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Value Versus Sell-Ability

Buyer/Seller Perspectives: Everything affects the value and sell-ability of your practice.  This will be the start of several articles covering how to make your practice worth more while lowering overhead and increasing profitability while incorporating a practice strategy that will guarantee unlimited growth for decades to come.  Today’s topic outlines the four major types of practices and their positives and negatives, and how senior doctors and junior doctors perceive value.  Many of the points that are made here are counterintuitive in the sense that many doctors look in just the complete 180 degree wrong direction for solutions to their problems.  They have been listening to the wrong sources and moving in the wrong direction for sustainable practice growth for way too long.  It is time for a course correction, and I hope you will see the logic over the next couple of articles.

 

Senior DDS Junior DDS
TECHNOLOGY May or may not have it. Does not relate it to success. Expects it in order to be successful. Has never seen an x-ray “film”.
DEMOGRAPHICS Have changed and the doctor may not be aware of the impact. Must insure competitive environment.
TIMING Is everything. Most wait too long. Gives you choices if you begin early.
SERVICES Refers out more services. Fails to upgrade or add services. Can add services, therefore increase productivity.
AGE: Practice Needs upgrades, systems, equipment, staff, location. Poor first impression.
AGE: Doctor Resists change; set in ways. Poor competence and confidence. May not have business skills to compete.

 

Types of Practices:

Boutique: High production per new patient ($3,000.00/NP and higher), total production in the $1,500,000-$3,000,000 range (the struggling Boutique practice may just be getting by with low production), higher fee schedule for each individual procedure, “all or nothing” case presentation without consideration of “wants” or “needs”, overhead in the 65-70% range due to doctor purchasing all of the new toys available on the market (the Shiny Object Syndrome), doctor usually over 40 years of age, few new patients/month (10-15), usually has a lower direct referral rate, all adults between age of 40-65, high square footage to operatory size,  often times the practice is overstaffed for the total production per employee ($12,000-$16,000/Employee), high-end finish out, location is usually in an exclusive high-end area meaning higher rent, very difficult to ramp up new patients or to be able to change with changing demographics and over all branding, high overhead dependent on the number of large cases per month, personality, competence and confidence driven, difficult to reproduce with/for another doctor, in a sale or transition there would be low value per production due to lack of transferability or reproducible for a buyer, moderate to high stress, influenced more from economic trends and demographics (only 3% of population wants, needs, or can afford this type of treatment), and location can be everything, due to diminishing locales that can support this type of practice.  On scale of desirability (1-10) to buy or work in, is a 4 to 6.  Ten year success prospects are low (1-5) at a 1-2 due to trends of increasing managed care, decreasing needs for implants and full mouth rehabilitation, more competition with more competitive prices and better hours and corporate practice growth.  There will always be boutique practices but only in certain diminishing locations available to support this strategy with a select few talented charismatic doctors (it is probably not you).  This doctor is always surprised that their practices are not worth more on the market.  Younger dentists have become more knowledgeable about the risks of ownership and are shying away from this type of practice.  It is almost impossible to transfer ownership with an expectation of growth or upside increase in productivity.  Seldom will the buyer have the charisma, clinical excellence, draw of high dollar older patients, or the confidence in their business skills to pull off a successful transition toward growth.  There is almost no upside for the buyer.

“Donor” General Practice: Low production ($400,000-$600,000/year), high overhead (65-75%), poor production per operatory ($8,000-$10,000/op), low production per staff member ($10,000-$12,000), poor condition of office environment (looks old, poorly maintained, smells bad, old equipment, no digital x-rays, no nitrous), may not have a hygienist (or too few for length of time in practice), poor systems, no marketing, low number of new patients (less than 25/month), few direct referrals, usually an older doctor (or a start-up practice in the first two years), older staff, poor location, and no consumerism.  Grade of 2-4 for a job, but could be a 6-8 as far as purchasing (cost would be low, increase in productivity with systems and marketing allow a very fast growth and possible upside).  10 year prospect:  Depends on doctor, and location.  Could be great or even the best purchase with implementing the right systems, staff, and doctor.

“Recipient” General Practice: High production ($1,000,000-unlimited), 2 hygienists per doctor producing 1/3 of total production, 50-70 new patients/month/doctor, marketing is consistent with an outreach for all patients and ages.  They spend 3-5% of collections on marketing.  Production per staff member will approach $20,000-25,000/month with production per operatory approaching $25,000-30,000/month.  Usual age of doctor will be 35-50.  The practice will be poised for growth with systems designed to meet consumer needs.  Hours are consumer driven and practice is in need of another producer.  Facility is new or in “as new” condition with up to date design, at least 6 fully equipped operatories, self-motivated and long term staff having fun and getting the job done.  Grade:  7-10 for a job (great learning environment from a doctor that is doing it right), and 6-8 for buying.  A problem occurs in how to bring in an associate or partner:  If the value is too high (usual value would be 65-70+% of the last 12 month’s production or 1.5-2 times the net, but waiting too long means that no single doctor can afford to purchase it).  This limits the range of buyers unless owner is willing to carry the note or do multiple fractional sales.  As a buyer you should also consider that any practice that has been in the same location 10-15 years is probably in the wrong location for future growth now:  Think ten years in the future for demographics, and more competition moving into the area.

Medicaid Practice:  A well-run Medicaid practice can do $300,000-$500,000/month.  Production per new patient is low (less than $1,000/patient), but numbers of new patients are extremely high.  A systems driven practice with low overhead, high staff and doctor turnover, no life-long patients, marketing driven with location best near source of patients.  Value is extremely high since none of the patients come for the service, staff, or doctor.  They are there because it is free and convenient.  Value is high because if purchased on Friday by another doctor, the productivity would remain the same.  It has a high transferability after the sale.  Buyer beware:  Prediction for the future is that Medicaid will cease to exist in its present form.  The US can ill afford to support non-productive, non-citizens, that fail to contribute to our tax base.  Economic pressures could cause this to be greatly diminished or possibly disappear within five years.

Specialist Practice: Terrible trends and a poor future indeed for specialists.  With the trend for high overpopulation by dentists in metropolitan areas, specialists can count on fewer and fewer referrals.  Only Pediatric Dentistry and Orthodontics have actually marketed their message to the public.  The rest of the specialty practices rely on a referral from a population of doctors who are finding they struggle to maintain their standard of living and productivity.  With extra holes in their schedule, these same dentists are finding that 99% of specialty services can easily be done by a general practitioner.  The consumer has voted too: If they had their way they would never be referred.  They would much rather have a trusted friend and family dentist see their kids and do ortho, endo, implants, sedation, and cosmetic procedures.  Add in the advances of technology making it much easier to do services that ten years ago only a specialist did, and you have the numbers we have today.  Orthodontists are down 47% in the last 3 years due to Invisalign and General Dentists taking up ortho.  Oral Surgeons are taking on implants and facial cosmetics to replace wisdom tooth referrals and other sedation cases that GP’s are taking on, and Periodontists are struggling to replace implants and perio-hygiene being done by hygienists in general practices.  You can see the writing on the wall.  These specialists better take heed because they will need to reinvent themselves or perish.  Take Prosthodontics.  I don’t know a dentist that refers to them.  The ADA on the other hand states that only a board certified Prosthodontist is qualified to take on difficult full mouth reconstruction and complex cosmetic cases.  They go on to point out that claims of cosmetics, aesthetics or any other iteration or claim of expertise or sub-specialty do not exist and are making false claims and are in violation of their State Dental Practice Act.

Dentists betting on sedation or implants along with adult cosmetics are bucking the statistical numbers.   Decayed, missing, and filled teeth are almost nonexistent in our younger generations in most parts of the country.  More and more dentists offer what used to be specialty services and therefore dilute the available patient pool for each specialist.  Costs are rising and fewer patients are seeking the “specialist” for their services.  In fact, it has gotten difficult to find any marketing or any dentist that doesn’t tout themselves as a cosmetic dentist, aesthetic, sedation, implant, sleep, or smile and cosmetic make over specialist.   Even the best Boutique practices are seeing diminishing referrals due to their existing patients not referring because they were afraid their friends and neighbors could not afford to go there.

Summary:

In between each of these practices are many levels and situations.  This should give you a heads up on the pluses and minuses when you begin to look.  Throw in the possibility of a National Health Care Plan with the eventual inclusion of dentistry and you can see the challenges that face us.  You have only to look at Canada and England to get a feeling and historic perspective of a government run health care system.  In Nevada in 2005 the IRS seized a business for failure to pay millions in back taxes.  During the year that they (IRS) ran the business trying to recapture the tax lien it slowly went out of business.  This only leads credence to the trouble with big government and the illusion that any agency of the federal government could guide, control, or legislate health care.  Oh, I forgot to tell you:  The business was a profitable multimillion dollar a year high end brothel selling sex and alcohol.  I’ve got to think that if you can’t make money selling that, what hope do we have if the Feds stick their finger in our businesses?

Next month I will discuss the ultimate solution to practice strategy:  “The Super General Practice”.

Michael Abernathy
[email protected]
972-523-4660