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Expanding—and the life lessons learned
THE FRONT OFFICE Practice Expansion Expanding—and the life lessons learned Background.—Each dental practice is unique and its path forward into expansion will also be unique. The two main pathways to expansion are building an additional new practice or acquiring an existing practice. Undertaking either project will include a few lessons for life. Building an Existing Practice.—When expanding by building a new practice there are a few things to be considered. First, location is key. Obtaining a high-visibility retail space tends to be wise, even if it means paying higher rent. The lease should be assessed for the following conditions:
It must be transferrable with the same term so the dentist has the flexibility to transfer the location to another partner in the future. A fixed escalation term is preferable to a market rate adjustment arrangement. There should also be a buy-out clause in case the business doesn’t work out. The practice should be given the highest exposure on the signage, which will preferably also have the website and full phone number listed.
Once these conditions are met, office design can be considered. The goal is to maximize production areas, which include an x-ray room, doctor rooms, and hygienist rooms, and to minimize nonproduction areas. Optimally there should be five operatories, with three for dentists and two for hygienists, although if a larger practice is planned, there should be additional operatories included. Treatment rooms should measure 10-foot by 10-foot or 11-foot by 11-foot in fee-for-service offices expected to operate at a slow pace. For faster-paced offices relying on insurance payments, the rooms can be smaller (8-foot by 8-foot) to fit in more production. Walls are 4- to 6-inch thick drywall. All small spaces can be made to feel larger by eliminating doors and increasing ceiling heights to 12 feet. Hallways are dead space and should be avoided when possible. The break room should be large enough for a meal but not comfortable enough to encourage napping. Some offices place doctors in a corner of the reception area so they can supervise office flow when not attending to patients.
Having an x-ray room avoids having patients monopolizing productive chair time while they wait for their x-rays. To dress up the office decor cost-effectively, it should employ a simple color scheme, with no need for luxury items such as marble floors or granite desktops. Ease of maintenance and good lighting are essential concerns. The equipment should contribute to increased productivity and efficiency. However, if patients seem to feel something is of value, it may be worth investing money in. One thing that is widely appreciated is an extra thick cushioned examination chair—much more desirable to patients than an energy-saving vacuum suction pump. When expanding any office, it’s time to purchase enterprise-level, complete practice management software rather than continuing to use basic software. As offices are added, bargain software tends to cost more and cause more inefficiencies, so it’s wise to do the research and choose the enterprise software that fits the new office space. When starting out, the dentist should accept all insurance plans other than HMOs. Being visible on a large number of insurance lists can result in patients choosing to come to the new office. After the location becomes busy, less desirable plans can be eliminated. Acquisitions.—When considering an acquisition, it’s important to determine whether the dentist would have to spend about the same money on it as he or she would on building a new office. The process involves determining what the profit would be if the practice were taken over now, which may be seen in better laboratory fees, supply costs, and human resources expenditures. Net practice growth is predicted by using a management and marketing plan and plugging in new patient acquisition costs and average production per patient. With respect to personnel, the selling dentist may be offered the opportunity to remain with the practice. With an earn-out payment schedule over a 2-year period, the dentist may decide to work harder during the transition
Volume 62
Issue 4
2017
179
to new management. Some team members may leave or retire with the selling dentist, and the purchaser should be aware of this and plan accordingly. Some improved production may be seen by expanding weekend and evening office hours. It’s possible to do some minor improvements such as better lighting, a new paint job, or new staff uniforms right away, saving major changes for after the new office starts generating profits. Details to Remember.—When expanding through either a new office or the acquisition of another office, it’s important to establish a good working relationship with attorneys. With expansions come potential legal problems, and it’s important to have attorneys ready to help with these situations. Improvements will likely take time and it’s important to be patient and persevere. Obstacles are to be expected, but they can be a blessing in disguise. Learning from these experiences can be invaluable and give you helpful information
for moving forward. Even making a mistake in undertaking an expansion can be a time of personal growth in the dentist’s and staff ’s ability to withstand the storm.
Clinical Significance.—Expansion is taking a leap of faith. Dentists should be prepared to make mistakes, learn from them, remain generous, stick to their principles, and continue to live a life of purpose. In all cases it’s possible to be grateful for both the positive and the negative aspects of trying to achieve a prosperous business and fulfilling life.
Ting D: So you’re ready to expand? Here’s how. Dent Econ 106(12):12, 2016 Reprints not available
Practice Value Maximizing productivity Background.—Productivity in a dental office can’t be determined by simply applying a special formula. There are too many moving parts and too many unknowns to have a single formula that can determine the optimal balance of patients, daily production, and overhead that will yield maximum productivity. The factors that contribute to productivity were outlined. Profitability.—The initial investment required to start a dental practice has been estimated as between $350,000 and $500,000 for most cases, but may be as high as $800,000. Salaries are the largest expense in a dental office’s overhead and should be limited to 30% of production according to some experts. However, production varies from week to week and season to season, so it can be difficult to determine how much production is needed per hour of the day to run a profitable practice. An estimate must consider hourly production for the entire practice, total number of patients, doctor percentage of the practice’s production, percentage of doctor production related to new patients, hygienist’s production percentage, and overhead, which should be pegged as 59%. Figures for an average practice consisting of one dentist, one hygienist, and one coordinator at the front desk, with all working 8 hours a day 4 days a week for 46 weeks of the year, earnings are approximately $700,000, requiring $390 hourly
180
Dental Abstracts
production, 2000 patients, 75% doctor percentage ($525,000), 40% spent on new patients, 25% for the hygienist’s production, and $413,000, or $34,416 a month, for overhead costs (Table 1). Profitability is also somewhat determined by how many new patients must be added each month. One estimate is that average production per new patient should be two to three times the average production per active patient. But having too many new patients can also be a problem because wait times increase to the point that some patients will simply choose to go to another practice rather than wait months for an appointment. This raises the issue of when it’s appropriate to add an associate dentist to handle the work flow—and that can have its own problems. New associates are only needed when the practice’s current dentists are overscheduled. The problem can be having the need for a new associate but not finding the right candidate, or having the right individual available but not having an immediate need. To force either situation in a practice creates an uncomfortable and stressful environment for all involved. Even when the right associate is brought on at the right time, the owner dentist and other dentists in the practice must go through a time of accommodation and delegation so the new associate has
It must be transferrable with the same term so the dentist has the flexibility to transfer the location to another partner in the future. A fixed escalation term is preferable to a market rate adjustment arrangement. There should also be a buy-out clause in case the business doesn’t work out. The practice should be given the highest exposure on the signage, which will preferably also have the website and full phone number listed.
Once these conditions are met, office design can be considered. The goal is to maximize production areas, which include an x-ray room, doctor rooms, and hygienist rooms, and to minimize nonproduction areas. Optimally there should be five operatories, with three for dentists and two for hygienists, although if a larger practice is planned, there should be additional operatories included. Treatment rooms should measure 10-foot by 10-foot or 11-foot by 11-foot in fee-for-service offices expected to operate at a slow pace. For faster-paced offices relying on insurance payments, the rooms can be smaller (8-foot by 8-foot) to fit in more production. Walls are 4- to 6-inch thick drywall. All small spaces can be made to feel larger by eliminating doors and increasing ceiling heights to 12 feet. Hallways are dead space and should be avoided when possible. The break room should be large enough for a meal but not comfortable enough to encourage napping. Some offices place doctors in a corner of the reception area so they can supervise office flow when not attending to patients.
Having an x-ray room avoids having patients monopolizing productive chair time while they wait for their x-rays. To dress up the office decor cost-effectively, it should employ a simple color scheme, with no need for luxury items such as marble floors or granite desktops. Ease of maintenance and good lighting are essential concerns. The equipment should contribute to increased productivity and efficiency. However, if patients seem to feel something is of value, it may be worth investing money in. One thing that is widely appreciated is an extra thick cushioned examination chair—much more desirable to patients than an energy-saving vacuum suction pump. When expanding any office, it’s time to purchase enterprise-level, complete practice management software rather than continuing to use basic software. As offices are added, bargain software tends to cost more and cause more inefficiencies, so it’s wise to do the research and choose the enterprise software that fits the new office space. When starting out, the dentist should accept all insurance plans other than HMOs. Being visible on a large number of insurance lists can result in patients choosing to come to the new office. After the location becomes busy, less desirable plans can be eliminated. Acquisitions.—When considering an acquisition, it’s important to determine whether the dentist would have to spend about the same money on it as he or she would on building a new office. The process involves determining what the profit would be if the practice were taken over now, which may be seen in better laboratory fees, supply costs, and human resources expenditures. Net practice growth is predicted by using a management and marketing plan and plugging in new patient acquisition costs and average production per patient. With respect to personnel, the selling dentist may be offered the opportunity to remain with the practice. With an earn-out payment schedule over a 2-year period, the dentist may decide to work harder during the transition
Volume 62
Issue 4
2017
179
to new management. Some team members may leave or retire with the selling dentist, and the purchaser should be aware of this and plan accordingly. Some improved production may be seen by expanding weekend and evening office hours. It’s possible to do some minor improvements such as better lighting, a new paint job, or new staff uniforms right away, saving major changes for after the new office starts generating profits. Details to Remember.—When expanding through either a new office or the acquisition of another office, it’s important to establish a good working relationship with attorneys. With expansions come potential legal problems, and it’s important to have attorneys ready to help with these situations. Improvements will likely take time and it’s important to be patient and persevere. Obstacles are to be expected, but they can be a blessing in disguise. Learning from these experiences can be invaluable and give you helpful information
for moving forward. Even making a mistake in undertaking an expansion can be a time of personal growth in the dentist’s and staff ’s ability to withstand the storm.
Clinical Significance.—Expansion is taking a leap of faith. Dentists should be prepared to make mistakes, learn from them, remain generous, stick to their principles, and continue to live a life of purpose. In all cases it’s possible to be grateful for both the positive and the negative aspects of trying to achieve a prosperous business and fulfilling life.
Ting D: So you’re ready to expand? Here’s how. Dent Econ 106(12):12, 2016 Reprints not available
Practice Value Maximizing productivity Background.—Productivity in a dental office can’t be determined by simply applying a special formula. There are too many moving parts and too many unknowns to have a single formula that can determine the optimal balance of patients, daily production, and overhead that will yield maximum productivity. The factors that contribute to productivity were outlined. Profitability.—The initial investment required to start a dental practice has been estimated as between $350,000 and $500,000 for most cases, but may be as high as $800,000. Salaries are the largest expense in a dental office’s overhead and should be limited to 30% of production according to some experts. However, production varies from week to week and season to season, so it can be difficult to determine how much production is needed per hour of the day to run a profitable practice. An estimate must consider hourly production for the entire practice, total number of patients, doctor percentage of the practice’s production, percentage of doctor production related to new patients, hygienist’s production percentage, and overhead, which should be pegged as 59%. Figures for an average practice consisting of one dentist, one hygienist, and one coordinator at the front desk, with all working 8 hours a day 4 days a week for 46 weeks of the year, earnings are approximately $700,000, requiring $390 hourly
180
Dental Abstracts
production, 2000 patients, 75% doctor percentage ($525,000), 40% spent on new patients, 25% for the hygienist’s production, and $413,000, or $34,416 a month, for overhead costs (Table 1). Profitability is also somewhat determined by how many new patients must be added each month. One estimate is that average production per new patient should be two to three times the average production per active patient. But having too many new patients can also be a problem because wait times increase to the point that some patients will simply choose to go to another practice rather than wait months for an appointment. This raises the issue of when it’s appropriate to add an associate dentist to handle the work flow—and that can have its own problems. New associates are only needed when the practice’s current dentists are overscheduled. The problem can be having the need for a new associate but not finding the right candidate, or having the right individual available but not having an immediate need. To force either situation in a practice creates an uncomfortable and stressful environment for all involved. Even when the right associate is brought on at the right time, the owner dentist and other dentists in the practice must go through a time of accommodation and delegation so the new associate has