Like everything else in life there is a beginning and an end. In this endeavor, the end is a successful practice that keeps patients happy, makes at least 40% difference between cost of doing business and what is left to take home, low to no staff turnover, and consistent growth of 15% plus every year. Basically a “they all lived happily ever after” sort of ending. This ending does not have to be a fairy tale, but a real reproducible outcome as you expand your outlook to buy your first practice or add another office.
There are a couple of things to discuss based on a “ready, aim, fire” scenario to ensure a consistent result and minimize setbacks along the way. Since we have first time buyers reading as well as seasoned doctor owners who plan to expand to another office, I want to make sure that before you step to the line, you are actually ready. I realize that I have mentioned this before over the last few weeks but it bears repeating. If you own a practice and you are considering another office purchase, you must have your house in order: Overhead below 63%, long term staff (little to no turnover), at least about 30 new patients per hygienist with twice the number of hygiene hours as doctors hours, production of $20,000 to $25,000 per employee per month, $25,000 to $30,000 per Op per month, 50% plus direct referrals, and still engaged and motivated towards growth of about 15% or more a year. If not, go back to the drawing table and ensure that you can check off these benchmarks.
If you are a first-time buyer, make sure that you consistently have over $60,000 of net adjusted production a month and that translates into at least $500 to $600 per hour of net adjusted production every month. Take a hard look at yourself to ensure that you are a consummate student of practice management: Staffing, marketing, systems, leadership, everything. Owning is far more complex than production levels in an office that supplies your patients, systems, and staff. This “student” or lifetime commitment to learning is a journey, not a destination. Those who do well continue to learn and apply what they learn – and they include learning about business and people skills, not focusing solely on clinical learning. Finally, make sure you have been paying off your student loans, saving money, and have the highest possible credit scores. Those who left school, bought new cars, have revolving credit they never pay off, and have only scratched the surface of student loan pay back, are not good candidates for ownership. Banks like to see that you are mature in your attitude and aptitude for finance and business.
Both the first-time buyer and the seasoned dentist need to consider these items next.
- What can you afford: Just like shopping for a new home, you have to know what you can qualify for.
- You must put together a bank package of three years tax returns along with your Profit and Loss Statements for the bank to tell you what you could qualify for in debt service.
- NOTE: They will loan more than you should Be cautious of staying well below what you can qualify for.
- Young doctors need to consider additional loans for homes, children, school debt, car loans, etc.
- Know the amount that you qualify for before you even consider looking at practices. Stay well within that loan amount when you consider a purchase. Don’t let yourself get overextended.
- In addition to the purchase price, you will also need to capitalize the new venture with a line of credit to pay bills. So add another $5,000 a month for marketing, additional equipment and software if you are purchasing an existing office.
- How many days do you plan to work? If you’re not ready, willing, and able to work more hours and days, there will be a problem.
- Forget what you are currently doing and put on that “whatever it takes” attitude. There are hours and days that you must consider in a new venture that in the past you have not had to consider. Every new office needs to be open Saturdays, and all day every Friday. Giving patients what they want, when they want it, at a price they will pay are the start of consumerism and an indication of whether you will grow.
- Decide the number of hours you will work and then make 90% of them “peak demand times” (7-10 AM, 3-5 or 6 PM, and Saturdays). More peak demand times equal more new patients in a shorter time period. NOTE: Whatever it takes is the right attitude.
- If this is a second office, you need to dedicate more time to the startup preparation and continued maintenance. NOTE: Most of us need to accept that our days are already filled with activities. If you are going to take on a new office, you need to dedicate the time and stop doing something else. Can you put down something that you are currently doing to allow you another 8 hours a week to manage, lead, and build your new project?
- If this is your first owned practice, the bank may demand that you work part time elsewhere to secure lending. NOTE: Save the best days for your own practice (Fridays and Saturdays).
- If you are a first-time buyer: Do you have a “non-compete clause” in your current contract and a notification time span that you must fulfill with your termination?
- Range of Services: You need to be doing oral surgery, endo, some ortho, seeing kids, etc. What is your range of services? The wider the range of services delivered to a wider range of ages means more patients, faster growth, and quicker debt retirement.
- Clinical Speed: At some point, clinical speed can hold back your growth potential. If it takes you an hour and a half to do a single crown prep, you have got problems. Your hourly production needs to be in the $600 range if possible. Profitability is not so much a function of what you spend. Rather, it is what and how fast you produce. A sad but actual reality in the “business” of dentistry.
- Case acceptance: With the public spending less, and postponing dental visits, you will need the “it” or “WOW” factor working for you. Case acceptance rates in the 80% to 90% range are an essential part of success in dentistry. It takes great people skills, the ability to under promise and over deliver, while helping your patients want what you have to give them. If direct referrals are below 50% and case acceptance is below 65%, you need to wait while you clean up your act before purchasing another practice. Mediocrity multiplied to new locations will mean a failed business plan every time.
Once you can answer these questions, you can begin the search. Being able to check these boxes means you are doing what you need to do to Summit. You are on your way to being “Ready”. Next week, we will look at “Aim”.
Michael Abernathy, DDS
PS. If you’re already looking at a practice, whether as a first time practice buyer or as an expansion strategy, we would be happy to take a look at the numbers. We’ve reviewed hundreds of these transactions and have a good track record of helping dentists avoid nasty pitfalls and, quite often, save thousands of dollars on the purchase. All you have to do is call or email. You’ve got nothing to lose!