The Truth Should Define Your Future Choices
A couple of months ago, I spoke with probably one of the best clinical doctors I know. You would think that at his age and high level of clinical excellence he would have the “business of Dentistry” all figured out. That was the furthest thing from the truth: Even the “Great” struggle. Below you will find a few pages of the email I sent him after being asked: “What should I do?” After rereading it, it could be the state of the union for most of the doctors I know or speak to. Take the time to read it and see if you can see yourself in these suggestions.
While your office is nice and the staff is great, your practice has several challenges to consider.
1. Good income demographic at $74,171 median household income, but few have any dental need other than hygiene and bread and butter dentistry.
2. The ratio of doctor to patients is poor at 1:856 and is compounded by the small population in your current zip code of 10,282 (normal would be 30,000).
3. You have several dentists moving into your area with nicer offices, better locations (visibility), more services, better hours and marketing to a wider range of patients. This alone will challenge any effort to bring in another doctor to increase normal dentistry in your office.
4. Your current level of spending for marketing is 6.9% but it does not bring in any new patients. At this spending level I would expect 40-60 new patients per month. I can only guess that what you are marketing is something that the general public does not want. Re-doing your entire marketing outreach using billboards, radio, TV, social media, website, Google ads, videos, and signage will cost more and you will need to draw patients from at least 40 miles away in order to make this work. I would expect a monthly cost in the range of about $8,000 or more.
5. The average age of the patients in your office is about 50-60, which is not unusual for the type of dentistry you do. The problem is that the average age for the public within 40 miles of your office is 33.7 and is 37 in your current zip code. When I see offices where the demographics in the office are significantly different than those of the public outside of the office, you can count on ever decreasing success and an unsustainable future: The preverbal slow death spiral.
6. You don’t take any insurance and this will mean that you will not attract about 69% of the population within the 40-mile radius of your office. Keep in mind that if you bring in another dentist to see the insurance patients and build the general part of your practice, you will need to market the fact that you want to see the entire family, you take their insurance and are in network, and have interest free financing. In marketing, the public wants to see great hours (early and late weekday hours plus Fridays and Saturdays), in-network for their insurance, interest free financing, something for the whole family, and the variety of services they need.
7. Your hours will compromise your efforts. At some point you will have to consider this as a challenge in growing your patient load. I would suggest that you lose a day during the week and open Friday instead.
8. Currently your internal referral rate is about 33%. I recommend that offices that don’t have at least a 50% referral rate not spend money on marketing until they clean up what it is about the practice that patients don’t like. In general, this is the number one trait of a “donor” practice.
9. Currently the overhead in your practice is too high. I feel like you could certainly lower it to 60% in the next 12 months with an increase in productivity of 15%, and an increase of new patients to 20 per month.
I am doubtful that you are willing to change everything in your office to achieve the goals that are imperative to reach in the next 10 years. You said that you wanted this to happen in 5 to 7 years, which would be unlikely considering the nine points above. The three options that I am outlining are just suggestions, but they are also arranged in the order that I feel you could or would consider or be able to execute.
1. Keep the office dedicated to full mouth cosmetic procedures. Increase your marketing, but increase it to a point of seeing at least 20 new patients a month. It is not the dollar amount that counts. It is the number of bodies that come through the door as well as the percentage that say “Yes”. With this said, you may need to spend more than $10,000 per month. You will need to control your overhead and at the same time make some improvements in signage, landscaping, and décor of the office. A schedule change and the flexibility to meet and exceed the requests of any of your patients will be huge. The main thing here is that the clock is ticking and I would set a deadline of 6-9 months to turn around the direct referrals and number of new patients. I would also begin your search for a doctor. You have never worked with another dentist and you need to learn to interview and appraise the applicants. Your goal here is not to look for someone like you. You need someone who will compliment you so that the office will be stronger because of the two of you together rather than either one of you separately. Find someone that likes doing what you do not: Kids, endo, oral surgery, etc.
2. The second strategy is a hybrid and would be to act now on the hiring of an associate on a part-time basis initially. They will be taking all insurances in your area and work every Saturday and Friday. This should grow the general side of your practice, but this will also be difficult. Your office is ill prepared to make this transition and the staff is not up to dealing with insurance and a higher new patient load. In your email, you expressed concern that in the past you were unable to get the insurance companies to cover the cost and get the patients to pay their portion that resulted in you having a 90% collection rate. All of our clients have at least a 99% collection rate and most have over 105% due to prepayment for treatment. The only reason your accounts receivable was poor hinged on poor financial arrangements and a poor follow-up system. This will not be a problem. The average reimbursement adjustment in 90% of our offices that take managed care (only 7% of dentists in the US don’t take managed care in-network) is about 20-30%. If your fee schedule is higher than the average office then you would expect more, but the bottom line is that what we as dentists can charge is and has always decreased for the last 20 years. This will continue. In business, any business, you can expect that what you sell today won’t even be sellable in the future, and what you charge today will be less in the future. It is a constant race to embrace change in order to be relevant to your clients in an ever-changing and demanding future.
3. The third strategy would be an associate and yourself turning the office into an aggressive profitable business while retaining your current level of cosmetic cases. This is the area that I am doubtful about your ability to execute. With a timeline of 5 years and a goal of no debt and about $3,000,000 in cash, we have to at least double the practice, increase your savings to close to $100,000 a year, eliminate all debt, sell the practice at a premium, not take on more debt, and begin a “plan B” type program to supplement your current income.
You will need an “all in “attitude on any or all of these areas. My concern is that you seem to want to cut back and coast. That will be impossible with the time line you have set. You need to evaluate, decide, and take action within the next 6-9 months. You have to find a formula that will work for you quickly and move forward. I failed to list the fourth option, which would be a “retire in practice” strategy where you would continue to work at a diminished capacity for an indefinite period of time. The reason I did not list this is because it depends on several factors that are not on the table right now: Your physical health to practice, emotional health, financial needs in retirement, and your investment approaches or how they may affect the outcome of a viable exit strategy. At your age, it is statistically unlikely that you will be able to continue to practice more than 5-10 more years. It is unlikely that your current practice strategy will survive over the next 5-10 years. It is unlikely that the practice will bring much to the table in a sale after 7-10 years if the entire US moves towards socialized medicine. The “retire in practice” strategy will give you less than 50% of the income you are experiencing now.
There is no perfect answer to your situation. There are no guarantees on what will result or whether you can execute any or all of these options. The certainty in all of this is that if you continue to do what you are currently doing, you will reach a point at which the practice cannot survive sometime during the next 3-5 years. If I can help in any way just give me a call.
Michael Abernathy, DDS