Let’s say you are with us so far, and we are on the same page. You are either a doctor looking for a job, or an owner doctor considering bringing in another dentist to the practice. You understand how this can be messed up from either party and you are still willing to go forward. There is one more area you must consider in order to have a successful transition or exit strategy. While anything can be sold, and you can work for any practice, we want you to get the greatest return on your investment of time and strategy. This due diligence, from both sides, is important to ensure a successful transition. There are some parameters that I would like you to consider in order to ensure that this transition meets your wealth building, debt reduction, and retirement goals. You will find this next section to be very challenging to accomplish. While failure to measure up is not necessarily a reason not to proceed, it is the first hurdle you face in striving for the type of practice it takes to successfully have multiple doctors or a job that gives you the most mentoring and pay. For those of you who are reading this in order to exit your practice, these benchmarks and considerations will affect the final price you are able to ask for your practice. For those that are younger and considering who to work for or even whether to consider a buy-in or buy-out, these numbers will mean everything. Take the time to pull out your P&L statements, month and/or year-end computer reports and tax returns. Take a seriously close look at the numbers. Your young doctor will ask questions about these, and you will need to appear knowledgeable and confident in their presentation. Transparency will guarantee that you both will find the process less stressful and will ensure that you consider things that might cause this transition to fail.
You should consider a partner/associate when your schedule is too full, and you are tired and busy but poised for growth. It never works if the senior doctor is tired, busy, and burned out. There needs to be a history of consistent growth and Super General Dental Practice benchmarks, which we will begin to discuss today. The next area that should concern you is overhead and benchmarks that every well-run general practice should consider trying to attain. I am using a general practice and not a specialty or boutique practice as an example. The numbers will still work, and you should not consider these benchmarks as unrealistic or unobtainable. All of the practices that I have owned either met or exceeded the benchmarks you are about to study. These benchmarks are what a great general practice should look like. They will give you maximum profit, lower overhead, decreased stress, and an excellent practice to sell. With the previous statement in mind, accept that over 75% of the practices that seek associates are not ready for them. It is more a “bucket list” item that doctors seem to need to check off rather than a well-executed practice strategy based on successful systems, protocols, and results. If this is going to be an associateship, you need to find a practice that can check most of the boxes we are about to discuss. The challenge is that your debt is looming, any job sounds like a safety net, and most young doctors assume that owner doctors and existing practices actually need another doctor and that this practice owner knows what they are doing. The most likely scenario is an owner doctor and a potential employee where you have the blind leading the blind. They both are clueless to the flexibility, engagement, and change that will be needed to make this work. It is always easy to “settle” for something, rather than take your time and find the right fit. Great practices don’t just happen, they are created. What follows is a can’t miss formula for dental success. If you have not already begun to ready The Super General Dental Practice (free digital download at www.supergeneralpractice.com) make sure you get to chapters 16 and 17 which are added here in an abbreviated fashion.
If you can define or create a picture of where you want to be, you will shorten the path and improve the result. As successful author Steven Covey would say: Begin with the end in mind. The challenge is that as a young doctor you have not been exposed to a successful business plan for a dental practice. As an owner your success is defined by you and not by an industry standard. Usually, you both begin this journey of a transition as “unconsciously incompetent”; you don’t know what you don’t know. This is the primary reason that I am writing this.
As a note of caution, I would not consider adding another doctor unless you can get your overhead down to at least 63%. Failing this will destroy your profit in a transition. The same is true in overhead. Your overhead should be in the 50% to 60% range. This is realistic in any practice that is 5 years old or older. I see too many practices with bragging rights of huge production, but the truth is that the owner takes very little home. It has always been and will always be about net, not gross. You should be able to keep approximately half of every dollar you collect. One of our mottos is: “Produce More, Collect Half, and Keep Half”. Remember: You should collect over 98% of all collectible fees (adjusted net production). In fact, it is not difficult to collect more than 100% of your net adjusted production every month when your patients prepay for dental treatment. In my practices, I say that over 100% is always our goal because we encourage payment in advance and extend a 5% discount to those patients who take advantage of this adjustment. An increase in productivity is of no value if the cost of overhead is not contained. We also believe strongly that you need to have a “debt-free” mentality. You are either moving towards that with a valid plan or you have arrived. It’s amazing how much less stressful every day is when you’re out of debt. When working with young doctors to start a practice, we insist on a plan to make them debt-free within 3-5 years. When working with established doctors, we fight to get them to put their house in order, live within their means (spend less and produce more), and concentrate on the systems that guarantee an increase in net income and a decrease in overall overhead.
Looking at hundreds of practices and their numbers every year, I am too often surprised at the lack of information the owner doctor can lay his/her hands on. The profit and loss (P&L) statements are not available until 90 days after the closing of the month. The doctor cannot read the P&L or glean the information from it that is needed to make sound decisions, and does not realize that a profit and loss statement does not reflect true cash flow (what you collect and what you spend). They do not use software like QuickBooks to write checks and create a cash flow analysis. They are being overcharged and underserved by CPA’s that do not understand the dental business and seem to be in no hurry about getting the numbers to the client. If you want to lower your overhead, manage your practice for profitability, and control your future, you must have accurate, timely, real-world numbers to guide you. No one can hit a target that is not there, or they cannot see. You cannot manage what you do not measure. That is why we all need benchmarks. We all need a target to hit: A goal to strive for. How are you going to know how you are doing if no one sets the bar? Benchmarks define the game we are playing. What does it take to win? Where are the goals, the yard lines and hash marks? Where are we starting from?
No matter how many employees are on your payroll, or what your financials looked like last month, if you believe that “organized chaos” and creativity alone will drive your business toward success, it’s time to shift gears. Businesses without systems react. You want to forecast, measure, set goals and beat them. (And, of course, earn more money while doing all of this.) Benchmarks give you a ruler to measure your progress. They help you create black and white answers to grey questions. If you have not noticed, I am leading you down a path of establishing a “purpose” for your job or practice. I am creating a culture of accountability that will keep you engaged in the process and encouraging you to embrace the change that comes with taking that new job or hiring that new doctor. The next installment will cover the exact benchmarks and numbers you should look for if you are a young doctor looking to become an associate in the practice, as well as the target benchmarks for the owner before they hire a doctor.
Michael Abernathy, DDS