Four Ways that Redefine Cost and Overhead for the New Economy

As a small business owner, you typically depend on your accountant to help you make critical financial decisions for the greater success of your orthodontic practice. But is your accountant taking every cost and investment into consideration? Does your accountant understand which expenses actually provide more profit and more ease for you? Of course they don’t. They are responsible for tracking, auditing, and collecting financial information so they can influence your budget for the following year to help you reach maximum success. 

While your accountant is still doing their job, and doing it well, they are doing you a disservice by treating all of your financial expenses equally. One thing you can do to help is to understand the Four Quadrant System. This is a financial system that redefines cost and overhead by breaking various expenses into four main groups: 

  1. Fixed costs
  2. Variables costs
  3. Fixed investments
  4. Variable investments

Because this economy is vastly different from the economy most of us grew up in, we have to rethink and reimagine everything we’ve been taught about numbers and spending. Before we dive into each quadrant, take out a piece of paper and draw this system out to give you a helpful visual and will help you get in the proper headspace for our new economy. Draw a giant plus sign, and then in the upper left-hand corner, write “Fixed Costs.” Then in the lower left-hand corner, write “Variable Costs.” The top left will say “Fixed Investments,” and the lower right will say “Variable Investments.” Fill out each quadrant as you learn what information belongs in each to better understand how this system can be useful.

Fixed Costs

Your upper left-hand quadrant should contain your company’s Fixed Costs, which should be the same costs from month to month. These costs help keep your doors open but don’t necessarily grow your business. Most of your employees’ paychecks will fall into this category, along with any other fixed monthly costs you have.

Variable Costs

Think of the lower loft quadrant similarly to the upper left. These are the monthly costs you know you will have and that you need to keep your doors open but that aren’t growing or bettering your business. Things that fall into this category are expenses like your water bill, the electricity bill, and any other expenses you know you will have to pay but that you can’t guarantee the exact cost of every month. Both the fixed costs and variable costs are essential, obviously, so we can’t count them out, but it is necessary to dive into the right side of our Four Quadrant System.

Fixed Investments

In the upper right hand corner of your paper, write down any fixed monthly expense you pay out that helps your business grow. So, anything from the use of companies like New Patient Group and Wright Chat to the rockstar employees at your business are considered Fixed Investments. Yes, these are all costs, and that is exactly how your accountant would see them but they are so much more than just costs. These expenses provide a larger return than what you pay out; they grow your business and make your life easier in the long run. 

You may be thinking to yourself, “This is the second category accounting for employees? Does that make sense?” Yes! Because these employees are different from your Fixed Cost employees. Rockstar employees are the associates that go above and beyond in all they do for your company. They arrive to work early and are some of the last to leave, without being asked. These employees provide a different kind of value to your business and should be seen as irreplaceable. Because they work harder and assist you in growing your business, they are seen as investments. You might have to pay these associates more than others, but you almost have to pay them more in order to keep them around. Offer them what no other company would offer them, because you can’t afford to lose them. Find your rockstar employees and invest in them because they will absolutely provide a return on that investment.

Variable Investments

We finish out our Four Quadrant System with Variable Investments in the bottom right-hand corner. These expenses are monthly expenses that change each month, but are investments rather than costs. Think of your Clear Aligners or Dental Monitoring Systems. While the lab fees and monthly payments can be an expensive investment, they also provide a greater return in time and use of resources. When your patients use Clear Aligners rather than traditional braces, they spend less time in your chair, which gives you more time to see new patients, so you are actually increasing your patient load without simultaneously increasing your workload. Your patients still receive the best care and the smile of their dreams, but you have fewer emergency appointments, fewer last-minute appointments, and less chaos.

Not All Expenses are Equal

If you showed all of the above expenses to your accountant, he or she would measure each expense with the same value. Then your accountant would advise you to cut down the largest expenses to reduce your overhead costs. Which in all fairness, is exactly what your accountant should do for you. But, now that you know your costs vs. your investments, you know each expense is weighted differently. They can’t be counted as equal because they aren’t equal. Some of your highest costs will bring the most return, but your accountant won’t see that when looking at just the numbers. 

In your Four Quadrant System, the left side is all costs and the right side is all investments. It is really easy to have a larger list of items on the left-hand side. While those items are all necessary, you should really aim to have more on the right side because those are the expenses that are going to make you more money. The more you dump into your right-hand side, the more your business will grow, and the more stress-free your life will become. 

With any business, your main goal is to make money while enjoying your work. Another huge perk to increasing the right side of your Four Quadrant System is the increased freedom these investments give you. Each of the Fixed and Variable Investments gives you and your associates more time back, so each of you can focus on being the best at what you do, rather than being spread thin. For example, if you invest in Wright Chat, your phones will be answered by associates with top-tier customer service skills, and your front office employees will be free to greet patients right in front of them. With an investment like this, all of your customers are treated like royalty.

Some of this may seem foreign, but this is the way of the new economy. In order to have a successful business, you have to intentionally invest your money. Utilize the companies like New Patient Group and Wright Chat that have hired the best of the best, and can provide gold-standard service to you and your customers every time. 

Our associates at New Patient Group are focused on staying up to date on the latest trends in coaching and marketing, so we can provide your business with evolutionary techniques to keep you on top. Understanding the difference between costs and investments and really capitalizing on those investments will transform your business and even your life outside of work. Continue to listen to our podcasts and blogs for more tips and tricks to help you stay successful in this new economy.

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