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Earl M. Douglas, DDS, MBA

(770) 664-1982

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James J Howard, DMD

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Joseph Jordan, JD

(980) 283-7355

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How Is Business?


by Earl M. Douglas, DDS, MBA, BVAL | Earl Douglas on Google Plus

I have been hearing from more and more dentists that things are slowing down in their practice as the economy continues to unravel. Dentists who were booked for four weeks in advance are now only booked for two weeks or less. Patients are seeking more "needs" based treatment than "wants" based treatment. Cosmetic dentistry is waning as more patients are presenting for the most basic treatment.


Some of the more fortunate among you are shaking your heads and saying that your practice is just as active and vibrant as ever, and that the demand for cosmetic dentistry has never been higher. However, this is definitely not the overall trend that the great majority of dentists are experiencing. Many of our patients are experiencing job losses, home losses, investment losses and income losses. It seems that dentistry has been among the last sectors to feel the pinch and has not felt it as badly as many other parts of the economy.


How does this impact you personally and financially and what steps can you take to respond to the challenge of a slower workload?


For starters, maintaining your daily collection numbers is critically important. One important reason is that as you collections drop, your equity, or practice value also drops. If a given practice were worth 65% of a year's revenues, the loss of $100,000 in collections would reduce its value by $65,000. Sound like your pension plan dropping? If so, don't let it happen to the equity in your practice too.


A second critical reason is that a loss of $100,000 in revenues results in a only a very small reduction in overhead. The last $100,000 of income had expenses of only lab and supplies, since your were paying for the remainder of the overhead expense whether you did the additional income or not. So this means that your net cash flow would be reduced by approximately $80,000 for that $100,000 reduction in collections. Combining the lost net income and lost equity results in a financial loss of $145,000 in a single year as a result of a lost $100,000 in gross collections. While no one would want to suffer a loss like this in good times, it's especially important in the worst of times to avoid losses such as these.


How can you avoid losses like this? My first suggestion is to enlist a competent management consultant to fine tune your practice. I see very few practices running at peak performance, and practically every practice has room for improvement. Scheduling is one of the most important factors in improving productivity, because at the end of the day, all you really have to sell is your time, and you should know how to manage that precious commodity as effectively as possible.


Even if your practice is only booked out for a short time, it is important not to let work expand to fit the time, but to accomplish as much production each and every day as possible, within the constraints of quality work and personal relations with your patients.


Some of the most effective practices that I have seen are booked out less than one week. Does this mean that they are weak and not successful? No, on the contrary, they are some of the most efficient and profitable practices we see, as they are keeping up with patient demand. Imagine a grocery store that had fantastic groceries, but only one clerk and one check out line, and at five o'clock every day they closed the store and a hundred people had to put their groceries back on the shelves and their money back in their pocket. That sounds rather ridiculous, but that's what happens in most dental practices that are booked three or more weeks ahead. One of our clients actually doubled his practice in one year's time. I asked him how he did it and he explained that in the previous year when patients needed treatment, they gave them an appointment. The new policy was to give them a chair. The operative principle here is that if your waiting list grows shorter, don't allow your per-day production to drop.


Management consultants can bring many resources and skills to a practice. Keep in mind that even small increases in gross income will result in large incremental net income, so the cumulative effect of a number of small improvements can add considerably to your bottom line.


While this may not seem like the best time to spend money on a management consultant, consider the value of the benefits. To understand the economics of retaining a consultant, start with the consultant fee and add 25% to it. That's how much more you need to gross to break even on the consulting fee this year. And remember, anything you collect in excess of that number will be 80% net income to you, as well as adding to the value of your practice. Payback for an effective consultant is typically less than ninety days, then the profit all goes into your pocket from then on.


Dentists have also been asking me how our business is as well. While I have noticed a slow down in client traffic, this could be cyclical or random, but overall transitions are still taking place. While it appears that we sell practices, we are actually selling incomes. And dentists need incomes and in good times and bad times alike. Buyers are still looking for good practices, and financing is still available, with some of the lowest rates ever seen.


Dentists are concerned whether it is prudent or safe to buy a practice in troubled times. I believe it is. That isn't to say that bad times are the best time to buy a practice, but considering the alternative of not having a practice or an income, it is usually the best option.


Why is that? For starters, dentists who own their own practice are generally the most successful and happiest dentists I encounter. They make the most money and they have control of their practice, their income and their circumstances. Dentists who own their practices don't get fired, they get to perform the treatment plans that they prefer, take vacation time when they want, and decide who their staff will be. So while times may be troubled, it's still an excellent time to own one's own practice and use professional aid in making that practice as efficient as possible. And when the good times return, you'll be in the best position of all, bar none.