Starting a new year offers the perfect opportunity to breathe fresh energy into your dental practice. It’s a chance to reassess your objectives and envision where you’d like to be in the coming years.
While lofty goals might feel overwhelming, progress often begins with small, manageable steps—like creating a dental practice budget.
Think of a budget as your practice’s blueprint for success. As the saying goes, “Failing to plan is planning to fail.”
A well-thought-out budget is far more than a simple formality. It’s a practical tool that empowers you to make informed decisions, guiding your practice toward sustained growth and success. Without a budget, running a dental practice can feel like navigating uncharted waters without a compass or map.
This guide will walk you through creating a dental practice budget and share practical tips to help you confidently master the process.
Step 1: Choose a Budgeting Method
The way you structure your budget matters—it’s the foundation for how you’ll manage your practice’s finances. Here are three popular approaches, and how they can work for dentists:
- Incremental Budgeting: Adjust last year’s numbers slightly to account for growth or inflation. This works well for predictable expenses like rent, utilities, or salaries but doesn’t help you identify inefficiencies or changes.
- Zero-Based Budgeting: Start fresh and justify every expense. While this method takes more time, it’s great for finding areas where you might be overspending, such as marketing campaigns that didn’t deliver results.
- Top-Down Budgeting: Leadership sets the overall goals, and the budget is built to reflect those priorities. While this keeps the budget aligned with strategic objectives, it may leave your team feeling left out.
Blending methods can work well: For example, use incremental budgeting for fixed costs like rent and utilities, but take a zero-based approach for variable or growth expenses, like new equipment or marketing campaigns.
What to Do: Take stock of your practice’s expenses and decide which method (or combination) feels the most practical.
Step 2: Assess Past Performance
Looking back at past performance gives you a clear view of what worked—and what didn’t. This step is all about pinpointing the challenges and understanding their root causes so you can address them in your 2025 budget.
Examples of What to Look For:
- Inventory Shortages: Did you run out of supplies like resins? This could indicate poor inventory management. Adjust your budget to ensure these essentials are prioritized.
- Patient Wait Times: If your practice struggled to meet demand, you might need to allocate funds for additional staff or new scheduling software.
- Unplanned Expenses: Did a broken piece of equipment disrupt operations? Consider creating a reserve fund for emergencies.
What to Do: List the top 3 issues your practice faced last year and estimate how much solving them will cost. Make sure these solutions are reflected in your new budget.
Step 3: Recalibrate Your Current Budget
Once you’ve identified past issues, it’s time to adjust your budget to better meet your practice’s needs. A good starting point is categorizing your expenses:
- Fixed Costs: These stay consistent, like rent, insurance, and staff salaries.
- Variable Costs: These fluctuate, such as supplies or continuing education for your team.
- Performance-Linked Costs: These tie directly to goals, like upgrading equipment or expanding your marketing efforts.
What to Do:
- Evaluate non-essential expenses. Are there subscriptions or services you don’t really use?
- Build a liquidity buffer—a financial cushion to help with cash flow during slow months or unexpected situations. Aim for 1-3 months’ worth of operating expenses.
Step 4: Draft the Formal Budget
Once you’ve gathered all the information, it’s time to create your actual budget. A clear, organized format makes all the difference here.
Tools to Use:
- Spreadsheets like Excel or Google Sheets are simple and customizable.
- Dental-specific budgeting software can automate calculations and provide helpful templates.
How to Structure It:
- Revenue: Project your income based on patient volume, average billing, and expected growth.
- Expenses: Break down fixed, variable, and performance-linked costs.
- Savings: Include a line for your liquidity buffer or future investments.
What to Do: If this feels overwhelming, consider using a pre-designed budgeting template or working with a dental CPA to streamline the process.
Step 5: Share the Budget with Stakeholders
A budget works best when everyone understands their role in sticking to it. For larger teams, this means presenting the plan clearly and aligning it with the practice’s overall goals. For smaller practices, collaboration might involve working with a dental CPA or setting regular check-ins with your staff.
What to Do:
- Schedule monthly or quarterly budget reviews to compare actual results against your budgeted figures.
- Use these check-ins to address any variances early and make necessary adjustments.
Step 6: Monitor and Adjust Regularly
Your budget isn’t set in stone—it’s a tool you can adjust as needed. Regular monitoring helps you catch issues early and stay on track.
Key Metrics to Watch:
- Revenue trends: Are you hitting your income goals?
- Overhead: Are your fixed costs staying consistent?
- Profit margins: Are you maintaining healthy margins, or are expenses eating into profits?
What to Do: Use tools like QuickBooks or practice management software to track performance in real-time. If something doesn’t add up, dig into the details to find the cause and make adjustments.
Still Struggling With Budgeting?
If creating a budget still feels overwhelming, reaching out to a dental CPA can make all the difference. An expert not only takes the stress off your plate but ensures your budget aligns with your practice’s unique needs and goals.
At Virjee Consulting, our team specializes in helping dental practices navigate taxation, accounting, and strategic planning.
Let us help you build a budget that works for you.
You can head over to our Contact Page or use the form below to get started.
Until next time!
