You’ve trained for years to become a dental professional, and now it’s time to make the leap into practice ownership. Whether purchasing your first practice or building from scratch, it’s important to move ahead with confidence and not hold back on your dreams from fear of failure. The truth is, most dental practices ultimately succeed – in fact, more so than many other independent professions.*
Nevertheless, you are making a significant monetary investment in practice ownership, and naturally there will be stumbling blocks along the way. What are the potential pitfalls you need to avoid? Not surprisingly, most of them involve how you manage your finances – both the funding from your lender, and your practice income. Following are some of the most common obstacles to watch out for, and guidelines on how to protect your investment to ensure a successful outcome.
Inadequate build-out funding
One of the key risks for dentists building their first practice is an inaccurate estimate of the amount of funding required to fully complete the project. They may overlook some of their less obvious needs, such as a parking area for easy access in a crowded downtown location. Or perhaps they’re relying on an inexperienced professional team that does not fully grasp the unique requirements of the dental office, such as specialty plumbing and enhanced wiring for today’s digital equipment. To find yourself short of funds before your project is complete can produce considerable stress as you choose between cutting back on your plans or taking on greater debt. Ultimately, it can lead to poor decision-making.
Shortage of practice income
As you’re getting your new start-up underway, it is not uncommon to face difficulties during the first year or two in generating adequate patient flow and income to cover expenses. When you are introducing a new service to a community, it takes a good deal of marketing and networking to gain visibility, attract patients, and generate loyalty. Indeed, it can take two to three years to build a self-supporting patient base capable of sustaining a full-time dental practice. Expect to balance your schedule with a part-time associateship as you build your business to ensure you have enough revenue to cover your practice overhead as well as your debt.
Over-paying for a practice
Some new doctors attempt to manage the acquisition process themselves in order to save on the costs of purchasing a practice, rather than working with a professional practice broker. In doing so, they often rely on the selling doctor’s valuation of the business and terms of agreement. This can be a significant misstep, potentially resulting in a higher price for your practice than its actual worth. To avoid over-paying for a practice, at the very least, hire a professional appraiser who can establish the true and fair market value of the practice, and work with a broker specializing in dental practices who can guide you to the best offerings.
Declining revenues after transition
It is not uncommon after purchasing a new practice to experience declining revenues after the transition. Bringing a new doctor on board often serves as an invitation for patients to shop around, perhaps for a practice closer to home or with bundled specialty services. The key for you is to understand the cause of your drop in revenues, and determine how to get back on track. Before transitioning to your new practice, reach out to patients with a personal letter describing your background and services. Offer a promotional discount on hygiene for the first few months to bring existing patients back into the practice. Understand your practice numbers in order to properly evaluate the reason for patient attrition.
Seven steps to a smooth transition
An important lesson from these examples is to have a definitive back-up plan should you run into problems during your transition. The point is to not waste time floundering, but get busy with the solution.
Here are seven key steps to help ensure a smooth transition:
- Activate your team. The very best way to avoid these transition risks is to work with a team of practice acquisition or start-up professionals before you begin your project. Don’t wait until you run into problems to call on your team members – work with them from the very beginning and through the entire project to ensure your interests are protected. It is your team’s job to safely guide you through a significant project like a practice purchase or start-up without becoming entangled in preventable obstacles or frustrations. Your team should include:
- Acquisition: Attorney, practice broker, lender, accountant, and insurance broker
- Start-up: Attorney, general contractor, lender, accountant, equipment supplier, insurance broker
- Complete your due diligence before purchasing or starting a practice. You can help prevent unpleasant surprises by asking to see charts, reports, inventories, and schedules – any information that will help detail the daily operations of the practice you are purchasing. For a practice start-up, a due diligence exercise ensures that you have a realistic and comprehensive plan for technology development, staffing, marketing, Occupational Safety and Health Administration (OSHA) guidelines, and other critical business requirements of your practice. Another factor in your due diligence should be understanding the size of the population in the area and how their dental care needs are currently being met, or not, by existing dentists in the area.
- Monitor practice performance. Examining your practice statistics regularly is a critical tool for maintaining the health of your dental practice. Profit and loss numbers help you diagnose and treat problems, much like an X-ray helps you diagnose dental decay. In order to understand the strengths and weaknesses of your practice and systems, use the Milestones program from Wells Fargo Practice Finance, a practice monitoring tool that helps you establish baseline measurements for everything from production to operating expenses.
- Manage your cash flow. Any business, large or small, finds itself with cash flow shortages at times. Make a plan to manage your cash flow by setting daily and monthly production goals, paying down outstanding debt, and saving 10% of income after expenses are paid. This will help ensure you have cash on hand in case of a bad month or an unanticipated expense.
- Beef up your marketing. Whether you choose to utilize an agency or consultant, or handle these efforts yourself, it’s helpful to create a consistent marketing program that helps build awareness and recognition of your practice. As your budget allows, explore internet ads, newspapers, billboards, or even radio and television. Send personal letters to members of the community to introduce yourself and directly ask for their business. Request referrals from your current patients – it’s one of the easiest and least expensive methods of marketing. Don’t overlook social media. Having a Facebook page for example can be a great place to create community and gives your patients a place to comment and refer others.
- Improve your treatment presentation skills. Work with your staff to improve your verbal skills in presenting treatment to patients and handling objections. Keep track of the treatment you present, and whether or not the patient accepts your recommendation. Document the reason given for accepting or rejecting treatment. It helps to know what techniques you and your team are doing well, and which need practice.
- Know your strengths and build on them. Surround yourself with specialists and staff who complement your skills. While you work to improve your weaknesses, let your strengths take the lead in guiding the tone and style of your practice. You’ll be happier in your work as you succeed while being yourself.
Transitioning to practice ownership can indeed have its occasional pitfalls. But by relying on your team of professional advisors and planning your success well in advance, you’ll likely find before long that you have made the transition not only effectively – but profitably.
*Source: Money, November 2010