Collections or production? Start your overhead calculation with the right number.
A simple reconciliation explains why billed work and cash received tell different stories.
The number that belongs in this calculator
Collections are amounts received for care. Production is the value of billed or recorded work. Timing, contractual adjustments, refunds, and unpaid balances can make them differ. Our overhead tool uses collections for its simplified cash operating view.
A worked planning example
Suppose a practice reports $120,000 of production but receives $100,000 in collections in the selected month. Operating costs excluding owner compensation total $60,000.
| Denominator | Calculation | Rate |
|---|---|---|
| Collections received | $60,000 / $100,000 | 60% |
| Production recorded | $60,000 / $120,000 | 50% |
Both calculations are mathematically valid, but they describe different relationships. Using production in a collections-based tool can suggest that more cash is available than was received.
Keep owner compensation separate
If modeled owner clinical compensation is $20,000, this example leaves $40,000 before owner pay and $20,000 after that compensation. Do not add the same owner payroll amount to staff costs and enter it again as owner compensation.
Before calculating
- Use the same period for collections and every expense.
- Reconcile collections to your practice and bank records, accounting for timing and adjustments.
- Include employer burden in staff compensation where appropriate.
- Keep distributions, taxes, capital purchases, and debt principal out of this simplified operating model.
This example is hypothetical. It is not an industry benchmark, a forecast, or audited net income. Your accountant can help reconcile cash and accrual reports.
Sources & review
Put the explanation to work.
Use overhead & profitability to explore your own assumptions.
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