This is part 2 of my 2-part series that details the need-to-know data you should consider before you buy a dental practice. If you haven’t read the equally important Part 1, click here.
In this part, we’ll talk about the practice information that has to do with business administration and the metrics that aren’t advertised features of the practice (in fact, most patients will never even give them a single thought). But that doesn’t mean they aren’t unequivocally important to you, the potential buyer.

TOTAL PROFITABILITY

The single most important factor in determining the future success of the buyer is the Profitability of the practice. Too often, Gross Production and Net Collections receive the most attention when evaluating a practice, even though these numbers do little to define the financial risk a buyer must undertake. It’s critical to accurately calculate the true net profit of the practice. The Net Profit is Collections minus all practice expenses. To calculate the true Profitability, you must add back all doctor “perks” which are provided by the practice. When you divide the Profitability by the Collections, you will get the true profitability percentage of the practice. The closer to 50%, the better. Steer clear of practices with profitability below 35%.

Keep in mind that with your new practice debt service, you will need to produce more in order to maintain the same profitability level of the selling doctor.

PPO PARTICIPATION

A purchaser must know the “saturation” of discounted dental care in the practice. For each plan that the practice participates, you should have a breakdown showing the number of patients enrolled, the total dollar volume collected during the previous 12-months, the total fee discount given, the average % discount, and the most recent date the fees were updated. Also, total the entire PPO volume for the practice, including the total fee discount given. Understand how much you must charge out for each $100 of net production. Keep in mind that if a practice has 50% of its patients on reduced fee dental insurance plans, and the total insurance discount is 20% for all patient treatment, then the average PPO discount for the insured patients is 40%. Be extra cautious when the total PPO yearly discount is greater than 15%. The greater the total PPO discount, the harder you will have to work to maintain profitability.

PROCEDURE MIX

A very important financial report to review before buying a dental practice is the “Production by Procedure Report.” This report lists all dental procedures with their corresponding CDT codes, along with the number of these procedures performed and the total fee derived from each. Printing two copies of this report can be very helpful. The first copy should be sequenced by procedure code for quick reference. The second copy should have procedures listed in descending sequence, meaning the first listed dental procedure will be the one that derived the greatest revenue for the period of time you requested.

This report, at a glance, summarizes which procedures are producing the most revenue. If 70 root canals were performed last year, and you’re not proficient in endo, how will you replace that income next year? Conversely, if lots of endodontic procedures are currently being referred out, and you are proficient in performing that endo, you can expect to add substantial revenue based on this alone.

COLLECTIONS

I was going to call this section “Production and Collections,” but having fantastic production is less important if the collections are not also fantastic. Plus, it’s impossible to have great collections if you don’t also have great production.

A critical ratio is the Collections divided by Net Production. Net Production represents the amount of production from which you expect to collect 100%. From the Gross Production, you would subtract PPO adjustments, and all miscellaneous discounts given, such as cash discounts, staff and family discounts, etc. Be aware that the greater the PPO discount, the harder you’ll have to work to maintain profitability.

For the most recent twelve-month period, a Collections Ratio of 98% or greater is excellent. A ratio of 96% to 97% is acceptable, and a lower ratio is worrisome. A low collections ratio indicates a problem with collection systems, collection execution, or both. When this is the case, you must be willing to correct the problem in order to eliminate the collections shortfall. This will have to occur as soon as you take over the practice.

NEW PATIENTS

Everyone knows how important new patient flow is to a dental practice. When evaluating a dental practice, I count a “new patient” as any patient who has a first-time 0150 New Patient Comprehensive Examination or a 0180 Comprehensive Periodontal Examination. I’m not downplaying the importance of new patient emergency examinations (0140), but if these patients don’t become long-term patients for the practice, they have very limited value.

A healthy number of new patients is twenty to thirty plus per month. Keep in mind that the more procedures being referred out of the practice, the higher the number of new patients required for continued practice growth.

It’s also important to look at specific details about the new patients. Are there both children and adults? Are the new patients mostly fee-for-service patients or patients coming to you because they will receive a large insurance discount? Beware of a new patient monthly count below 20, unless the practice does lots of long appointment, comprehensive dentistry cases.

PRACTICE TRENDS

Make certain that you review the practice statistics for the most recent three-year period. You want to assure that the practice is not in a downward spiral. With the economy the way it has been for the last decade or so, a practice simply maintaining its productivity is acceptable. While on the subject, be certain to review practice statistics for the most recent period, including the previous month.

Always verify that the management software financial reports coincide with the information on the tax returns. More specifically, the total revenue collected should be reflected on the tax return, as well as the expenses that make up the practice overhead. If you cannot correlate this data, you must explore the reasons for the differences.

Does this list cover every possible aspect that might come up when buying a dental practice? Unfortunately, no; it’s impossible to spell out every intricacy you might encounter. Rather, let this guide serve as the foundation for helping make strong negotiations and a smart end decision about purchasing a practice. Just like having a marriage or a child, a business requires constant attention and a fair amount of planning. Buying a new practice is complex, but that doesn’t mean it has to be complicated.

If you’re struggling to navigate the “information overflow” of buying a dental practice and need help weighing your options, click here and get my help. I’d love to help you make a smart, profitable decision.

To your success,

Dr. Mike Goldstein
Atlanta, Georgia Dental Consultant

No matter where your employees work, they’ll expect some kind of “insider” deal as part of employment. Even the bag boy at the grocery store gets a free donut every once in a while.

A dental office is a little more complicated. You’re offering a very professional, time-consuming, expensive service.

Some offices have no written policy at all on who gets discounted and/or free dental work. Others have written policies that are very vague or generous – sometimes to the point of being dangerous.

Here’s my hard-and-fast rule on the subject:

“Promise on paper the minimum benefits you are comfortable giving to staff and their families.”

You can always go above and beyond the written rule and be the bighearted professional who treats employees like family…. and people will love you for it. But scaling back a written promise will make you look unfair and cheap, and as someone who maintains a leadership role, this just isn’t an option.

Consider this:

Mary has been working your front desk for a little over 3 months. She has proven herself to be what we call a “marginal” employee and you don’t anticipate that she’ll be with the practice long-term. At lunch one day, one of Mary’s friends suggests to her that since she works in a dental office, she should get some dentistry done to improve her smile. When Mary returns to the office, she consults the Policy Manual you gave her when she started with you and she sees it states that after three months of full-time employment, she is entitled to free dentistry.

She asks to speak with you at the end of the workday, and when seated in your private office, she states, “Dr. Generous, I’ve been here for more than three months, and I know that I’m entitled to free dentistry. So, I’m ready to get some porcelain veneers to improve my smile.”

You have no choice but to do the necessary dentistry for free.

Let’s look at a slightly different scenario, same employee, and same desire to have cosmetic dentistry done. This time, however, your office manual states,

“After one year of full-time, continuous employment, a team member is entitled to $1,000 per year of free dentistry.”

 Now, you have a choice whether or not to do this treatment for free. Further, if Mary were a superstar, wouldn’t it be a wonderful thing to sit Mary down and explain:

“Mary, I know you’ve only been here for three-months, and our policy states you have to be here for one year to receive free dentistry, but you’re such a great employee, and we know you will be with us a long time. For that reason, I would love to help you out by doing your veneers for free.”

 Instead of Mary feeling entitled that you owe her the dentistry, she is grateful for whatever benefit you offer her beyond the stated and expected policy. This shifts the work culture from “what can I get out of working here?” to “I’m so glad I work with such a great team.”

You can edit your own handbook any way you like. Maybe you’ll have employees only pay the nominal laboratory free. Maybe you’ll offer free dentistry, but only when there are vacant gaps in your schedule. It’s up to you to choose how generous you are, just make sure the rulebook doesn’t make promises that will weigh heavily on you later.

Dr. Mike Goldstein
Goldstein Management

Nothing is more important than giving your patient an exceptional experience every time he or she visits your dental office.  At each patient visit, you must confirm that you are the best dentist he or she has ever seen, and that selecting your office was a great decision.  In addition to providing comfortable, functional, and aesthetic dental care, you must communicate positively with your patient throughout every stage of the dental appointment.

Sound taxing? Like too big of a task? Honestly, it seems that way, but it’s not. You can build rapport with a patient the same way you’d run a marathon: one step at a time.

The process begins prior to reclining the patient in the dental chair to begin treatment. You should position eye-to-eye with the patient, and in layman language, review the treatment to be performed that day. Never assume that your patient remembers the details of what you may have discussed at an earlier time. Summarize the details about the condition, the danger if the treatment is postponed, and the benefits when the treatment is completed.  Additionally, you should assure the patient of your commitment to keep the treatment as comfortable as possible. Finally, offer to answer any questions your patient may have.

During the procedure, periodically touch the patient gently on the shoulder and ask how she is doing. Frequently compliment her on her cooperation, and assure her that everything is “going great.” Ask if he or she needs a break, or if there is anything you or your team can do to make the visit more pleasant.

The most critical communication occurs at the conclusion of the dental visit. I call this the Appointment Conclusion Conversation. This is a wonderful opportunity to inform your patient how well the procedure went, and to remind him or her about the benefits of the treatment.  You are reinforcing the patient’s excellent decision to have the treatment, and for selecting you to do it. Praising the patient for her cooperation during the procedure shows your empathy and appreciation for the effort.

Before dismissing your patient, hand him or her your business card with your personal telephone number listed. Rather that implying that she should call if she has an “emergency or pain,” I suggest you ask her to call you if she has “any questions or concerns.” This communication also includes discussing benefits and adding value for the very next dental appointment.

Maybe you’ve recognized a theme here. All of the above steps are meant to position you less as a stodgy clinician and more as a person they trust with their problems – it just so happens that today’s problems are all in their mouths. When your patient thinks back later about how they felt about you and your office, they might remember the oral discomfort or the bright lights, but those can’t be avoided. But when that’s all said and done, they’ll definitely remember how you treated them as an individual and what kind of person you came across as. Friendly? Funny? Honest? Easygoing? All the qualities of a good friend are also present in a good dentist.

Wouldn’t you speed less often if the police pulled you over and handed you cash for going the speed limit every once in a while??

Psychological research shows that giving rewards for good behavior is a much stronger way to mold the way people act than just punishing wrongdoings… yet almost every aspect of society is built around trying to make people avoid certain actions (ie, crimes) rather than to try to encourage good ones (like philanthropy, charity, or being a good person).

Take a look at how you handle patients with this fact in mind. For example, many dental practices chastise patients who show up late for their appointments, but few praise the ones promptly stick to their time slots. A simple “thank you for being on time, we really appreciate it!” will really make your visitors feel noticed and valued while also encouraging their punctuality.

But you don’t have to stop there, you could make your encouragement even more gratifying and memorable for your patients. Say a patient has been on time every time since she first started seeing you a few years ago. What if she was thanked and congratulated on her next reminder postcard in a warm, handwritten message? The cost is zero, she feel extra-valued, and the chance she’ll be late or cancel unexpectedly in the future drops from slim to nil.

Are you giving your patients rewards and praise when they do things right, or are you dumping on them with negativity and threats when they owe money or miss appointments?

As the old adage goes, you really do catch more flies with honey than vinegar.

I began working with a young dentist several years ago who seemed to be doing very well. He had a busy Hygiene Department, with two dental hygienists working 32-hours per week each. They were very busy. During the previous 12-month period, his practice added 1,100 new patients. All of these patients had a Code 0150 Comprehensive Exam, and entered the office recall system. Based on this increase, how many extra days of hygiene do you think he added for the following year? The answer is zero!

The implication here is that while he celebrated 1,100 patients entering in the front door of his practice, he quietly ignored the 1,100 patients who exited out the “back door.” With it getting more challenging to recruit quality new patients, it’s more important than ever to close the “back door” to your dental practice.

Five Steps to Closing Your Backdoor:

• Monitor your active patients. How many have future appointments on the book? How many don’t?
• Use positive scripting and benefit statements to reinforce the reasons for a patient to return for recare visits. Give specific “areas of concern” that will be closely rechecked at his/her return visit.
• Have a continuous patient reactivation process in place. Consider hiring a P.R.O., or “Patient Retention Officer,” who will continually work to keep current patients active, and to reactivate older patients.
• Keep in contact with your patients between visits. Use social media, such as regular emails, blogs, newsletters, etc. to keep in touch.
• Monitor again.

Dr. Mike Goldstein
Goldstein Management