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What Should Your Overhead Actually Be? A Dental CPA’s Real Numbers

The question every new practice owner asks their accountant is the same one: what’s my overhead — and is it too high?

Darin Sitto hears it constantly. His answer starts with an unpopular truth: the number is meaningless until you define what’s in it. Some owners include a doctor’s salary, some don’t; some dump every wage into one payroll line and wonder why nothing on the P&L tells them anything.

Sitto is a partner at Dental ROI Associates, the dental-specific CPA firm he and his brother joined after careers that ran through Deloitte and corporate finance, alongside founding partner Greig Davis, who spent nearly three decades running a regional dental CPA practice. We had him on the Dentelligentsia podcast, and he gave us the cleanest version of the practice-finance framework we’ve heard. Here it is, numbers included.

Build a P&L that actually says something

Start by splitting the statement the way his firm does. First, true cost of services — the expenses that move with production: supplies, lab, associate wages, hygiene wages, assistant wages. Then the fixed buckets: facility costs, staff and benefits, practice development, administrative. Sitto’s firm is adamant about bifurcating payroll into its real categories, because one lump “wages” line hides everything a benchmark could tell you.

Now the targets, for a general practice. Overhead — not counting a reasonable salary for the owner-doctor — should run 55 to 60 percent, which means the owner takes home 40 to 45 cents of every collected dollar before paying themselves as a producer. Factor in a reasonable doctor’s compensation and you get true EBITDA: what the practice would earn if you had to pay someone else to do your dentistry. A healthy GP practice lands between 17 and 25 percent.

Two more mix numbers worth watching: hygiene should contribute roughly 25 to 30 percent of production, with doctor production the balance — and hygiene wages should sit in a sane relation to what the hygiene department actually produces. And don’t stop at the P&L. Pull the practice-management reports and watch accounts receivable aging, because plenty of practices produce beautifully and collect badly, and that gap is usually a front-desk process problem you can fix in a month.

The red flags when you’re buying

Associates evaluating a practice tend to price it as a percentage of collections. Useful shorthand, Sitto says — and not the story. His example: would you rather own a $1 million practice at 20 percent EBITDA or a $2 million practice at 5? “I’ll choose the million-dollar practice all day.”

Getting to the real number means working the P&L from soup to nuts, and the add-backs deserve special suspicion. Brokers present a headline of “what you stand to make,” assembled from add-backs — shareholder perks, non-operational expenses, family members on payroll. Ask of each one: is this a real expense I’ll still carry? A spouse doing genuine work has to be replaced by a salary you’ll actually pay.

Then haircut the revenue honestly. If the selling doctor collects at legacy Delta Premier rates and you’ll be reimbursed as a PPO dentist, his firm conservatively trims 20 percent off those collections in the projection. Budget another 10 to 15 percent for patient attrition through the transition — normal, survivable, and much less scary when it was in the model from day one.

Finally, his growth pulse-check: one new patient per month for every day a month the doctor works. An owner working four days a week should see roughly 16 new patients a month; add an associate at the same schedule and the practice needs about 32. Below that, the practice is quietly shrinking no matter what this year’s collections say.

Why the benchmark is the point

All of these numbers work for one reason: comparison. A dental-specific CPA firm sees hundreds of practices of similar size, specialty, and geography, and can tell you whether your staff costs are actually high or just feel high, what practices like yours spend on marketing, and where the outliers on your P&L are. A generalist sees one dental practice — yours.

Sitto’s analogy is the one your own patients use: you don’t send a root canal to a GP who dabbles. Every profession is specializing, because the complexity keeps going up. The same logic applies to the attorney, the lender, and — we’ll say it since he did — the real estate team.

Startup or acquisition? Both work — know the difference

Asked how he coaches associates weighing a startup against buying a practice, Sitto started with a correction: the two get discussed as if they’re interchangeable, and they aren’t. The costs differ massively, the effort curves differ, and the fit depends on the person — geography, appetite, and honestly, temperament.

His practical filters: with a startup, can you keep your associate income while the new practice ramps, so the debt service doesn’t depend on a patient base that doesn’t exist yet? Is there a real marketing fund — not leftovers — to build that patient base? And either way, the risk is lower than the fear suggests: dentists carry the second-lowest loan default rate of any profession his lenders see. The banks’ enthusiasm for lending to you is data. His conclusion matched our experience: explore both paths seriously, because the exercise itself teaches you which one you actually want.

Cost segregation, in plain English

We put a client-favorite question to him: what is a cost segregation study, and when is it worth it?

The concept: when you buy or build, the cost normally depreciates slowly over decades. A cost seg study breaks the project into components — building, improvements, fixtures, equipment — and moves what qualifies into faster depreciation categories, front-loading your deductions into the early years, exactly when a new owner drowning in startup costs needs them. It also gives you a defensible, documented allocation if you’re ever audited. The deduction isn’t a check in the mail; it’s income you don’t pay tax on — his example, $300,000 of first-year depreciation turning $500,000 of taxable income into $200,000.

His rules of thumb: doing a startup with a building and a buildout north of a million dollars all-in? Do the study, full stop. Buying a building? Generally worth it above roughly $500,000 to $750,000 in purchase price, depending on your situation. Wait until the buildout is complete so one study captures everything. And because bonus-depreciation rules have been phasing and shifting with tax legislation, have your CPA model the actual current-year benefit against the study’s cost before you commit — the arithmetic changes, the logic doesn’t.

What the good outcomes look like

Two stories from his files. A doctor opened a startup in the teeth of COVID — a terrifying moment to launch anything — invested hard in marketing, and is now at overflow capacity in year three, with Sitto’s firm assembling the bank package for location number two. Another bought a specialty practice from a retiring doctor on the west side of Michigan and is blowing out the projections eighteen months in — projections his firm deliberately builds conservative, so reality has room to be pleasant.

The pattern underneath both: a team assembled early — CPA, lender, attorney, real estate — and a plan that ran on numbers instead of vibes. That’s also the answer to the compliment Sitto says his firm hears most, which is barely a compliment at all: “My guys actually answer the phone.” The bar in professional services is apparently on the floor. Step over it when you hire.

Take a breath

His advice to his 20-year-old self doubles as advice to every associate frozen at the edge of ownership: stop over-analyzing. “You have the right people, the right trusted advisors — talk to them, then make a decision and roll with it. Things tend to figure themselves out.” And his long-view take on the industry should steady anyone spooked by consolidation headlines: DSOs and private equity will keep churning, but there will always be a place for private practice, because the moat is old-fashioned patient service. “Treat people right, and success will follow. Money follows the success.”

The full conversation with Darin Sitto is on the Dentelligentsia podcast. And when the numbers say grow — more operatories, a building, a second location — the real estate half of that model is what we do all day. Talk to us.