into an unprofitable one, and there's little that can be done to reverse it after the fact. Before committing to something that size, it's worth honestly asking whether the practice is genuinely maxed out and needs the space, or whether the real opportunity lies in improving what's already there.
Episode Transcript
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Over the course of my career, I've met with several thousand dentists specifically on the subject of overhead and profitability. Most of these meetings happen for one of two reasons: either the doctor feels their practice isn't profitable enough, or they genuinely don't know what's actually happening with their expenses, what it actually costs to run their business.
Across all of these meetings, I've kept a running mental tally of the most common mistakes I see, not the specifics of any one practice, but the recurring patterns. That's what I want to cover this week: the four biggest financial management mistakes I consistently see. My name is Jeff Blumberg, and I'm your host.
Financial management is obviously a large subject, and I'm not attempting to cover all of it here, just these four specific mistakes. If you want a deeper foundation, we offer a free online seminar called Keys to Practice Profitability, link on the episode page, and the MGE Power Program includes a full three day seminar specifically on financial management and profitability.
Before getting into the four mistakes themselves, I want to address a mindset I see in roughly half the doctors I talk to. I'll start asking about their finances, and I get some version of, I don't really know anything about that, I know how to make money, I leave that side to someone else, or it's just confusing so I don't deal with it. That's a genuinely risky mindset. Whether you're comfortable with it or not, owning your practice makes you a business owner, and anything you don't understand about your own finances can genuinely hurt you.
I'm not saying you need to file your own taxes or build complex financial reports yourself. But you do need to understand what's happening in your practice financially, and how your own decisions actually affect it, along with a working grasp of the basic terminology. Think about a conversation with your own accountant where they mention something about taxes you don't fully follow. I always ask what it means in that moment, and honestly, if my accountant won't take the time to explain it clearly without making me feel foolish for asking, that's a sign I need a different accountant.
It's the same principle you'd apply with your own patients. If you used a clinical term they didn't understand, the buccal surface of a tooth, say, and they asked what that meant, of course you'd explain it, that's just basic courtesy, and leaving a patient confused is worse for the relationship than it might seem. The same logic applies to you and your own finances. If there are things about the financial side of your practice you don't understand, treating it as someone else's problem or not your concern will genuinely cost you control over your own business.
With that said, let's get into the four mistakes.
Mistake number one: running your practice finances entirely off your P&L. Here's what I mean. I'll sit down with someone and ask what their overhead is, and the answer is often, I don't know, let me check my P&L, or, profit wasn't great this month according to what my accountant sent over. In other words, every management decision is being made purely based on the P&L.
To be clear, a P&L genuinely has real value, I'm not saying otherwise. But what you should actually be managing by is your overhead. Here's an admittedly unusual analogy that I think actually works well: think of a human cannonball act at a circus. The performer gets shot out of a cannon and, ideally, lands in a net. If the cannon's angle, trajectory, or the performer's weight wasn't properly accounted for beforehand, they might land somewhere in the bleachers instead, hopefully unharmed, but clearly off target.
Where they actually land is your P&L. That's simply what happened, after the fact. How the cannon was aimed, the trajectory, the calculations made beforehand, that's your overhead. If you're only managing based on where things landed, you're always working two steps behind. The P&L still has a real use, though, checking whether you actually hit your target. Did we really only spend 6,000 dollars on dental supplies like we planned? That's exactly what the P&L is good for.
A simpler analogy: planning a family road trip. Deciding where you're going and how you'll get there, that's your overhead, the planning phase. Actually arriving somewhere, well, here we are in Kansas City, that's your P&L, the after-the-fact result you check against the plan.
Here's a real example of how this can throw someone off. I was talking with a client recently whose profit for the month came in lower than expected on their P&L, understandably a bit alarming at first glance. But why was it lower? A P&L is essentially just what came in, what went out, and what's left over. That particular month, the practice actually had a strong collections month, but also had a large expense that only comes up once a year, somewhere in the 30,000 to 40,000 dollar range.
That single expense made that month's profit look worse than it actually was. But if the overhead is properly built, that annual expense is already being set aside monthly in advance, say 3,000 dollars a month toward a 36,000 dollar annual cost, so when that bill actually comes due, the money's already there and it's simply paid, no surprise, no alarm. The P&L shows a one-time 36,000 dollar hit that specific month, which won't repeat next month since it was only paid once, but with proper overhead planning, it was never actually a problem in the first place.
So the real priority is genuinely knowing your overhead, what it actually costs to run your business, since that number tells you whether you'll be profitable at all. And your overhead sheet needs to account for more than routine monthly expenses, it needs to include semi-annual and annual expenses too, properly built into the monthly plan. I've put a copy of the MGE Overhead Sheet, both analog and digital versions, on the episode page. If you don't have a clear handle on your own overhead right now, I'd genuinely recommend downloading it and filling it out for your own practice. You have to know what it actually costs to operate before you can know whether you're truly profitable. From there, use your P&L specifically to check whether you're sticking to that plan, and to catch anywhere you might be overspending relative to it.
Mistake number two, a smaller one, but connected to how I opened this episode: outsourcing things that genuinely shouldn't be outsourced. There's a lot you can reasonably outsource today, even reception in some cases. But when it comes to finance specifically, certain things belong in-house.
Payroll processing itself is fine to outsource, going through payroll manually every pay period is genuinely tedious. But who's actually calculating what your team should be paid, that should stay in-house. I'd also recommend having genuine financial management software in place, so you actually know your bills, your checking account balance, and how everything is categorized in real time.
I've seen practices outsource even bank reconciliation entirely, which I think is a real mistake. Think it through: if everything is on autopay so nothing gets missed, and you're not personally reconciling accounts, how would you even know what your actual overhead is? Say your bookkeeper handles February's records in March, and you don't receive a reconciled P&L until the end of March, only to discover a 20,000 dollar discrepancy. That's simply too much lag time.
I'd keep this in-house, the office manager paying bills directly, the doctor overseeing where money actually goes. It genuinely doesn't take that long to manage, and a larger practice might justify a part-time in-house bookkeeper. Keeping it in-house also makes tax season considerably smoother, since everything is already organized when it goes to your accountant. My general operating principle: anything I hand off entirely, I lose real visibility and control over. That's not to say you need to control everything personally, but your own finances specifically deserve real oversight.
Mistake number three: spending money on things you don't actually need, or more precisely, not fully using what you're already paying for. This one covers a lot of ground, so let's walk through a few examples.
Say a practice has production problems, and the proposed fix is adding a fourth operatory, going from three chairs to four. If the doctor is the only provider working across those three chairs with three dental assistants supporting them, adding a fourth chair likely isn't solving the actual underlying problem. The real issue could be inefficient scheduling, assistants who need better training or workflow, or, very commonly, the practice genuinely needing a second provider. It could also simply be that patients are scheduled sequentially rather than efficiently, doing one crown, bringing the patient back separately for the next one, generating more visits and traffic than genuinely necessary.
The same pattern shows up with equipment like CEREC or cone beam systems. I've seen practices invest in a same-day crown machine while only completing three or four crowns a month, on the theory that having same-day capability alone will be a major marketing draw. Realistically, most patients have no real understanding of what a CEREC or cone beam even is, it's simply not a meaningful selling point to the general public the way it feels like it should be internally. Owning the equipment alone doesn't magically increase revenue.
Before a purchase like a cone beam, it's worth honestly asking: how many scans would this practice realistically do monthly, are cases currently being referred out, and would that referral volume, brought in-house, actually cover the lease payment? Same logic for a CEREC unit specifically, how many crowns are done monthly now, and would that volume genuinely justify the investment.
Hygiene is another area where this shows up constantly. We've covered this in prior episodes, but a practice with thousands of charts running only three days of hygiene, while spending heavily on new patient marketing, is a real red flag. With three, four, five thousand charts, that practice should reasonably support multiple full-time hygienists. All that marketing spend is bringing patients in, so where are they actually going afterward? That's a resource already being paid for and significantly underused.
One more example: a busy practice carrying heavy PPO and even HMO participation, doing a large volume of, say, 700 dollar crowns. In a scenario like that, especially if the doctor is genuinely overextended trying to keep up with volume, it's worth seriously evaluating dropping some of those plans. Yes, that likely reduces volume, but with the right skills to run a genuinely private, fee-for-service practice, you typically end up collecting more for the same amount of time, not less overall profitability, something we've covered in more depth elsewhere.
Across all of these, the real question is: am I actually getting full value from what I'm already paying for, and before any major purchase, do I genuinely need this. Need and want are worth distinguishing carefully here. I genuinely need air, water, and food to survive. I want nice jeans or a nicer car, a real difference. But in a financial context, people will often say, we need a new computer, when what they usually mean is, this one feels a bit slow, even though that same slower computer didn't stop last month from being a strong one. Before any major purchase, ask honestly whether it's genuinely needed, what you'll actually gain from it, and whether it will realistically pay for itself, ideally with some profit left over.
Mistake number four connects directly to number three: making major financial decisions without genuinely gaming out their long-term impact. This is a significant one.
I remember a client from fairly early in my career, back in the mid-1990s. He'd been running a smaller, functional, genuinely profitable practice out of three or four chairs, nothing especially fancy, but it worked well and made real money. He decided to build his dream office instead, block glass, an elaborate driftwood front desk, genuinely striking for its time. After the move, he went from consistently profitable to not making money at all.
After the fact, there's not much that can be done to undo a decision like that. Whether he'd simply overspent on the new space, or didn't genuinely need to move in the first place, from what I recall, he wasn't operating at a volume that actually required expansion, either way, that decision wasn't properly evaluated beforehand. Without honestly modeling out how a major decision plays out over the following year or two, or working from assumptions rather than real numbers, like assuming three additional chairs will automatically translate to proportionally higher production, it's genuinely easy to end up in real financial trouble. I remember him later saying he wished he'd never made that move, which is a bit sad, since that office really was cutting-edge and beautiful for its era.
So before a major move or expense, ask honestly: what's actually driving this decision. Are you truly at capacity and unable to grow further where you are, or is there real, achievable opportunity in optimizing what you already have first? A practice relocation is a genuinely expensive undertaking in dentistry. Occasionally a truly exceptional opportunity, a great real estate deal, comes along and is worth taking, that's fair. But this is genuinely nuanced territory that's difficult to fully address in a podcast format, since every practice's situation differs.
If you're facing a major decision like this, we're genuinely happy to help think it through directly, you can always reach me at jeffb@mgeonline.com. To be clear, we're not attorneys or accountants and this isn't legal or tax advice, you're ultimately responsible for your own decisions. But real financial discipline in decision-making genuinely matters here. The numbers don't lie.
So those are the four big mistakes. There's obviously a great deal more to financial management beyond overhead specifically, broader business planning, debt management, retirement planning, and so on, all covered in more depth in our seminars. But I wanted to give you a genuine starting point to think through as you manage your own practice's finances, especially with profitability under real pressure in the current inflationary environment.
If you'd like help getting a handle on your own overhead, reach out directly or email me at jeffb@mgeonline.com. And if you're new to MGE and want to explore this topic further, check out our free seminar, Keys to Practice Profitability, link on the episode page. That's everything for this week, if you enjoyed this episode, please take a moment to follow or subscribe wherever you're listening, we always appreciate the feedback, and we'll see you at the next episode.