The Case of the Million Dollar Practice
Dentist Start-up Files #206
Dr. Harvey* had worked diligently, smartly and with an extraordinary understanding of the real estate market when he purchased and began his practice in the 1990’s. He became known by word of mouth from satisfied patients as a clinically excellent dentist and a great guy. His practice grew and flourished. With his eyes on the real estate boom of the 2000’s, he leased a bigger space in a fast growing upscale neighborhood. His practice flourished and he invested his profits in real estate. Spending more time traveling and being with family became a new goal for him and after twenty odd years of success as a “cosmetic” dentist he decided to sell while he was at the top and while the practice had its highest value. There was another reason too, but he was not going to mention that to a prospective buyer.
Dr. Wong* worked just as hard trying to make his quota as an associate dentist in a large dental clinic. His dream of owning his own practice where he could make a six figure income constantly occupied his thoughts and plans. Taking many courses, he was proud to say that he was certified in Invisalign™, mini implant placement, oral sedation, orthodontics for the general practitioner and more. He planned on offering all treatment in house and would not refer to specialists unless he deemed the treatment would not be successful.
When he inquired of Dr. Harvey’s practice, the dollar signs popped in his head as Dr. Harvey told him of his success in the location and the type of clientele that he serviced. Showing him the accounts receivables and the profit and loss report, Dr. Wong wanted to buy on the spot. There was one catch and Dr. Harvey assured Dr. Wong that it would not be too much of a concern because the population of the area would surely make up for it in time. The “catch” was that Dr. Harvey wanted out now. There would be no transition period. No time to send out a letter to all the patients informing them of a new dentist and no working in the practice a couple of days a week to introduce Dr. Wong to his patients and tell them what a great replacement choice he had made. Dr. Harvey offered to “mentor and coach” Dr. Wong and assured him all would be great.
The two dentists differed in their dental skills, communication skills and physical appearances. Dr. Wong, though very educated, spoke with broken English and was from a different culture than the patient base surrounding his new practice. When the patients began meeting Dr. Wong at their recall appointments, they were dismayed that they had not been told of the change. About 50% of the practice did not return after their first surprise encounter with Dr. Wong. He began giving all new patients very comprehensive treatment plans and decided that he would charge the same as Dr. Harvey or more because he was a “great” dentist. Patients that did not know Dr. Wong were a bit suspicious of the treatment and began shopping around – only to discover that he charged more than the UCR of the area. Dr. Wong did not have the charisma or the communication skills of Dr. Harvey so was not able to persuade the sale.
Discouraged, Dr. Wong signed up for five PPO insurance plans. Not happy with the reimbursement scale for crowns, he required an upgrade on every crown of every patient that was on a PPO plan. If they didn’t pay it, he had his business coordinator send them to collections. Within less than two years, Dr. Wong had more people on his past due accounts receivable report than he had on his active patient list. Patients who owe you money do not return until the balance is paid, and many decide to go to another dentist.
When the recession hit, Dr. Wong had positioned himself as an expensive dentist without loyalty who sent his patients to collections for dishonest charges. Given the still thriving demographics around his practice, he should have been busy and growing. Turning this practice around will take as much work now as Dr. Harvey faced when he first built it. For Dr. Wong, unless he changes his view of patient relationships this is the end of the road.
Practice goodwill is a very delicate thing. It is hard to measure and certainly cannot be captured and transferred to a stranger unless analyzed as to how best to preserve it and nurture it. The Dentist Start-up Program offered by McKenzie Management can prepare you for this process, before you make one of the biggest purchases of your life.
*names have been changed.
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