Click here to enlarge imageDuring 1985, my first year with an associate, our average monthly production increased from the $40,000 of my 1984 solo year to around $60,000. My overhead percentage dropped from 65 percent in 1984 (solo) to 58 percent in 1985 (group). See Figure 1. Overhead percentage declined as fixed costs - rent, insurance, utilities, etc. - remained the same. Production increased by 50 percent. Increased production combined with de creased over head means net profit got a double boost!
I paid my first associate 30 percent of his production ($20,000 production x 30%), for an average of $6,000 per month. As owner of a small group practice, my net became $19,200 per month ($25,200 net - $6,000 associate's cost). This was a $5,200 per month (or $62,400 per year) increase in remuneration - a 37 percent gain in net - while the hours of care delivered and my personal production remained basically unchanged.
Was I stealing money earned by my youthful associate? Most of this additional profit was derived from the 7 percent decrease in overhead ($60,000 production x 7% decrease in overhead = $4,200). Decreasing overhead and enhancing profits are the sweet fruits harvested from the skilled efforts of any well-managed business. In exchange for the remaining $1,000 per month, I supplied my associate with patients, staff, established office systems, equipment, and supplies. I started the practice on my own and certainly would have appreciated the significant value of these assets had they been available to me. This exchange seems more than equitable.
Promising as this first year was, it represented my beginning stage of group practice. With time and effort, we got better. In my last three years of group practice (during which we sometimes had two, often three dentists in the practice), my true office net - with personal expenses such as health insurance, corporate car, etc., removed from the equation - averaged 48 percent. My average daily net during those years was $5,070.
My most profitable year was 1996, when I saw patients during 52 eight-hour days and personally netted $347,000, an average daily net of $6,673. ADA statistics from 1994 stated the average dentist then netted $480 per day. My total daily profit was over 13 times the average! My small-town practice is nothing special, and I'm certainly not one of those "dental wizards" who frequent the lecture circuit. Our result simply reflects the earning potential of a well-managed group.
In 1998, I decided it was time to retire. For reasons I may never comprehend, neither of my associates desired to purchase my office. Both eventually left, and, in August 1999, I returned to full-time (four days per week) solo practice. I sold my practice last May.