As I indicated in the special post last Wednesday (18th), while we all have expected an economic downturn or recession over the last year, few would have thought that the Coronavirus hysteria would be the kick off. Recessions occur every 7-9 years and one is overdue. While this may sound harsh, they can be good in that they eliminate unqualified competitors, and they usually last a year or two. Recessions and challenges in general tend to reward the nimble, not the slow to react. My fear is that as soon as the COVID-19 diminishes, it will be closely followed by a financial recession just before we hit October and another flu season. It just gets better and better.
The virus hysteria is adding to the momentum of a trajectory that was already there. Dentistry has become a vulnerable profession so each of us must be at the top of our game. When the smoke clears and we move away from this bellwether event, each of us will need to dig deep and do whatever it takes to right the ship. Certainly, from what I see on Facebook, this catastrophe will speed the demise of certain types of practices. The doctors who cling to the old traditional dental practice mentality will be the last to change and the first to go down. This will be irreversible to those who hesitate and do not act.
The common thread here is hysteria on the public’s part, and helplessness on the dentist’s side with slow news cycle stoking the fires while the government and politicians make exactly the wrong decisions.
WHAT TO EXPECT:
- Mandatory closures and strict limitations of all businesses for 4-8 weeks or longer.
- Mass layoffs from all segments of the business world.
- 20% unemployment across the board by May.
- Assets “owned” through borrowed money will go back to the bank and this will create another wave of financial instability. Fiat credit will delay the recovery and be worse on the West and East coast cities. Example: Cars get repo-ed and new cars no longer sell with new models due in August – September. People can’t afford their business leases or failures occur so building will stop because of a glut of commercial and residential real estate.
- While 20% unemployment is certainly possible in the short run, I see 60% plus unemployment in Dentistry. The employees that are laid off will most likely not all be needed back. If this drags out for two to three months or more, the return to normalcy may take us to this time next year. The demand will be diminished, the profits will be lowered, and the staff will suffer our inability to hire them back with fewer patients coming in. The hygienists will feel this more than any other position. With unemployment, we will also see fewer dental benefits, and a mass reallocation of daily funds to meet the needs of more pressing issues by the public. Dentistry will be placed further down the need’s column of expenses by 99% of Americans.
- This will take a start-up mentality: A “whatever it takes” to recover mindset. It will be back to a new culture and engagement in our practices to weather this downturn.
- One or two staff members until you need more. You will phase back into normal production requiring you to also stage any re-hiring to match the demand and actual production numbers.
- Production per staff member will have to be $20,000-$25,000. This has always been the benchmark, but a far cry from the average practices $13,000 per employee per month.
- You will not be able to depend entirely on the ADA. They are closed. While I hope they can catch up on being proactive about the Business of Dentistry and helping us to control costs and productivity, I am assuming that each of us will need to be the driving force for our comeback.
- Recovery in Dentistry will take at least a year or longer. Said and resaid. I am hoping that circumstances change quickly, and everything that I am saying, is a far cry from reality. Regardless, taking this view will ensure that you will optimize your practice for whatever is dealt to you.
- Psychological hysteria will crush the recovery in dentistry: This one area is the most misunderstood, and greatest threat to recovery in dentistry.
- There may be a perception that dentistry and dental offices are an easy place to be exposed to contagions. We know that we are more proactive than medical offices, but I am afraid there will be a lingering perception based on fear and hysteria that will slow the return of patients to our offices.
- Dentistry is an elective procedure business. In fact, with the exception of extractions, every single thing we have to offer could be construed as “elective”.
- People will not have the money to spend, or insurance if they are laid off.
- Patients can put off most dental services, so they will. Priority of funds and fear of exposure will linger.
- More important, pressing things like getting a job and feeding their families are more important.
- 20% plus of owners of dental practices will throw in the towel and retire or sell to a DSO because they are tired of the stress and risk. I was there buying practices in 2009. They will not be paying full fare. I would expect offers 30% below what they are now.
- Values of practices will drop drastically as more come on the market and there are no buyers. If fewer graduates move to ownership, and even higher numbers of seasoned practitioners move to employee status, we will see our practice values drop through the roof. With enough seasoned doctors either retiring or moving to employee status in DSO’s there will not be jobs waiting on the current graduating class. Do the math: 60% unemployment for dental staffs because of lessened demand from the public, a slow recovery with low production numbers, no practice will need the pre-COVID-19 staffing. It could take 12-18 months to recover and during that time, practices will finally use technology and more efficient protocols to double the productivity of their production per employee per month.
- Recent graduates, as well as those still in dental school, will conclude that ownership is foolish: Risk and Reward scale does not work in ownership. Look at Facebook posts today and you’ll see hundreds of employee dentists affirming that they are glad they are not owners. Prior to this and going back 15 years, only 32% of female graduates and only 67% of male graduates are moving on to ownership: 50% of all dental graduates will not own their own dental practices. This was and will continue to be the tipping point in driving DSOs and large multi-office corporations: Unlimited doctors.
- Attrition: Is already 17%-20% and will go to 40% plus as patients put off treatment or go elsewhere. There will be a surge in the best practices to go after every patient aggressively and they will get them. Add the current climb in new graduate numbers, along with diminished demand, and attrition can be the final straw.
THINGS TO DO RIGHT NOW:
- Know yourself: Take the time to self-diagnose and set in motion the actions to correct decades of lack luster performance by altering all of your systems and protocols. Use the yellow card and The Super General Dental Practice book to help. I also wrote a six part series of articles titled Diagnose Yourself. (See the links in the “PS” at the end.)
- Make the difficult decisions and then sit down with your staff and come up with a plan. While you know the answers before the meeting, you need to involve the staff in seeing the numbers and the possible scenarios as you and your team map the future.
- You will not be able to pay them for any significant time with no income. Sure, in the short fall, you can use vacation pay, sick pay, diminished schedules, etc., to help and you might even be able to maintain some benefits if possible, but long term there will not be that option.
- Knowing that you will not need all of them ever, you need to decide who is essential, who would be good to keep if possible, and who needs to go. Honestly, there has always been a mediocre person on you team that you hired from desperation while knowing deep down that you could do better. The reality is that you will not be able to keep them all, nor should you if your production per employee is below $20,000 per month per employee.
- A diminished schedule might not even cover the lease on your space.
- You may need to fire most so they can claim unemployment as a strategy to help them.
- You will need to assure that you keep one or two of the most important staff members, and at the same time, you cannot and should not pay full salary.
- With this forced vacation, you should take a look at your long-term financial plan. Speak with your spouse about the reality of lifestyle, savings, expenses, asset protection, the kids, everything related to income vs. expenses.
- Try to not touch any credit line you have until after making the difficult decisions you know you need to face. Dentists are, as a whole, nonassertive and if you incur more debt before acting on these decisions, you will regret it and still have to make them later. The money is just an excuse not to deal with the excuses and realities you find yourself in.
- Act now! While this will pass, this is the time to act. It won’t be perfect, but if you do not act, you are accepting the “herd mentality” and it will most likely come at great cost.
- Cut your expenses: Delay all delayable payments.
- Bank notes extended or have them forgive a few payments.
- Fire consultants/marketing people if they are not part of the solution.
- Do away with third party outsourcing.
- Only use the CPA for taxes. I encourage you to do your own QuickBooks. For the first time, in a long time, you will actually know your finances.
- Do not pay Patterson or Schein or any other supplier for a month or two.
- Look to alter lease short term/long term or get abatement on a couple of months.
- Staff: Don’t kid yourself that you can turn a mediocre employee around. Let them go and don’t let them come back.
- Marketing: Forget SEO and websites and take your message directly to your patients with emails and Facebook posts, and videos. You need a strong relational based outreach to your patients and friends. Be part of the solution and not part of the problem.
- Revise your promotions to reflect a caring and compassionate outreach.
- Think long term and start now on the preparations for the rest of the year. Come up with a budget and action steps to make it happen.
- Get my book on marketing (Marketing the Super General Dental Practice) and see how to really market without the expense. This book was purposely written to teach you to market with simple, reproducible outreach that will create an unlimited number of new patients. (See link in the “PS” at the end.)
- Opportunities after the dust settles:
- Staff will be easy to find because many offices will not make it back.
- Equipment will be cheaper.
- Advertising costs should drop.
- There is an opportunity to grab market share from your competitors if you act quickly and involve yourself in the community. While this sounds a little greedy, it is not your fault that you were proactive and reached out to the public to offer them what they have always wanted in a dental home.
- Put up banners that are temporary that you are open for emergencies and wish them well.
- Treatment: Expand emergencies and do more if they are there.
- Reception room-less
- Check in at the car
- Work every other day, but phone answered by doctor all days. Yep, I want the dentist to pitch in and answer the phone.
- Offer your services to assisted care facilities, and to shut-ins for emergencies.
- If a large case wants to come in, encourage it with discounts as we begin the recovery.
Startup frame of mind: Whatever it takes
- Glass half full with nothing off the table as for as strategies go. This is not opposite of being optimistic, it just adds a little impetus to acting now.
- Early adaptors win. Act now, and do anything but sit around and just think about it. You only fail if you don’t get back up.
- Embrace change and act now. This has helped many of you back to a level of growth. You need to guard your core values, but you need to expect that every day you will have to embrace change and consumerism and try to give patients more of what they want and less of what they don’t want. The biggest mistake you can make is thinking that patients want what you have to sell. If you were not growing 15% or so the last couple of years, feel sure that you were trying to give patients something they did not want. If you are not consistently growing, you are failing to meet your patient’s needs.
- This is a time for “Bold Faith and Common Sense”.
- Red Zone as a defender viewpoint. Normally the football broadcasters talk about the “red zone” as that last twenty yards to a score. Take this and twist it a bit and think about having this recession and COVID-19 on the 20 and you are about to lose the game. What is your Red Zone Defense going to be?
Marathoners and Tour de France racers will tell you that a race’s hardest parts, the uphill stages, are where the lead changes hands. That’s where we are now. When this recession ends, when the road levels off and the world seems full of promise once more, your position in the competitive pack will depend on how skillfully you manage it right now. Geoff Colvin, Fortune magazine 2009
Michael Abernathy, DDS
Links to items mentioned above.
The Super General Dental Practice (click here)
Marketing the Super General Dental Practice (click here)
Diagnose Yourself – Part 1 (click here)
Diagnose Yourself – Part 2 (click here)
Diagnose Yourself – Part 3 (click here)
Diagnose Yourself – Part 4 (click here)
Diagnose Yourself – Part 5 (click here)
Diagnose Yourself – Part 6 (click here)