That's Life: Establish Sound Financial Practices and Budgets
That's Life: Establish Sound Financial Practices and Budgets
It’s never been easy to run a successful dental laboratory, and in this turbulent economy, it’s especially difficult.
The changes in materials, equipment, and techniques, combined with managed care, competitive pressure and the high cost of new technology all make operating a profitable laboratory more complex, and much more difficult. Some lab owners wonder if it can be done at all.
Last month I promised to give some suggestions for establishing realistic operating budgets.
No two dental laboratories are alike, and therefore establishing operating budgets will be a very personal thing. For example, a one-man laboratory operating from a laboratory in his home will have significantly less overhead than a laboratory operating from a commercial space. One laboratory owner may be satisfied with a 5 percent return on investment (profit), while another may not be happy with less than 20 percent. For this reason, I will share the operating budgets used in our laboratory. I have compared these numbers with other medium to large laboratories and have found them to be fairly similar: Naturally, your numbers may vary:
MANUFACTURING OVERHEAD (10 percent)
- Freight and Shipping
- Rent-Building
- Rent-Equipment
- Maintenance and Repair-Building
- Maintenance and Repair-Equipment
- Lab Supplies & Small Tools
- Telephones
- Utilities
DIRECT LABOR & BENEFITS (30 percent)
- Labor Costs (all technicians)
- Contract Labor (outside labor)
- All associated payroll taxes
- 70 percent of workers compensation premiums
- 70 percent of group health insurance premiums
- Associated 401k plan expenses
- Associated 125k plan expenses
PURCHASES / MATERIALS (10 percent)
- Model and die
- Wax
- Metal
- Ceramics
- Milling Blocks
- Partials and Dentures
- Implants and Attachments
- Gold and Captek
- Teeth
- Outside Lab Services (orthodontics, etc.)
- Resale Items (tools, clearance guides, etc.)
INDIRECT OVERHEAD (15 percent)
- Advertising and Promotion
- Auto/Truck/Travel
- Accounting Fees
- Bad Debts
- Depreciation
- Dues and Subscriptions
- Employee Relations
- Employee Training
- Interest
- Insurance, General and Vehicle
- Legal and Collection Fees
- Miscellaneous and Bank Fees
- Office Supplies and Expenses
- Postage
- Miscellaneous Tax and Licenses
INDIRECT LABOR and BENEFITS (15 percent)
- Scheduling/Billing/Shipping
- Customer Service
- Office
- Building Maintenance
- Delivery
- Outside Sales
- General Management
- Contract Labor
- All associated payroll taxes
- 30 percent of workers compensation premiums
- 30 percent of group health insurance premiums
- Associated 401k plan expenses
- Associated 125k plan expenses
- Corporate and Officer Expenses
- Corporate Tax Returns
As previously stated, it is important that once you establish budgets you watch them closely, especially if you have been operating without a set of detailed operating budgets. They will need refining and evaluation constantly. It is also helpful to compare these numbers (just the percentages) with other laboratories of similar size, and within the same region as yourself. Percentage information is usually more meaningful than dollar figures, and will protect proprietary information.
Having operating budgets will also give you a better idea of how well you have priced your products. If you have every item in every category at it’s bare minimum, and have not met your budget objectives, you may have a problem with waste (materials as well as time), and theft or more likely, your prices are too low!
The next step is for you to assess your own skills and the needs of your business. Do you know how, for example, to incorporate yourself or to set up your own financial record-keeping system? If so, perhaps you can save some money by doing it yourself. If you are the owner of a new business, I highly suggest you consider hiring a professional during your formative years.
An assessment of your business needs does not have to be exhaustive, but it should be as comprehensive as possible. The reason the assessment is necessary is to enable you to make an informed decision about the services the professional will provide. Being aware of the business's needs allows you to consider suggestions from the professional and to make the best decisions for your business.
Once your business's needs have been assessed, the next step is to locate a professional. A good place to start your search is in your own home. If you have an accountant, lawyer, insurance agent or other professional who handles your personal matters, chances are they will be happy to handle your business matters, or at least provide a reference to someone who will. If you don't have a professional who handles your personal matters, seek referrals from friends and relatives.
Next month, we will discuss some of these professionals and how they can help your business.
