Canada Small Business Related Questions


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Hi All,

I recently join on to be part of a management team that oversees 15 dental offices in Canada. I have been implementing financial metrics for the offices to help control overhead, find break-even points, and establish baselines. I have an MBA, so I am fairly confident with accounting principles and cycles, but am by no means a professional or great with all aspects of accounting. Hence why I am here!

Dental Rundown:
-
Dentists make 40% of what they produce and collect (Canadian. in the USA, many dentists are on salary)
- Hygienists make $40/hr
- X-Ray revenue goes to owner/practice
- Lab revenue is a throughput cost to the customer
- Largest Expenses for Practice: Rent, Salaries and Wages, Dental Supplies
- Typical overhead before paying the dentist is around 60%

Problem 1: Break Even Point

Current Formula:
FC/(1-VC%)

Ex. Data: August Collections: $100k
Dentist Pay: $25k
Staff: $30k
Supplies + Lab: $14k
Facility: $4k
General + Admin: $6k

Issue: I am having trouble deciding what should be included as VC's. Existing formulas for BEP's for dentists only include Dental Supplies + Lab expenses for VC's. However, since we pay our dentists by a % of production, does this make dentist pay a VC? But then again, this 40% VC is not applicable to revenue earned from channels such as hygienists, lab, or x-rays.

Calculation Options:
#1: FC (Dentist Pay, Staff, Facility, G+A) = $65k ... VC (S+L) = $14k ... BEP = $75,581
#2: FC (Staff, Facility, G+A) = $40k ... VC (Dentist Pay, S+L) = $39k ... BEP = $65,574

Which option is correct? Or, am I completely off track here?

Problem 2: True Profitability

Issue: The owner of the practices would like to see, and he states, "True Profitability", each month. I offered to normalize monthly P&L's, provide EBITDAs, etc, but he wants to see monthly Profit - Loan Payments - Asset Purchases. I told him this is closer to gross GF than "true profitability". My logic is that asset purchases for a specific month are seen in the depreciation expense overtime and only the interest on loan payments should be considered for true profitability. If he would like to include those numbers, we may be better off looking at the CF statement for the month. I am correct here, no? I am fairly certain about the asset purchases, but can we somehow include the loan payments into a 'true profitability' calculation to help appease my boss?

Ex. Data: August Collections: $100k
Dentist Pay: $25k
OH: $60k
Profit: $15k
Loan Principal Payment: $10k
Asset Purchases: $3k

Calculation: ?

Thank you all in advance.
 
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