You want to catch it at the cavity stage, not the extraction stage. That goes for teeth, and it goes for your practice’s numbers.
Most dentists judge the practice off two things: the production report and the bank balance. Both of them will lie to you. Your bank balance moves with tax payments, distributions, and loan payments, so a comfortable-looking account can be sitting on top of a rough six months.
July is when that is still fixable. You have six months of real data behind you and five months of runway in front of you, which is the last stretch of the year where you can change the outcome instead of just reporting it.
Here are the five numbers we pull for every dental client at the midpoint, what they should look like, and what to do when they don’t.
Why July is the Right Month to Run the Check
Because November is too late.
By then most tax planning moves need decisions you should have made in the summer: retirement plan funding, equipment timing, entity changes, resetting your estimates.
Running this in July gives you five months to act on what you find. Running it in October gives you a few weeks and a much shorter list of options.
Think of it as the X-ray. You can’t build a treatment plan without one, and you can’t fix a margin you have never actually looked at.
What Should Your Overhead Percentage Be at Mid-Year?
Overhead isn’t one number; it’s a control panel. Every knob you turn- staffing, marketing, supplies- gives you a different result depending on what stage your practice is in, so the total matters far less than what sits underneath it. We break the whole thing down in why your practice isn’t as profitable as you think.
Here is what we hold clients to.
Staff cost, not counting what you pay yourself, should run 20 to 30% of collections, and the sweet spot is 25%. A newer practice will run 30% or higher, and in the first year or two it can sit near 35%. That isn’t a red flag; that’s a startup. Compare a startup to a startup, not to a mature two-doctor office.
Lab runs 10 to 15%. Supplies run 5 to 8%, and higher if you are placing a lot of implants. Fixed cost, meaning rent, G&A, subscriptions, and marketing together, lands between 15 and 30% depending on your stage.
The math itself is simple. Total practice expenses, everything except owner compensation and taxes, divided by collections. Collect $800,000 in the first half, spend $530,000 running the place, and you are at 66%.
Let’s look at an example. An established practice came to us, and we noticed their supply costs dropped. We asked whether they were buying less. They said no, they had been overpaying for about a year and a half, same vendor the whole time, the one who comes by every six months with cookies. Nobody had ever checked.
So we tied a quarterly bonus for the front desk to finding a better price. They started calling vendors between patients. One $1.6 million practice cut almost $35,000 in supply costs that way, with no other investment.
Net Profit Margin Tells You What You Actually Keep
Collections is what you earn. Margin is what you keep, and only one of those two pays for your life.
When we reverse engineer an income goal for a client, we model margin at 30%, 32%, or 35% depending on the practice. That is a modeling assumption, not a rule. What is right for you depends on your stage, your payer mix, and what you actually want the practice to pay you.
Here is the floor. If the practice isn’t clearing 20 to 25% after paying the doctor and the hygienist, you don’t own a business; you own a job with a lot of paperwork attached.
Let’s look at an example. A client joined us this year with a million dollars in collections, taking home about $100,000 after taxes. Booked solid. Collections were fine.
She was a new mom, and when we asked what success actually looked like for her, nobody had ever asked her that before. She wanted three days a week and two rental properties in four years.
So we worked backwards from a $300,000 take-home number and built the year around it. Our dental bookkeeping and accounting work puts this number in front of you monthly, so nobody finds out in February.
Your W-2 number was a Guess in January, Is It Still Right?
If you are an S corp, the split between your W-2 salary and your distributions is the one mid-year number with the IRS attached to it. There is no leeway on payroll taxes and no real appeal, so this is not the place to wing it.
The IRS requires S-corp owners to pay themselves a reasonable salary for the work they actually do. They do not publish a dollar figure or a percentage split, whatever you heard at a study club. It is judged on your training, your duties, your hours, and what comparable dentists get paid.
Too low and you are exposed. Too high and you are handing over payroll tax you didn’t owe and shrinking your own retirement contribution room.
You set that number in January off very little information. You now have six months of real production, which makes July the moment to recalibrate while payroll can still absorb it. We do this with every client as part of our proactive tax planning work.
Are your Quarterly Estimates Still Accurate?
Probably not, if the practice moved at all. The payments you made in April and June both came off a projection built back in January, and the next one is due September 15.
The IRS is blunt about what happens if you get it wrong: if you don’t pay enough by the due date of each period, you can be charged a penalty even if you are owed a refund when you file.
We had a client paying last year’s tax bill on the return and this year’s estimates at the same time. A double hit, bleeding her cash flow while she was producing well. That is what a stale projection actually costs.
The fix takes about twenty minutes. Year-to-date net practice income through June, apply your combined federal and state rate, subtract what you have already paid, and you have your September number.
We use July to model the whole year too, not just the next quarter. If you are running ahead of plan, equipment timing, retirement funding, and your W-2 are all still live levers.
Your collection rate tells you whether the production is real
Production is what you did. Collections is what you got paid for, and the gap between the two is the quietest money leak in dentistry.
A well-run office with good systems should be collecting around 95% of what it produces. We have seen practices sitting at 89 to 92% feeling perfectly fine about it, because the production report looked strong and nobody was watching underneath it.
A few points on a million dollars of production is real money. It is usually something fixable, too: claims going out late, write-offs nobody approved, balances nobody chased.
You are not going to bully the insurance companies unless you go fee-for-service, so the only way to win that margin back is to run a smarter operation. We work on this monthly with our dental CFO clients.
If you are thinking about selling in the next two to four years, this one counts twice. A buyer values the practice on collections, so every point you leave uncollected costs you now and again at closing.
The free dental practice valuation calculator will give you a directional read on where you stand.
What Do You Do When The Numbers Don’t Look Right?
You act in July, not December. We watch owners wait for things to correct on their own, and it almost never happens.
The usual moves: recalibrate the W-2, accelerate or defer an equipment purchase depending on the tax picture, raise the estimates before a penalty starts, fund a retirement plan (a defined benefit plan has to be established by December 31 of the plan year), or restructure how an associate is paid so the lab and overhead ratios line up with what they actually produce.
None of that is exotic. It is pulling the right numbers at the right time and leaving yourself enough runway to do something about them.
If you want to run these five numbers with us and see where your practice actually stands, book a call with the Dental CPA USA team.
We work only with dental practice owners, so you can skip the part where you explain what a prophy is.
If you liked this, you might also like: The Most Common Accounting Mistakes We See Dentists Make.
Until next time!
About the Author
Omar Virjee, CPA is the founder of Virjee Consulting, a CPA firm specializing in year-round tax planning and monthly bookkeeping for solo and small-group dental practice owners across the United States. Omar focuses on helping dentists maximize owner take-home pay through proactive tax strategy, S-Corp optimization, dental real estate planning, and clear monthly financials.
Meet Omar · Schedule a Consultation
Getting owner pay right is half tax question and half payroll mechanics, and our dental payroll services cover the mechanics side.
