Profit is NOT What you Pay Yourself as a Dentist

By Barb Stackhouse, RDH, M.Ed

There seems to be confusion with dentists about how to define profit. The typical assumption says Profit is what is left over after paying all the operating expenses. The next question is, what is included in operating expenses?

The Profit and Loss report provides you with a number at the bottom of the page and we are led to believe this is profit. However, I have yet to speak with a dentist who knew exactly where that profit went because they do not see it sitting in their bank account.

Mirriam-Webster provides us with this:
Definition of profit
1: a valuable return: GAIN
2: the excess of returns over expenditure in a transaction or series of transactions especially: the excess of the selling price of goods over their cost
3: net income usually for a given period of time
4: the ratio of profit for a given year to the amount of capital invested or to the value of sales
5: the compensation accruing to entrepreneurs for the assumption of risk in business enterprise as distinguished from wages or rent

I contend your own wages for being a dentist in your practice are expenses and not profit. As an entrepreneur, you have many roles in the practice. You are the leader, the manager, the technician and more. Likewise, your compensation should be a reflection of the roles you hold. The truth is you could hire someone to be the technician…you know, do the dentistry. It is possible to hire an associate dentist to deliver dentistry. Many dentists do this.

When you hire an associate dentist, their pay or compensation is an expense to the practice. So why would you not consider your own compensation for doing dentistry
an expense? Just as hiring an associate, you hire yourself to do dentistry. And I bet you also pay yourself to do dentistry. Consider this a business expense.

Now think about this; the entrepreneur role requires a lot of your time. You deserve to be paid for the risk and investment of owning a practice (business). This is true for every entrepreneur who owns a business and also works in the business delivering the product or service. How much time do you spend doing things for your business other than delivering dentistry? Have you ever added up all those hours? What does your time commitment look like each month?

What’s the risk of owning a practice? Usually, there’s a loan with a monthly payment. Maybe there are several loans. The business needs to produce enough to support the team and all the other expenses. All this falls on your shoulders as the owner. Are you getting paid for taking this risk? Are you getting paid for all the time you invest?

If you are not getting paid a profit distribution as compensation for being the entrepreneur, you have created for yourself a job. I’ve had dentists tell me they could work as an associate somewhere else and make more money. This makes me sad. And it makes these dentists wonder why they’ve taken on the risk of ownership. The dream seems to be vanishing.

There is a better way. There is a simple system to solve the problem of Profit. By opening a Profit savings account and allocating money weekly, the practice will provide a way for the entrepreneur to be compensated for working on their business. This is the premise of Profit First for Dentists. Pay yourself first.

Make is simple by starting out with just 1% of all collections. Slowly and methodically increase the percentage to 2, 3, even 5% or more allocated to profit. At the end of each quarter, the profit distribution equals 50% of the total deposits made to Profit for that quarter. This provides another source of income for the owner.

I can’t describe the feeling this gives to the owner. There is a certain satisfaction and joy in knowing your business is providing the income you have worked so hard to achieve. What are you waiting for?


Contributor:

Barbara Stackhouse RDH, M.Ed. founded ‘More to Life’ coaching and created the Premier program ‘Profit First for Dentists,’ the only comprehensive program of its kind in the country. Barb is an educator, leader, consultant and coach exclusively for dentists. Her specialty is helping dentists get control of the financial side of the practice and ultimately find the freedom they desire so they can enjoy ‘More to Life.’ Her extensive background in the dental industry gives her an advantage and deep understanding about the ins and outs of running a profitable, highly successful dental practice. Barb lives in Nashville, TN with her husband and 2 dogs. They enjoy time with their 2 sons, both married to lovely redheads, and 3 grandsons who all reside in Nashville.

View Barb’s full bio