Like it or not, a dental practice is a business. Here's a look at key signs you're neglecting the business side of your practice.
The Merriam-Webster online dictionary defines “commonalities” as the “possession of common features or attributes.” And sometimes, that’s not a good thing.
One thing you don’t want to share in common with your fellow dentists is a penchant for poor financial habits that lead to lack of success. Unfortunately, too many dentists do ascribe to this commonality.
“I will tell you that your financially unsuccessful dentists do not have their financials in order,” says Scott Mortier, executive vice president of business development for Transition Whale, a leading dental practice acquisition specialist. “They’re not current on their tax returns. That’s the commonality as we look across the country for practices to acquire.”
And from there the domino effect takes over.
Mortier acknowledges that dentists are very busy. Their passion is “putting their hands in people’s mouths and fixing teeth.” But the reality is that a dental practice is a small business. And just as with most small businesses, once up and running, the principals tend to stop marketing, and no longer keep up with their financial statements.
“They have a lot on their plate, and it’s the easiest thing to push aside,” Mortier says.
And when the financials are pushed aside, they’re often delegated to the practice office manager. That, Mortier points out, is a key mistake.
“Office managers are great at managing people, and they’re a huge asset to the dentist, but it’s not their business,” he says. “And keeping up to date financials—it’s not what they do, it’s not what they like to do. It’s tedious, and that’s why it usually falls by the wayside.”
And as a result, not only do dentists not know where their money should go, they often are unaware of where it is going. They’re unable to, at a glance, compare expenditures for salary, labs, supplies, and equipment purchases. How can you know what you have if you don’t know what it’s costing you to get there?
“Dentists are passionate about what they do, and they’re great at what they do, but the reality is a dental office is a small business,” Mortier says.
Goals and Assistance
Financially unsuccessful dentists also don’t do a good job of setting goals. They neglect to establish a long-range retirement goal, and even more short-term annual savings goals.
“They look at their bank account every month, and if there’s more there than there was the month before, the average dentist says, ‘Things are great,’” Mortier says.
But the reality is they’re not great. Mortier says dentists should be focused on building their practice, and developing an exit and retirement strategy for down the road. Failure to do so, and failure to maintain accurate financials along the way, could prove costly.
“The typical sale of an office or business takes six months,” Mortier explains. “If dentists had their financial records in order, it would take only three months. That’s the reality of the industry. It’s a seller’s market right now, and dentists should be looking at a long-term financial strategy, no question.”
Another reality is that too often dentists attempt to make their own decisions rather than rely on or enlist the advice of financial professionals. They get so bogged down with the day-to-day of running their practice that they forget to look at what’s down the road. Yet, when offered, they are receptive to receiving advice.
“They know that their [financial records] are not current or accurate, or that they have documents to file,” Mortier says. “They’re very forthcoming, and will typically connect us with their account and give us carte blanche to compile the necessary information.”
Mortier says that the first conversation he has with dental practice clients is expressing the importance of accurate financial documents and tax returns.
“That’s really what we beat them over the head with,” he says. “We’re not going to be able to sell their practice or acquire another practice and deal with banks if they don’t have accurate financial information about the practice they currently have.”
As advice, Mortier recommends that dentists make certain they are working with the right financial broker.
“There are big companies that have been doing dental practice acquisition in the U.S. for a long time,” Mortier says. “If you’ve had a practice for 20 or 30 years, let’s face it, it’s your baby. And you need to make sure you hire a broker or consultant who understands that and is willing to work with you and be flexible.”