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Ontario Dentist - July/August 2002
by Timothy A. Brown, A.L.A.
I have largely resisted the temptation to offer day-to-day practice management advice to dentists, as it is not within my own chosen scope of practice. Therefore, I have not made any attempts to develop expertise in this arena because professional appraisers and brokers do not work within dental practices, and I believe that anyone who has never worked a single day in a dental office should not tell dentists how to run their business. However, the appraisal and brokerage business has exposed me to many unique practice modalities and management issues such that I feel obligated to report on them to the profession from time to time.
This article is about a client whom I have known for about five years. Some of the details have been modified to maintain confidentiality. He started his practice about 20 years ago from scratch, and by the early 1990s, had built it into a profitable and respectable business.
Then a funny thing happened. The practice grew to a size that was beyond his comfort level. How did this happen? What could he do to change the practice to suit his personal style? What can dentists do when they have too many patients, and too many demands are put upon them to treat those patients?
Most every day, I hear statements such as "I have too many patients," "I need to take more time off," or "I need more holidays." The one thing I hear the most often, which I totally disagree with in most instances, is "I need an associate who will buy-in and become my partner, to help me handle the demand." There are a number of alternatives to solve this very common dilemma and the dentist I mention in this article is living proof that my particular solution can succeed.
Let's go back about 10 years. The client was grossing just under $500,000 per year and was seeking to expand his practice. He sought out the advice of one of the large consulting companies and signed a contract with them to perform a number of tasks. The primary objective of the contract was to expand the practice to a point where an associate would be required to treat the larger patient base. The next phase of the plan was to sell the associate a portion of the practice - for a handsome profit - and the owner would then continue to own a practice as large as the one he owned when the plan started. "Sounds great" he said. "Let's do it." The consultants went to work.
Success came quickly, and in my opinion, was very easily achieved. The main area of focus in the early stages of the contract was the hygiene program. It was discovered that the owner and his team simply had not spent enough time providing basic preventative education to the patients, and accordingly, the hygienist had never been fully booked. After implementing a very basic patient education program focused on preventative treatment, two full-time hygienists were working in the practice within two years. They were fully booked for months in advance and revenues were up substantially. The owner had paid the consultants a sizable fee and still had plenty of profit left over to justify the exercise. He was pleased.
That's when things started to get a little out of control. About three or four years into the program, the consultants were long gone, gross income was indeed much higher as promised, but a few cracks were forming in the practice. It was now booking three hygienists for two full days a week and two others for three days a week. This equated to over 125 hygiene appointments each week, all of which required the owner's direct supervision. The hygiene program was now generating more income each month than the dentist.
This is very profitable situation, but one that has other consequences. The owner was satisfied with the profits, but he told me about a few issues that were seriously concerning him. First of all, he could not sit for more than 20 minutes without the communication lights flashing to inform him of the need to go and check a hygiene patient. He began to have dreams about the flashing lights and these dreams turned into a recurring nightmare that kept him awake.
Secondly, he started to experience anxiety about under-treating his patients because he could only perform simple restorative work at low fees, versus longer sittings for crowns and other more lucrative procedures. Some patients expressed their concern to him and his staff that "He is always up and running around the office. Does he even care about me?" Some patients left the practice to seek out a dentist who would spend more time with them.
Dentist revenues then began to drop steadily, while the hygiene program continued to grow. Total income levelled off, profitability went down as wages crept up, and the owner was losing both sleep and patients. He immediately went back to the consultant who advised him to hire an associate, as the time had come for additional dental manpower, just as the consultant had predicted.
An associate search was commenced and one was brought in to assist with the patient overload dilemma. The associate was a capable individual who was accepted into the practice quickly, and the owner immediately found relief. The plan was back on track. Dentist production jumped quickly and everything was fine. One year later the associate quit, but remained in the area, contrary to their agreement. So once again the owner became overwhelmed by the large patient base. The hygiene department now supported three hygienists four days a week and the owner nearly lost it altogether.
What were his options? One was to hire another associate and repeat the process all over again. I have heard of dentists who have done this time and again, and find similar results - time and again. To his credit, this dentist said, "No way, I've been down that road."
Another was to sell half the practice immediately and permanently relieve himself of about one-half of the patient load. That was the plan, so finding a partner was the next step. The funny thing about partnerships is that owners seem to want to get into them for obvious reasons, but today's young buyers don't want anything to do with them. Don't take my word for it - ask your lawyer and accountant why this is so.
About one year later the practice was still in decline, as a partner had not been found, and things looked bleak. The owner was tired and emotionally drained. The consultant promised to keep trying to find him an associate to buy in, but they were obviously out of their element in attempting to sell the practice, versus their core competency of building up a hygiene program - a task completed years earlier.
Then he called me. He told me the whole story of the previous six or seven years and how his practice was so large and busy that it should be "worth a bundle" to someone. He wanted to know if he should just sell the whole thing at that time and "bail out" altogether. The irony is that his practice was not as attractive to buyers as he thought. Why would a buyer want to inherit his problems? The situation presented a substantial opportunity in my opinion, one that would be best exploited by him, not a new third party.
My advice was as follows: Release, or "fire," some patients using ethical yet carefully designed policies and procedures. He was asked to completely forget about identifying associates or partners, or building the practice for someone else - permanently - and focus on the business at hand. Effectively, I was asking him to purposely downsize the practice.
Effectively, I was asking him to purposely downsize the practice...as I believed that he would be happier with a "right-sized" practice, not the monster he had accidentally created.
The objective was to deconstruct the plan of the past years, as I believed that he would be happier with a "right-sized" practice, not the monster he had accidentally created. He also mentioned that selling was in the near future and I suggested it would be much easier to sell the business if it was smaller and more manageable. Ideally it would fit the demands of today's typical buyer. He has taken my advice, though sometimes reluctantly.
The practice used to consist of six operatories, now it has only four. The office was about 2,500 square feet; now it's half that in a much simpler configuration, and the staff has been reduced. The resulting overhead is substantially lower. Days and hours worked have been cut to Monday to Thursday, with no evenings or weekends. He works the odd Friday. No advertising, fancy gimmicks or consultants are allowed in the practice. Fees are at the ODA Suggested Fee Guide level or higher - rarely less. Assignment of insurance benefits is discouraged, yet processed when required. Patients who left the practice were readily accepted by other dentists in the city who needed them more than he did.
What are the final figures? Gross is down about three per cent from his last full year. However, net income is up a staggering 23 per cent over the previous year! The owner is much happier and he sleeps much better at night. The practice is now on the open market and buyers are showing interest in this ideal situation. It took us two years to get to this stage.
I challenge you to consider this dentist's situation carefully. Did he make more money as a result of the original plan? Yes. Was he happy? No. Where is he today? Right back where he started 10 years ago.
Are you in a similar situation? What type of practice did you envision owning when you decided to become a dentist? Based upon my informal research and the comments made by the dentists I speak with at seminars and during hundreds of day-to-day telephone consultations, I estimate that 75 per cent of dentists in Canada are in solo practice, and the remainder are in larger, multiple-dentist offices.
However, again, through some informal polling, I have come to believe 90 per cent of dentists intended to be in solo practice when they first began practicing. Therefore, I conclude that 15 per cent of you are in a working environment where you really don't want to be. Why?
I believe I speak with more dentists about practice values and ownership issues than anyone in Canada. Dentists are very honest with me and I am the same with them. Therefore, I believe that my conclusions and observations are very accurate.
In closing, I suggest that you immediately commence a plan to change your practice modality to suit your personal style and needs. Do not set yourself up to build an empire unless that is what you really want. Dentistry is a hands-on, personal service business. As such, it is most successful whenthe owner spends the majority of his time with his clients.
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