Our thoughts . . . 04-08-10
'TILL THE STORM PASSES BY - Part II
In our previous article, we posed the questions, "Has the economic storm of the last 18 months passed? And if not, how do I stay safe?" As an ever increasing number of pre-1975 dental school grads ponder this question, let's look at a couple of action plans we might consider in moving forward.
Let's assume that your answer is NO; you think there is more bad news to come and plan to continue practicing. If that is the case, you need to adopt the current mantra of businesses all over the country; Survive and Maintain Market Share. I will discuss three areas for which you should have a defined strategy; infrastructure, marketing, and revenues.
Infrastructure:
It only makes sense that if you plan to ride out the storm, now is the time to make sure that your foundation is secure. This is an excellent time for staff development and alignment. Is your staff capacity balanced to your needs? Would some additional training be of future value to practice productivity? Are staff costs relative to gross revenues within the range of industry standards? A quality staff will be an asset to the practice for both future productivity and practice transition.
You need to scrutinize every area of overhead and some hard decisions may be necessary. Are you paying rent on unproductive space? Is a renegotiation of your lease in order? Are you getting the most value out of your dental supply company? Remember that they too are trying to maintain market share and want to keep you as a client. Every effort needs to be made to keep adjusted overhead below 60%. If not, you as an owner are running on a treadmill that will kill your enthusiasm to practice, and the practice value will be diminished in the eyes of a buyer trying to get financing.
Marketing:
It has been said that no one ever went out of business by marketing too much. I'm not suggesting that you need to put up billboards along the highway, but now might be a time to be a little more aggressive. Two things to consider; focus your efforts on those patients you would like to have in your practice and be persuasive enough that no one has trouble remembering your name and how to get in touch with your office. Every active, vital practice should have a website now that high costs and complexity are no longer excuses. Does your patient base know that you would appreciate their referrals? With the attrition of patients through job losses and constricted spending, you need to be attracting a larger than average number of new patients just to maintain your pre-storm active patient base.
Revenues:
How do you as a practitioner plan to maintain revenues? Accepting high write-off PPO's just to keep bodies in the chairs is not a very attractive option. Perhaps a better plan would be an expansion of procedure mix to better serve the current patients of the practice. We have done more than one practice analysis in which the owner advised us that they referred out all ortho, pedo, perio, surgery, endo, and dentures. In other words, they did hygiene, fillings and an occasional single crown. Now I'm not suggesting that everyone needs to become an expert in all of these fields (standard of care is still an issue) but certainly a little CE and review of practice systems would allow most doctors to provide some additional basic care. Patients appreciate getting more things done
"in house" and the revenue goes in your pocket.
Let me offer one final thought regarding revenues and patient demographics. I have seen the future, and it is Florida. According to www.statehealthfacts.org, there were roughly as many dentists in Florida as in Missouri, Kansas, Nebraska, Iowa, Arkansas, Oklahoma and both Dakotas combined. Given that level of competition, a drive down Ocean Drive reveals a dentist on every corner promoting themselves to Florida's retirement age population. If you have no plans to cater to an aging population, you are planning to see your patient count decrease. Remember, survive and maintain market share.
So what about the other choice? Let's say you believe that the worst is over, the sky is not going to fall and that you find yourself at or beyond the age at which you expected to be working. Consider it good news that you have worked another 18 months without having to draw down on any retirement savings and therefore have avoided any further erosion of principle. Maybe you have even been able to add a bit to the pot, and with 2009's improvement of the market, have gotten back within sight of your pre-storm balance. I will assume that by now you have met with your accountant and/or financial planner and are comfortable with the status of your portfolio. So what now to do with the practice? Ironically the first step is the same as for those with the "NO" answer. First, strengthen your infrastructure. Practices with appropriate fees; a trained, available, and quality staff; good curb appeal; and well-controlled overhead are more marketable and sell for a higher price than those without. Remember this: sooner or later external market influences are going to soften, and those of us who graduated from UMKC classes of 160 are going to be competing on a level playing field for buyers from the current classes of 100. There will be an obvious imbalance and competition will be heavy. There is now, and always will be, demand for quality practices in good locations. Make sure your foundation is strong and prepared to show well.
Secondly, get a realistic picture of the market. Who are your prospective buyers and what are they looking for? What are the upper and lower limits of practice revenue that is readily transitional? Can financing be secured from outside sources or will you need to be one of the "banks" involved in the deal? What are your legal obligations to employees, patients, and patient records? What will be your role in the practice after the closing? We find that sellers frequently have an unrealistic "have your cake and eat it too" mentality about selling and staying on as a producer. A careful analysis needs to be done to see how feasible that may be. I'll tell you that almost 90% of the sales we are involved in are termed "walk-aways", and the seller is typically in the office less than 30 days.
Finally, get some help. There are a number of financial, legal, ethical, and marketing issues that have to be address and doing this on your own or with inexperienced assistance can put you in peril. This is too important a process to you, your staff, patients, and successor to be a FSBO.
Steve Wolff, DDS
UMKC Class of 1977