The Competition and Practice Success
One of the components of practicing dentistry discussed during the Dentist Start-Up Program and the Practice Acquisition Program is marketing strategies, building a niche and understanding the competitions’ strengths and weaknesses. “What if I buy out the competition, won’t that eliminate the patient’s choice and they will have to see me?” Sound rational? Perhaps, if all other systems are operating successfully, such as excellent customer service, fair fees, ethical practices, updated services and systems, and if the demographics and psychographics indicate that a dental practice would be successful in each of the practice locations. Even with a monopoly, the patient still has a choice to drive to another area or not go to the dentist at all.
Take for example, Dr. Able and Dr. Ridealong - cousins who share the same dream of a dental empire. They take pride in saying that they own 5 specialty dental practices in the fifty-mile radius of two small towns. When they purchased the first practice it took off quickly and there was plenty of money to pay the bills and enjoy a “nice” lifestyle. “Let’s do it again” they said over a bottle of champagne, and they did. The second practice was not as profitable as the first, but it broke even most of the time and sometimes they were in the black enough to pay back what they were borrowing from the first practice. Then a “great deal” came along in the form of a dentist who had to sell quickly, and so they bought her two practices as “satellites” to the first two. And lastly, another “I can’t pass this up” opportunity of a large, partially rehabbed practice on a major commuting highway, which grabbed their attention and their wallets.
Their onsite business manager of several years was struggling with the management of the new empire and asked the doctors how they determined whether they were successful or not. Their reply was “if we can pay our bills, which we have been able to do, we are happy.” “What are our production goals?” she asked. Their reply was, “we don’t have any, and our accountant will let us know if we are in the red.”
A consulting analysis revealed that the doctors rarely looked at their profit and loss statements and the business manager had never seen one at all. They did not know if they were operating within industry overhead percentages, which would ensure funds were available to cover operating costs. Consequently, their accountant was not familiar with industry standards for a dental practice. The practice of borrowing from one practice to pay the bills of the other practices caused a lot of confusion and ended in the accounts payable person (a relative) being late in getting bills paid. This practice was affecting the doctors’ credit, and they were not aware of what was going on.
Further analysis revealed that the systems of financial and billing practices were different in each practice, resulting in an overall negative cash flow. The practice of keeping poor performing employees because of loyalty was affecting the practices ability to survive. With the satellite offices available on off days, the main practices suffered open schedule time and an overstaffed situation resulting in 41% of overhead paid to salaries. Industry standards indicate salaries and benefits should be between 20-27% of overhead.
Lack of an Employee Policy Manual, Job Descriptions and accountability for daily performance made it a challenge to get everyone on the “same page”- as the business manager struggled to juggle employee demands and other human resources issues.
“I used to be able to control the two practices, now I am spread too thin and need to hire another manager,” lamented the business manager. With the realization that there wasn’t any money to hire more people, it was recommended to delegate some of her tasks to another member of the team and train them to do these tasks. This will free her up to manage the important human resources and profitability issues of the practices.
Before embarking on the purchase of a practice, it is imperative to consult with professionals who can direct you positively and save you many thousands of dollars in mistakes. Business training for your key business personnel should be a requirement before purchasing another dental practice.
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