Let's Buy a Dental Practice

[DrReo]

The Hammer, if you were set for purchasing a practice out of dental school and weathering the storm/learning curve, wouldn't a practice similar to the Gold Mine be a sure thing for success? Your pace is probably a little faster than the current dentist, you don't have to be used and abused in an associateship?

What are your opinions on a game plan above? Of course the newly minted dentist wouldn't have the connections with the OMFS/Perio guys....


Thanks again for your time.

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[The Hammer]

The Hammer, if you were set for purchasing a practice out of dental school and weathering the storm/learning curve, wouldn't a practice similar to the Gold Mine be a sure thing for success? Your pace is probably a little faster than the current dentist, you don't have to be used and abused in an associateship?

What are your opinions on a game plan above? Of course the newly minted dentist wouldn't have the connections with the OMFS/Perio guys....


Thanks again for your time.

Yeah the goldmine is a goldmine whether you are right out of dental school or you have been around like me. The great thing about it for a new grad is that it allows you to move forward at a pace that is comfortable to you. You almost cannot help but increase the production and the note is so low that you have huge cushion if anything doesn't go exactly to plan. The only difference I see with this practice between a new grad and me is just that I will be able to increase production faster because of my experience. Other than that it is a great opportunity for anyone. You can easily remake this practice over with whatever vision you have for your office to be while still making money.

To be totally honest I completely passed over this practice the first time it was presented to me as I thought that it was too far into decline for me to bother with it. It was only when I got the practice numbers that I realized there might be more than meets the eye to this office.

 

[Munks]

OK time for Practice 3
3. A dentist down the street from this office is having to retire due to health reasons. He has agreed to sell me his charts for about $10 a chart. He has about 2100 active patients who will have to come to my office if they want their chart. If they don't want to be my patient the copying fee for the chart is $25.

Wow, I was especially surprised with this... That's basically like a whole 'nother practice without buying one (well, besides the charts but that's negligible). Even if only half of them join up, that's almost 100% more patients!

I agree that this is the dream practice, even for those fresh out of grad school... This would make transitioning from slow-paced work to fast-paced production a cakewalk! Even better for you with experience, as you already have ideas and knowledge of how to make the practice boom.

Definitely the only problem a fresh-grad would have is coming up with the ideas and such, so in that regards I suppose the Sure Thing really is a sure thing for that. I have to say, I probably would have chosen practice #1 if I were fresh out of grad school, especially considering that I most likely wouldn't have the experience/knowledge of what makes an office successful, and wouldn't really know how to dig for the gold with upgrades and such in #3.

 

[The Hammer]

Wow, I was especially surprised with this... That's basically like a whole 'nother practice without buying one (well, besides the charts but that's negligible). Even if only half of them join up, that's almost 100% more patients!

I agree that this is the dream practice, especially for those fresh out of grad school... This would make transitioning from slow-paced work to fast-paced production a cakewalk! Even better for you with experience, as you already have ideas and knowledge of how to make the practice boom.

And not including the 6000 former patients that I have still in the area. But as I said before I passed on this the first time I saw it. Sometimes a hole in the ground can be a goldmine but sometimes it really is just a hole in the ground. Thats why I called Practice 1 The Sure Thing. It is exactly what it seems to be and will make you money. The Gold Mine has tons of promise but it will require some digging to get it up to its full potential and you will have to chart your own course for its progress. Whereas with The Sure Thing you can keep status quo and do great.

 

[8 SNAKE]

Hammer, do you plan to hike the fees as soon as you take over?

What kind of technology do you plan to add and why?

You don't have to answer this one if you don't want to, but how does your old partner feel about you coming back into the area so soon after selling out of your previous practice?

 

[bob1]

Hammer, typically, how large is the debt from buying a practice? It seems like it would be huge compared to dental school debt (which more people complain about)

Also, why are you still pre-dental?

 

[LNinlove]

Alright Hammer, the family man is starting to freak out again...

Say you increase your fees and start making around $6,000 or a little more, this is half of what associates in my area are making (on the low end). Subtracting student loans of around $2,000 and a mortgage of $1,500 leaves me with $2,500 for the fam. I know that's a lot more than most people make, but I want to make sure the family is taken care of!

With that said, can you provide some input in how much you *think* you might be able to increase the production. I just want to be ahead of the ball for when I graduate, and I don't have time to learn the hard way...

Would you be buying this practice if the doc up the street wasn't selling you his charts, and/or you weren't 30 minutes from your old practice?

I am not doing this to work for some other dentist...and I still think that goal is attainable, but it just worries me that it might be a LOT harder than I thought it would be.

Keep up the good work, and best of luck with the new lady!

 

[The Hammer]

Alright Hammer, the family man is starting to freak out again...

Say you increase your fees and start making around $6,000 or a little more, this is half of what associates in my area are making (on the low end). Subtracting student loans of around $2,000 and a mortgage of $1,500 leaves me with $2,500 for the fam. I know that's a lot more than most people make, but I want to make sure the family is taken care of!

With that said, can you provide some input in how much you *think* you might be able to increase the production. I just want to be ahead of the ball for when I graduate, and I don't have time to learn the hard way...

Would you be buying this practice if the doc up the street wasn't selling you his charts, and/or you weren't 30 minutes from your old practice?

I am not doing this to work for some other dentist...and I still think that goal is attainable, but it just worries me that it might be a LOT harder than I thought it would be.

Keep up the good work, and best of luck with the new lady!

If I were in your shoes or had the conditions that you have mentioned I would probably buy practice 1. More money quicker and less practice building involved. The "Gold Mine" is appealing to me because it is cheap and it has potential that I can capitalize quickly on. The appeal to a new grad would be low financial risk and you can grow at your own pace.

For someone like you who has a bigger financial burden and more responsibilities this probably isn't the practice for you. You would be better off with practice 1 which is a bigger financial risk but you are making private practice money from day one. As I have said before practice 1 is like the practice I bought when I was 2 years out of dental school and if I had to do it all over again I would buy the exact same practice.

Also one more thing to remember, if an associate is making more than you when you buy a practice that is only temporary. After about a year in your own practice you will shoot past them and from that point on the sky is the limit for you whereas they are right where they are going to be while they are working for someone else.

 

[The Hammer]

Hammer, typically, how large is the debt from buying a practice? It seems like it would be huge compared to dental school debt (which more people complain about)

Also, why are you still pre-dental?

The debt depends on how expensive the practice that you are looking at, how much working capital you want to start with and how much you are going to put into the practice for equipment and refurbishing once you buy it. I would say that a ball park for the "typical" practice that a new grad might be looking at would be in the $500,000-800,000 yearly gross range. Most practices sell for 60-65% of the gross so you are looking at anywhere from $300,000 on the low end to $520,000 on the high end. And on average I would say you will want about $30,000 working captial and for improvements it can be anything from no money to whatever you can afford. I myself wouldn't put more than $50,000 in improvements in any practice initially. The key is to not overburden yourself right off the bat. Give it a year, make some money and then start improving what you like.

Why am I still pre-dental? I don't know, I think its funny and every so often after I've given a bit of advice I'll get some dental student flame me with "what do you know, you're pre-dent". It never fails to make me smile that instead of evaluating whether or not what I've written is valid they just can't get over that "pre-dent" status.

 

[The Hammer]

Hammer, do you plan to hike the fees as soon as you take over?

What kind of technology do you plan to add and why?

You don't have to answer this one if you don't want to, but how does your old partner feel about you coming back into the area so soon after selling out of your previous practice?

Ok lets answers these one at a time

1. I will raise the restorative fees immediately but not greatly. I will probably gradually and steadily raise them over the next two years. I will leave the hygiene fees competitive with the local dentists however. Hygiene is where you get your operative work so don't nickel and dime your patients. They expect their insurance to pay for most or all of their "cleanings". But patient's expect crowns and other work to be expensive. A patient will leave you if they have to pay $20 more for their cleaning but won't bat an eye if their portion of a crown is $600. I'll talk more about hygiene later in the thread but this is an important lesson to remember.

2. I'm installing an all digital x-ray system, replacing two x-ray units with some new Gendex units, a new autoclave, converting the pan to digital and an all new computer system (this office didn't have computers, hello 1985!). I'm also installing 35" Hi-Def plasma monitors in all of the ops so patients can watch cable TV or so I can show them a 35" hi-def picture of the crack in their tooth. I am spending about $52,000 to get things up to where I want them to be which isn't too bad.

3. How does my ex-partner feel. OK I am going to answer this as much as I can without getting the lawyers involved. The reason that I am answering this question is so you don't think I'm a douche bag who sold his practice and now is back to screw over his ex-partner.

My ex-partner was a high schooler when he told me he wanted to be a dentist. I told him that if he was going to come back to the county where I was practicing that I would set him up in a golden opportunity. He went to college and applied to dental school. I personally visited the admissions committee to make sure he got in. When he graduated I built a new office specifically so I could turn the general dentistry over to him and I could do the more complex rehab that I was interested in doing. I also worked my ass off to grow the practice so that he would have plenty of patients and spent about $850,000 building a new state of the art facility. And in 2007 I formed a LLC and sold him half interest.

So last year it was clear that I was heading to divorce court. I realized that if I wanted to keep any of the money from the value of my practice I needed to sell it before the divorce papers were filed. My partner knew what was going on because I had confided in him thinking that he was my friend. I told him that I was just wanting to sell him my half and I wanted to leave the area for a while. And to be honest I was totally burned out on dentistry.

Our contract had a formula for the buy out. Our accountant would use the practice's production and some other figures, plug it into the formula and derive a price. It should have taken about an hour. What I didn't realize was that my partner was consulting with his lawyer on a way to block me from selling my half. Eventually the value of my half would drop to nothing except the value of my half of the equipment or the court would sell my half for about the same amount which would have been $80,000. Of that $80,000 I would only get half so I was going to get $40,000 for my half of a practice that had collected well over a million for the past 7 years. Nice

So the day that I entered into the sale with him out came the lawsuit and I was stuck. To say that I felt betrayed would be an understatement. Luckily I was able to exert a considerable amount of pressure on him and got my money out of him. But not until I had spent about $15,000 in lawyers fees to do so. There is no love lost between the two of us.

So how does he feel? How would you feel if you were him and I were moving back into the area with a score to settle? If I were him I'd be s h i tting bricks

 

[8 SNAKE]

The reason that I am answering this question is so you don't think I'm a douche bag who sold his practice and now is back to screw over his ex-partner.

For what it's worth, I never had that impression at all. Of course, I also didn't know the back story that you just told either. I can't imagine how pissed I would be if I found out that the two closest partners in my life were both conspiring to screw me over.

Glad you were able to rise above it all.

 

[David1991]

lol sounds like he'll get what he deserves.

You mentioned you were "burnt out on dentistry". What exactly made you burnt out and is this typical?

 

[The Hammer]

lol sounds like he'll get what he deserves.

You mentioned you were "burnt out on dentistry". What exactly made you burnt out and is this typical?

OK once again I'll try to answer this without getting too bloggish.

My vision for my practice was to have a "practice within a practice". I would take on a partner who I would turn the general dentistry over to and I would just do the really big prosth cases and we both would take a cut of the hygiene. The beauty to me behind this idea was if the economy took a dive (which it did) I could always fall back to the general dentistry.

I went to work with Mercer and ACT dental developing the model for this type of practice which I was told had never been done and couldn't possibly work. I also went to work with Mike Unthank designing a new 3000 sq ft dental office to allow two complete practices to work side by side. I never dreamed the amount of stress that doing this would put on me. Even though what I was doing I thought would lead to a better life, for me it was incredibly stressful and unpleasant.

And as if I didn't have enough pressure my wife and I were trying to start a family. About midway through my building project my wife got pregnant and we had a girl. Unfortunately we lost her soon after. I was in the middle of my building project and I had already borrowed the money and was too far in to back out or to stop what I had started. So in addition to the pressure of what I was trying to do I was also dealing with mine and my wife's grief.

I managed to pull it off and make it work for about 7 years but I hated every minute of it. My wife and I grew more and more distant and I watched my marriage slowly disintegrate around me and there was nothing that I could do to stop it. I came to associate the practice that I had built with all of the horrible stuff that had happened during its construction and I just had no desire to ever do dentistry again.

So a day came in March 2009 that I found out that my wife was planning on leaving me. I went to my office and just looked at my partner and said "I can't do this anymore." He agreed to buy me out and I turned and walked out and never went back.

I didn't do anything for several months and my wife decided to wait me out to see if I would start a new practice so she could claim half of it. We did however separate. A former dental school instructor asked me if i wanted to come teach at Midwestern and in October I got hired. I thought that maybe working with students might rekindle my love for dentistry. It did way more than I would have ever thought and for that I am forever grateful to the Midwestern Class of 2012.

My wife filed for divorce the week that I moved to Arizona and I got to handle a brutal divorce through lawyers, texts and email. The divorce was finalized about a year to the date that I walked out of my office and well here I am.

Burnout in any job is possible. My burnout wasn't so much the dentistry as much as what I had come to associate with it. In dentistry burnout almost always is also linked with digging yourself into a hole with debt where you are always working and not really seeming to get anywhere. Thats why it's important to be smart about your debt while you are still in school, don't try to live the "doctor lifestyle" until you can pay for it. It will come and it is sweet when it does

 

[David1991]

Now I'm sad lol

This thread has really psyched me up even more so about dentistry but man I really hope I don't end up "dreading every minute" for that long.

I could see myself teaching too, but it seems like it would get really repetitive year after year. And grading papers....

 

[The Hammer]

Now I'm sad lol

This thread has really psyched me up even more so about dentistry but man I really hope I don't end up "dreading every minute" for that long.

I could see myself teaching too, but it seems like it would get really repetitive year after year. And grading papers....

well look at it this way, if I can go through all of that and still get excited about getting back at it, dentistry must be a pretty damn good job

 

[allover]

well look at it this way, if I can go through all of that and still get excited about getting back at it, dentistry must be a pretty damn good job

what are your predictions about the field 5-7 years from now? trends, changes, etc..?

 

[zriceman]

OK once again I'll try to answer this without getting too bloggish.

My vision for my practice was to have a "practice within a practice". I would take on a partner who I would turn the general dentistry over to and I would just do the really big prosth cases and we both would take a cut of the hygiene. The beauty to me behind this idea was if the economy took a dive (which it did) I could always fall back to the general dentistry.

I went to work with Mercer and ACT dental developing the model for this type of practice which I was told had never been done and couldn't possibly work. I also went to work with Mike Unthank designing a new 3000 sq ft dental office to allow two complete practices to work side by side. I never dreamed the amount of stress that doing this would put on me. Even though what I was doing I thought would lead to a better life, for me it was incredibly stressful and unpleasant.

And as if I didn't have enough pressure my wife and I were trying to start a family. About midway through my building project my wife got pregnant and we had a girl. Unfortunately we lost her soon after. I was in the middle of my building project and I had already borrowed the money and was too far in to back out or to stop what I had started. So in addition to the pressure of what I was trying to do I was also dealing with mine and my wife's grief.

I managed to pull it off and make it work for about 7 years but I hated every minute of it. My wife and I grew more and more distant and I watched my marriage slowly disintegrate around me and there was nothing that I could do to stop it. I came to associate the practice that I had built with all of the horrible stuff that had happened during its construction and I just had no desire to ever do dentistry again.

So a day came in March 2009 that I found out that my wife was planning on leaving me. I went to my office and just looked at my partner and said "I can't do this anymore." He agreed to buy me out and I turned and walked out and never went back.

I didn't do anything for several months and my wife decided to wait me out to see if I would start a new practice so she could claim half of it. We did however separate. A former dental school instructor asked me if i wanted to come teach at Midwestern and in October I got hired. I thought that maybe working with students might rekindle my love for dentistry. It did way more than I would have ever thought and for that I am forever grateful to the Midwestern Class of 2012.

My wife filed for divorce the week that I moved to Arizona and I got to handle a brutal divorce through lawyers, texts and email. The divorce was finalized about a year to the date that I walked out of my office and well here I am.

Burnout in any job is possible. My burnout wasn't so much the dentistry as much as what I had come to associate with it. In dentistry burnout almost always is also linked with digging yourself into a hole with debt where you are always working and not really seeming to get anywhere. Thats why it's important to be smart about your debt while you are still in school, don't try to live the "doctor lifestyle" until you can pay for it. It will come and it is sweet when it does

sorry to hear all the obstacles you had to overcome. wish you the best in buidling your next kicka s s practice!

 

[Oracle DMD]

well look at it this way, if I can go through all of that and still get excited about getting back at it, dentistry must be a pretty damn good job

i'm glad that you came to MWU, and in a way glad you left. not really the circumstances mind you, but your mind works way faster than academic dentistry would ever allow it to. you did however, leave a part of you behind. i still call people "haystack", "hemroyden", " and "pre-clin guy", and we all have a good laugh. next time you're in town let's burn down that biker bar again. 1st $5 pitcher is on me i will hit you up later this week probly for some removable advice!

 

[The Hammer]

i'm glad that you came to MWU, and in a way glad you left. not really the circumstances mind you, but your mind works way faster than academic dentistry would ever allow it to. you did however, leave a part of you behind. i still call people "haystack", "hemroyden", " and "pre-clin guy", and we all have a good laugh. next time you're in town let's burn down that biker bar again. 1st $5 pitcher is on me i will hit you up later this week probly for some removable advice!

As long as a night on the town doesn't involve you punching me in the nuts again you're on!

 

[Oracle DMD]

As long as a night on the town doesn't involve you punching me in the nuts again you're on!

hahaha you had that coming after your rick james impression! (what did the 5 fingers say to the face? ....SLAP!)

 

[The Hammer]

hahaha you had that coming after your rick james impression! (what did the 5 fingers say to the face? ....SLAP!)

Yeah that's true I was asking for a cup check for doing that

 

[nicz888]

interesting, it's never too early to plan ahead.

 

[8 SNAKE]

so I can show them a 35" hi-def picture of the crack in their tooth.

I've heard mixed opinions about a young practice spending money on cameras. In my opinion, it seems valuable to be able to show patients exactly what's going on in their mouths to help patients understand and accept treatment plans. Other people say that the cameras don't make enough of a difference to justify taking on the debt until the practice is more established. What's your take?

 

[joyride]

Everyone around here has been talking about gross collections but how important is the practice's cash flow when evaluating the practice?

 

[The Hammer]

I've heard mixed opinions about a young practice spending money on cameras. In my opinion, it seems valuable to be able to show patients exactly what's going on in their mouths to help patients understand and accept treatment plans. Other people say that the cameras don't make enough of a difference to justify taking on the debt until the practice is more established. What's your take?

If I didn't already have a couple of vipercams in storage I wouldn't bother. If I was a new grad starting out I wouldn't spend a penny on intra-oral cams or patient ed programs like Casey. Profound wastes of money IMHO. I would however hook your digital x-ray into the patient's monitor. Everybody loves to look at x-rays, it makes the patient feel like they are making an informed decision even though they really have no idea what they are looking at

 

[The Hammer]

Everyone around here has been talking about gross collections but how important is the practice's cash flow when evaluating the practice?

Cash flow is everything. It doesn't matter how much you make only how much you get to keep. You will always want to make sure that collections stay in the 98% range. Use electronic filing for your insurance and have several different payment options like CareCredit and accept Visa, Discover and MasterCard and I would even take debit cards.

Now here is a valuable tip to insure that you keep your collection percentage up. Always always always COLLECT WHAT THE PATIENTS OWE BEFORE THEY LEAVE!!! Make sure that your front office always tells (not asks) the patient to pay their portion of what the insurance doesn't cover before they leave. Everyone has credit cards so no one should leave without paying. If your front office can't (or won't ) do this FIRE THEM AND HIRE SOMEONE WHO WILL!! When money walks out of your office the percentage of you collecting it starts to drop dramatically, so don't let this happen.

 

[The Hammer]

what are your predictions about the field 5-7 years from now? trends, changes, etc..?

Ok here is my prediction for dentistry for the next 5-10 years. It will be pretty good for the new grads because as the economy starts going back up (and it will) the dentists who graduated in the dental glut of the late 70's and early 80's will start to retire and even the saturated areas will start to become a little less saturated.

The real areas with potential will be the new growth areas around the cities say 20-30 miles away as more dentists retire and fewer are coming out of school to replace them.

Now here comes the interesting part. I think that we are going to start to see more and more mid-level providers coming out into the market. I think that the insurance companies LOVE mid-level providers because it will allow them to lower their costs while raising their profits. Also more people will be interested in becoming a mid-level provider because it's cheaper than dental school so no 8 years of school, no big student loans and no big loans to start a practice.

We will also see more corporate "dental offices" because they will be able to hire one dentist (probably a new grad with debt) to oversee a clinic full of mid-level providers. I wouldn't be surprised to see someone like Wal-Mart enter into the fray.

So what does that mean for the dentists? Well we'll have two choices
1. Use mid-level providers like MD's use PA's but you might have to compete with the big "dental stores"

2.Make sure that you can do the things that the mid-level providers can't do. People are always willing to pay for things that offer a more personal service. The big discount haircut places like "Fantastic Sam's" haven't put the smaller salons out of business. McDonald's hasn't put the really nice steak houses out of business and mid-level providers won't put the good dentists out of business. Just up your game and don't try to compete for the bargain shoppers. Don't leave your skill level where it was when you leave dental school and make your office a place where people feel comfortable not a place where you run people in and out like a factory. You will still make money and the more annoying patients will probably go to the corporate dental offices and leave you alone.

 

[Oracle DMD]

Cash flow is everything. It doesn't matter how much you make only how much you get to keep. You will always want to make sure that collections stay in the 98% range. Use electronic filing for your insurance and have several different payment options like CareCredit and accept Visa, Discover and MasterCard and I would even take debit cards.

Now here is a valuable tip to insure that you keep your collection percentage up. Always always always COLLECT WHAT THE PATIENTS OWE BEFORE THEY LEAVE!!! Make sure that your front office always tells (not asks) the patient to pay their portion of what the insurance doesn't cover before they leave. Everyone has credit cards so no one should leave without paying. If your front office can't (or won't ) do this FIRE THEM AND HIRE SOMEONE WHO WILL!! When money walks out of your office the percentage of you collecting it starts to drop dramatically, so don't let this happen.

really w/ the care credit? what good is it having a 98% collections rate when you have care credit that charges 9.99% (through THEIR terminal) or if you use the internet website its 14.99%! (both % are for the 1 yr no interest which is the largest proportion of care credit takers) maybe as absolute last resort, but i certainly wouldn't offer it to every patient.

also if i may add, everyone should take debit cards. its how people pay for things now-a-days and it's a least 1% cheaper to take debit than credit. american express is crazy expensive (2-3% high than other credit cards) to take so i'd stay away from them if i could.

 

[jay47]

To say that I felt betrayed would be an understatement. Luckily I was able to exert a considerable amount of pressure on him and got my money out of him. But not until I had spent about $15,000 in lawyers fees to do so. There is no love lost between the two of us.

So how does he feel? How would you feel if you were him and I were moving back into the area with a score to settle? If I were him I'd be s h i tting bricks

Hammer, this had to be dually tough with your other family situation going on. How well did you feel that you knew this person? How might future practice owners plan ahead for situations like this so that we don't get cheated, all the while giving an associate a fair shake as well?

 

[DrReo]

Hammer, this had to be dually tough with your other family situation going on. How well did you feel that you knew this person? How might future practice owners plan ahead for situations like this so that we don't get cheated, all the while giving an associate a fair shake as well?

I have the same question. I feel that the only way not to get cheated is start your own practice right after graduation. Even on dentaltown, there is a fair share of mishaps. But when you're the own, you have to watch for your employees embezzling your dollars.

 

[The Hammer]

Hammer, this had to be dually tough with your other family situation going on. How well did you feel that you knew this person? How might future practice owners plan ahead for situations like this so that we don't get cheated, all the while giving an associate a fair shake as well?

I don't know. My partner who I brought into a perfect situation tried very hard to screw me and my wife of 16 years bailed on me so I really wonder if I am a very good judge of character. The one thing that I have learned is it is well worth the money to have excellent contracts written by lawyers who know what they are doing. Don't EVER do anything business wise without a well written contract that you and your lawyer have gone over with a fine tooth comb.

 

[The Hammer]

really w/ the care credit? what good is it having a 98% collections rate when you have care credit that charges 9.99% (through THEIR terminal) or if you use the internet website its 14.99%! (both % are for the 1 yr no interest which is the largest proportion of care credit takers) maybe as absolute last resort, but i certainly wouldn't offer it to every patient.

also if i may add, everyone should take debit cards. its how people pay for things now-a-days and it's a least 1% cheaper to take debit than credit. american express is crazy expensive (2-3% high than other credit cards) to take so i'd stay away from them if i could.

Sorry I should have clarified things. Carecredit was for the really big stuff. I wouldn't offer it for anything under about $5000. They do take 10% but when you are doing the bigger cases you can readjust your treatment plan to cover this.

 

[The Hammer]

OK time for the last practice. The one I like to call "The Shiny Trap" Lets look at the numbers

Practice 4:
Avg Gross: $850,000
Operative : $450,000
Hygiene: $400,000
Days: Mon-Fri 7-6
Active Pts: 5500 (40% Insurance, 30% Medicaid, 20% HMO, 10% cash)
Building: Rent
Equipment: Bought in the last 10 years, computers, no digital x-ray
Price:$600,000 ($570,000 plus $30,000 working capital)

The asking price is $600,000 which is about 70% of the gross which is a little high but not out of the question. $600,000 at 7% for 7 years is a monthly note of $9055.61

The average gross is $850,000 at 98% collections which is $833,000 or $69,417 a month. After you take out the 65% overhead you have $24,296 left over. Take out your monthly note of $9055.61 and you have $15,240.39 left over. Pretty nice paycheck.

So what bothers me about this practice? Well let's keep looking at the numbers. The first thing that jumps out at me is the ratio of hygiene to operative. The hygiene is doing $400,000 which is awesome but operative is only doing $450,000. That means that hygiene is doing 47% of the overall gross. Whereas operative is only doing 53%. If hygiene is doing $400,000 in a typical practice the operative should be doing more like $800,000. So where is the missing money going?

When you see this kind of discrepancy there are a couple of things that it might be:

1. The dentist is slowing down like in practice 3. But in this practice they are working 55 hours a week (they work through lunch). So its not the dentist slowing down

2. There is just not enough operative work being diagnosed. But in this practice they are averaging about 80 new patients a month so getting enough operative work isn't the problem.

So this practice has actually too many patients, plenty of operative work and is open 55 hours a week so where is the missing money?

Right here (40% Insurance, 30% Medicaid, 20% HMO, 10% cash) 50% is Medicaid and HMO or reduced fee dentistry. To be totally truthful when I reviewed the financials on this practice they had 50% Medicaid and HMO and at least 35% of the "insurance" was fee schedule as well.

The operative work is getting done, tons of it but they are only getting about 75% or less of what they should be charging for it. So in some cases they are just barely breaking even on the operative procedures. The dentist is working harder than a dog and is getting paid like one too.

So what if you decide to get rid of the medicaid and try to attract more "regular insurance" patients? That's fine but can you hang in there while your office loses 30% of its gross? Well lets take a look.

30% of $850,000 is $255,000. That drops your overall production to $595,000 or $49,583 a month. Take out your 65% overhead and you have $17,354 per month. Then take your practice note out and you have $8298.39 a month.

Now lets look at that $8298.39 a little more closely. In an average month you will be working 242 hours which comes down to $34.30 an hour.

If you try to back out of any the schedule fee plans that you are on the numbers will run the same. You can get out of the managed care plans but it takes time and your production will take a hit. If you can hang tough you can do it but it won't be easy. What usually happens is once you get into the practice you aren't able financially to take the hits necessary to get back out. That's why I call this the "Shiny Trap", it looks busy and profitable but once you're driving the boat its almost impossible to let go of the wheel or let back on the throttle. Or as the chinese proverb put it "He who rides the tiger finds it difficult to dismount."

Now some people like this kind of practice. I have a very good friend who has a practice exactly like this and he does pretty well. He makes use of extended function auxiliary and works like a machine. He has systems in place to make sure he gets paid in a timely fashion and he has no interest in doing any dentistry more complicated than a three unit bridge. He makes good money and does good dentistry and seems content at what he's doing.
So even though I call this "The Shiny Trap" it doesn't necessarily mean that it's bad practice, just know what you are getting into before you get too far invested to back out.

 

[monreal]

Practice 4:
Avg Gross: $850,000
Operative : $450,000
Hygiene: $400,000
Days: Mon-Fri 7-6
Active Pts: 5500 (40% Insurance, 30% Medicaid, 20% HMO, 10% cash)
Building: Rent
Equipment: Bought in the last 10 years, computers, no digital x-ray
Price:$600,000 ($570,000 plus $30,000 working capital)
...
So what if you decide to get rid of the medicaid and try to attract more "regular insurance" patients? That's fine but can you hang in there while your office loses 30% of its gross? Well lets take a look.

30% of $850,000 is $255,000. That drops your overall production to $595,000 or $49,583 a month. Take out your 65% overhead and you have $17,354 per month. Then take your practice note out and you have $8298.39 a month.

Now lets look at that $8298.39 a little more closely. In an average month you will be working 242 hours which comes down to $34.30 an hour.

I would think about the above differently, but I may be wrong.

30% is the percentage of medicaid patients not medicaid portion of production.

If you fire 30% of the patients, your procedures will go down by 30% but the collection numbers will go down by less than 30% (I would say less than 25%) because medicaid payments are less than insurance payments or cash payments, so you end up writing off less which reduce your overhead. Also by losing 30% of your patients, you will work 30% less (180 hours), as do your hygienists. Does this make any sense?

Thanks again for educating us

 

[David1991]

I was thinking the same as above. Also, if it has "too many patients" and is getting ~80 new patients per month I would think those with medicaid who were taken out could be replaced by those with the preferred insurance, no?

 

[The Hammer]

I would think about the above differently, but I may be wrong.

30% is the percentage of medicaid patients not medicaid portion of production.

If you fire 30% of the patients, your procedures will go down by 30% but the collection numbers will go down by less than 30% (I would say less than 25%) because medicaid payments are less than insurance payments or cash payments, so you end up writing off less which reduce your overhead. Also by losing 30% of your patients, you will work 30% less (180 hours), as do your hygienists. Does this make any sense?

Thanks again for educating us

That's a good thought and to be honest I was giving the "worst case scenario" what more than likely would happen is the medicaid patients would be replaced with the HMO patients, but a couple of things that you need to keep in mind.

1. Your overhead is for the most part a fixed dollar amount, it only changes when you give staff raises, buy more or less supplies, rent goes up or down etc. What changes your overhead percentage is how much you charge, the more money that you make will cause your overhead percentage to go down if you can keep your fixed expenses the same.

Getting rid of the Medicaid will show an increase in your production/collection numbers so it will lower the overhead but to be honest not by much as the missing medicaid patients will more than likely be replaced with HMO patients.

I don't know how it is in other states but in my states medicaid dental pays until you are 21 so the vast majority of procedures are not profitable crown and bridge put mostly pedo and simple operative and extractions. The fees for those procedures for medicaid and the typical HMO aren't that different (in my state they based the dental fees on the major HMO plans). So the best that you can hope for is to wind up right back where your were with a temporary dip in production. You might find yourself getting more adult patients and thus some more profitable procedures but when dealing with money I don't like to deal with "mights".

2. And you can work 30% less hours but your loan payments and fixed overhead will stay the same unless you can get your staff and landlord to accept less money (good luck).

Its obvious that you put some thought into this which is great. And like I posted I have a friend who has a practice just like this and he does fine. The thing that I wanted was for everyone to get past the $850,000 gross and start looking at what goes into making that kind of cash. Which you obviously did, good job.

 

[The Hammer]

I was thinking the same as above. Also, if it has "too many patients" and is getting ~80 new patients per month I would think those with medicaid who were taken out could be replaced by those with the preferred insurance, no?

Yes the medicaid would more than likely be replaced with a mix of mostly HMO and "regular" insurance patients so you probably wouldn't have a total 30% dip. I tend to like to look at the "worst case scenario". If you can still keep your head above water when the roof caves in then you more than likely will be OK. When you are dealing with a bank loan that is due in 7 years that will take your practice and more than likely bankrupt you if you default on it I really don't like to leave much to chance.

Good job

 

[8 SNAKE]

Hammer, from a demographic perspective are all four practices serving the same/similar areas? It is clear that practice #4 targets a different clientele than the others, but I'm not sure whether that is by choice or necessity?

 

[TarheelDDS]

I have a question about the overhead, Hammer.

Is the 65% an average value, or is that the top or bottom end?

I know nothing about dental offices so I have no clue.

Thanks for your time.

 

[The Hammer]

Hammer, from a demographic perspective are all four practices serving the same/similar areas? It is clear that practice #4 targets a different clientele than the others, but I'm not sure whether that is by choice or necessity?

Yes. All of these practices were around the same city that I was looking at in Tennessee and I would think that Practice 4 chooses to cater to that kind of patient base. A high volume practice like this can make you some money and there is definitely a need for this type of practice. It just depends on what you want out of dentistry.

 

[The Hammer]

I have a question about the overhead, Hammer.

Is the 65% an average value, or is that the top or bottom end?

I know nothing about dental offices so I have no clue.

Thanks for your time.

65% is what I would call the higher end of average. Most general dental practices run between 56-63%. You don't see them dip below 55% much and if they are 70% or above then something needs to be corrected.

None of these practices had the same overhead. Practice 1 was at about 60%, practice 2 at about 71%, practice 3 was right at 50% (that's going to change unfortunately) and practice 4 was about 68%. I just picked 65% for all of them to make things simple.

 

[DrReo]

With regards to demographics, what type of dentistatient ratios would you be considering? Even in the suburbs of larger metros, a lot of the ratios are 1:1100-1200. That seems insanely competitive... Although there are some older dentists, it will take a while for them the filter out. They are still competition during the most crucial periods.


How much do you weigh the average income of the city/county?

 

[The Hammer]

With regards to demographics, what type of dentistatient ratios would you be considering? Even in the suburbs of larger metros, a lot of the ratios are 1:1100-1200. That seems insanely competitive... Although there are some older dentists, it will take a while for them the filter out. They are still competition during the most crucial periods.


How much do you weigh the average income of the city/county?

As much as I would love to impress you with my vast knowledge of reading population demographics I'll be honest with you. I don't use them. I figure that someone with a degree in marketing has already done that for me so here's what I look for

1. First it has to be an area that I want to live in. It has to be close to a major interstate and it has to be within 30 minutes driving time to a decent sized city

2. I look at the stores within 2 miles of the office. Super-Walmart is good, Lowe's, Home Depot and Super-Target even better. These are big chains that are much better at determining the discretionary income of the local population than I am. Their demographic for the most part are the people I want for patients so if they have invested in the area I figure that I will be ok too.

3. I look at the restaurants. McDonald's meh, same for Pizza Hut and Subway. Starbucks is good, Olive Garden, Red Lobster and Panera Bread are great. Once again the demographic that they are looking for is essentially the same that I want so if they are around then I will be OK.

4. I look at the churches. Not so much the denominations but the physical structures. Are they recent structures in good shape with "Family Life Centers" or as we use to call them gyms? This lets me know that the area has new families with younger children. It also lets me know that they have a decent amount of money to be able to tithe enough to fund a building program

5. I look at the housing situation. Are there new subdivisions being built? How about new apartment complexes? Both of these indicate a younger population moving into the area. These people will hopefully become your longtime patients

6. I look at what the major industries in the area. Not just in the immediate community but also in the region. I prefer a mix of industries both blue collar and white collar without any one particular industry dominating. The wider the mix the more resistant the local economy will be to the fluctuations of the economy.

7. And I will finally look at the number of dentists in the area. What type of practices they have, how old they are, how long they have been there, what does the physical structure of their office look like, how much do they charge, what does their staff look like, does the dentist live in the area or do they live elsewhere and commute in, what services do they provide, what sort of marketing do they do etc etc.

The first 6 points tell me if the area can support me, the last point lets me know what I will need to do to dominate the market. If you haven't figured it out already this is the stuff that I am constantly thinking about.

 

[8 SNAKE]

Hammer, your seven points make all the sense in the world for what I would consider suburban type practices. If you were looking for a practice in a rural setting (lets use Kansas as an example, since a lot of people think rural Kansas is a gold mine in and of itself - though I don't necessarily get it). There are very few places in the western half of Kansas that are going to have even half of the places that you listed. Would you set up shop in a place like Garden City that draws people from a wide radius, or would you try to set up somewhere that is truly rural? If you were to set up in a truly rural location, I have a hard time imagining how your practice would draw enough people to keep you busy. I would also think that such a practice would be very vulnerable to competition if you did attain success, because each new dentist would change the dentist : population ratio considerably.

My point isn't related to Kansas, specifically. It could apply to any rural setting where population centers were very few and far between.

 

[The Hammer]

Hammer, your seven points make all the sense in the world for what I would consider suburban type practices. If you were looking for a practice in a rural setting (lets use Kansas as an example, since a lot of people think rural Kansas is a gold mine in and of itself - though I don't necessarily get it). There are very few places in the western half of Kansas that are going to have even half of the places that you listed. Would you set up shop in a place like Garden City that draws people from a wide radius, or would you try to set up somewhere that is truly rural? If you were to set up in a truly rural location, I have a hard time imagining how your practice would draw enough people to keep you busy. I would also think that such a practice would be very vulnerable to competition if you did attain success, because each new dentist would change the dentist : population ratio considerably.

My point isn't related to Kansas, specifically. It could apply to any rural setting where population centers were very few and far between.

If you set up in a truly rural place you are right, you are going to draw very few people because their are very few people around to draw from. The people who typically locate in these areas have some form of attachment to them (family, they want to farm and do dentistry etc). There has to be an area that draws all the people from the rural areas to, usually to do their shopping or go to the hospital etc. This is where you will have better success.

In marketing terms a dental office is an "end destination". Meaning that it is a place where people deliberately drive to rather than say a Wal-Mart where people might go there or they might go to another retail outlet. But locating in a more retail oriented area allows you more exposure and makes your end destination more desirable because coming to see the dentist also means being in the same area as the retail stores.

One thing that you will need to remember is the smaller the community the more visible you have to become. You will absolutely need to be involved in your community. And by involved I mean lots of face time not just buying an ad in the local high school year book. It also means making yourself available for after hours emergencies because this is how people will start to view you as a part of the community and not just an interloper who is there to take their money and buy a BMW.

 

[8 SNAKE]

One thing that you will need to remember is the smaller the community the more visible you have to become. You will absolutely need to be involved in your community. And by involved I mean lots of face time not just buying an ad in the local high school year book. It also means making yourself available for after hours emergencies because this is how people will start to view you as a part of the community and not just an interloper who is there to take their money and buy a BMW.

No doubt about that. I grew up in a town of less than 500 people, so I can relate to the rural environment.

You always hear people talk about rural areas being the true gold mines, but I have a difficult time wrapping my mind around that. There are only so many potential patients in rural places and the susceptibility to competition is higher. I seem to think the places that you described in your seven points would have more potential than truly rural locations. Am I off base? Perhaps my idea of rural is different from most.

A dentist told me about a classmate that went to Alaska and set up her practice. She got a bush plane and flies around to isolated areas in the state servicing patients. I thought that would involve a high percentage of government payment programs, but the dentist told me that wasn't the case. Pretty cool lifestyle, in my opinion.

 

[The Hammer]

No doubt about that. I grew up in a town of less than 500 people, so I can relate to the rural environment.

You always hear people talk about rural areas being the true gold mines, but I have a difficult time wrapping my mind around that. There are only so many potential patients in rural places and the susceptibility to competition is higher. I seem to think the places that you described in your seven points would have more potential than truly rural locations. Am I off base? Perhaps my idea of rural is different from most.

A dentist told me about a classmate that went to Alaska and set up her practice. She got a bush plane and flies around to isolated areas in the state servicing patients. I thought that would involve a high percentage of government payment programs, but the dentist told me that wasn't the case. Pretty cool lifestyle, in my opinion.

I think that the people who think that "rural" areas are goldmines are thinking of populations of 6,000 or more. By their definition a population of 500 wouldn't be "rural" it would be isolated. And you are correct a population of 500 would be very difficult to make a living as a dentist in.

 

[MXDenty77]

I have always wondered this. How do you find the fee structure for dentists in your local area? these seem like trade secrets they would hold close to the chest.

 

[TarheelDDS]

Thanks Hammer!

I have heard that specialties have lower overheads for seemingly obvious reasons.

Do you know what the numbers for various specialties are like?

Thanks again.

 

[allover]

Yes. All of these practices were around the same city that I was looking at in Tennessee and I would think that Practice 4 chooses to cater to that kind of patient base. A high volume practice like this can make you some money and there is definitely a need for this type of practice. It just depends on what you want out of dentistry.

Tennessee? Any city there compare to Scottsdale?