Posted on Jan 27, 2014
Image Credit: © Dreamstime.com
Posted on Jan 27, 2014
In some capacities, a dentist is similar to a advertising creative. Most doctors are all over the “creative” and even practical aspects of their job performance, but they are not always paying close attention to the business side of things like tax implications, an easy-to-understand accounting system, a current fee schedule, etc.
When considering a dental practice transition, it’s important to build a team to help support your strengths and hold your feet to the fire in areas of weakness. Consulting with an NAPB dental practice broker is a good place to start, especially when you are planning to sell your dental practice.
The way the practice “feels” like it’s running and the concrete statistics to measure the practice’s productivity are two very disparate things. In fact, for a dentist to approach a potential dental practice transition, it’s vital that they be armed with all the facts. It’s funny. A practice can seem to be flourishing, but when you crunch the numbers, you may find areas of inefficiency or possible improvement. To the contrary, the doctor may feel that the practice isn’t performing well; when in fact, the practice is doing extremely well. With a workable accounting system, it’s a measurable certainty because the dentist can easily see that the practice is cash-positive.
Just as you would rinse out a patients mouth after polishing their teeth so you can examine their teeth for cavities, it’s important to take those same types of necessary steps on the business front. Those same fundamentals applied to the practice of dentistry are also necessary when working towards a dental practice transition.
Fee Schedule: When a dentist is thinking about retirement, they will often not have the financial need to increase their fees. The problem with this strategy is that the buyer is coming into a practice where they are going to have to raise fees right away. At a time when there’s a lot of change, it works better to schedule incremental fee increases with your patients along the way so it’s not a financial shock right when your patients are adjusting to a new doctor. Also, from the seller’s perspective if you don’t keep your fees current, you essentially lose money two times—once when your fees are two low during day-t0-day operations and again when your buyer insists that you lower your asking price. When selling a dental practice, having a current fee schedule is imperative.
Profitability: When selling your dental practice, there’s a “sweet spot” where practices are most attractive to buyers. For most practices, if they are netting 40% more before payment for services, they will be listed at the highest price. With this percentage, the buyer can count on 26% – 32% for the doctor and it leaves 8% – 14% for any monies owed to the practice as well as any needed practice improvements. Many times, if a practice is netting less than 40%, it’s often because the fee schedule isn’t current.
The object of the game is to make it as profitable as possible while you’re working there (and to make it as attractive as possible to a buyer when you’re ready to sell your dental practice). If you’re current with fees and the practice is profitable, then when you’re ready to have a dental practice valuation, you’re more apt to like the results.
Consult with your local dental practice broker today to “think like an MBA” when working on your dental practice transition.