On a typical day in a busy dental office, the dentist often can’t see past his or her first patient, let alone the next year or even the next month. Dentists go to work every day to carry out whatever is on the schedule so that they can get through the day. In the past, practices could grow almost every year by operating in this manner; however, many of today’s practices are losing value because they’re not addressing the key factors that contribute to success. The result is often a lower income for the doctor, extended years in practice to accumulate enough money for retirement, and a low sale price for the practice down the road.
Three key statistics that will show dentists how to increase practice value
There are many statistics and measurements that can help determine the value of a practice. But there are really only three key statistics that will help give you direction on how to increase its value.
1. Production—Production, more than any other single statistic, will give you true insight into your practice. If you can demonstrate three years of production growth, and I am referring to adjusted production after insurance write-offs, then that’s a positive indicator for practice value and performance.
2. Collections—It is all well and good to have outstanding production, but you have to collect. I have received many phone calls from dentists who want to talk about improving their practices because they have a $1.3 million practice, but they only collect $900,000. I politely explain to them that they do not have a $1.3 million practice, they actually have a $900,000 practice. Your practice revenue is defined by what you have, not by what you’re owed.
3. Profit—When you examine profit, you also simultaneously evaluate overhead. The profit-to-production ratio will tell you what your overhead is and whether or not it’s reasonable or excessive. If it’s excessive, then expenses are up, profit is down, and practice value drops. I’ve seen many scenarios of high producing practices with low profits due to practice operational costs. In this scenario, we often have to start with an overhead analysis to truly understand what expenses need to be reduced, changed, or eliminated. If you don’t constantly keep an eye on profit, overhead can become a problem without anyone realizing it.
Many dentists may think that if they concentrate on providing their patients with excellent care, the business side of their practices will take care of itself. However, if they want to ensure that they’re able to retire without any financial concerns, they must pay attention to the factors that affect their bottom line. Understanding and addressing the three key statistics discussed here will help dentists maintain and increase practice value and solidify their financial futures.
Roger P. Levin, DDS, is the CEO and founder of Levin Group, a leading practice management consulting firm that has worked with over 30,000 practices to increase production. A recognized expert on dental practice management and marketing, he has written 67 books and more than 4,000 articles and regularly presents seminars in the US and around the world. To contact Dr. Levin or to join the 40,000 dental professionals who receive his Practice Production Tip of the Day, visit levingroup.com or email [email protected].