Answer these 7 questions first
by Roger P. Levin, DDS
If you decided to sell your practice next year, what would you need to do right now to get the most value for it?
Some dentists will have to do very little. Their production is increasing, their offices run efficiently with minimal stress, and they have an active, loyal patient base. Many dentists, however, will need to institute many improvements before transitioning out of their practices.
By answering the following questions, dentists can take the necessary steps to create the greatest value for their practices:
1. Are the practice's facilities, décor, and customer service excellent?
Obviously, all practices want to increase case acceptance. What some dentists do not realize is that despite the enhancement of their clinical skills, case acceptance will not increase dramatically based on skills alone. The image and appearance of your practice has a profound impact on case acceptance.
All patients want to be treated with exceptional care. Unfortunately, they have no idea how to judge the dentist's clinical skills, so they evaluate the practice on its appearance and level of customer service.
Many patients see dentistry in general as a commodity. Dentists cannot afford to ignore anything that makes their practice stand out. Something as simple as an attractive office can be a factor for patients selecting you and your practice.
Patients and potential buyers will be evaluating the practice based partly on their general perception of the office. When the practice has a modern, attractive appearance, buyers are inclined to believe that they are buying into a successful practice.
2. Have you invested wisely in equipment and technology?
Due to the recent recession, dental practices are more challenged today than ever before when it comes to overhead control and profitability. Consequently, a new economic landscape has to be considered when making the next investment.
Dentists should perform a cost-benefit analysis of any potential purchase by considering the following:
- Will this technology improve the rate of case acceptance?
- Is it essential to providing a new service?
- Is it easy to implement?
- Will it require staff training?
- What are the hidden costs of this technology over the long term?
- How will it affect other practice systems?
- How long has this technology been on the market?
- What is the reputation of the manufacturer?
- How quickly will there be a return on investment?
- Will it be paid off before the projected sale of the practice?
Equipment and technology are investments in your practice. If the practice has state-of-the-art technology, that will be viewed favorably by patients and as an asset by a potential buyer. If all your equipment and technology dates from the 1990s and earlier, then it's time to start prudently reinvesting in the practice.
3. Is the practice's internal marketing generating sufficient patient referrals?
Internal marketing activities motivate current patients to remain active in the practice, accept additional treatment, and refer others. Internal marketing fuels practice growth. A practice that has steadily increasing production quickly gains the attention of potential buyers. A robust internal marketing program generates greater profitability now and a higher sale price later.
The success of an internal marketing initiative depends on implementing a sufficient number of ongoing strategies. Levin Group's experience with thousands of dental practices has shown that a minimum of 15 strategies is required, because different patients will respond to different strategies. One group of patients will give referrals if you simply ask for them (which surprisingly few practices do). Other patients will learn through social media about a new service your practice offers. Yet another group will respond best to an email offer. With multiple strategies, you will have something to appeal to everyone.
4. Are the practice's management systems up to date?
Inefficient systems result in poor team performance, elevated stress, and decreased profitability. Outdated systems have built-in bottlenecks that slow down the practice. For example, a dentist may be able to provide treatment quickly and efficiently, but if the schedule is always running behind, the result will be poor customer service and unhappy patients. The goal for practices is to eliminate inefficiencies by redesigning systems.
To update practice systems, follow these action steps:
- Collect all necessary data to understand each practice system.
- Use all collected data to develop an ideal model based on the unique needs of your practice.
- Customize all ideal models to fit the goals of the doctor and team.
- Implement new systems to increase practice production.
- Measure results to ensure that the new customized model is on track to achieve all practice goals.
Step-by-step management systems are the foundation of a successful practice. The hallmarks of a well-run and well-organized practice with a well-trained team are consistently seeing patients as scheduled, collecting fees at the time of service, and motivating a high percentage of patients to accept elective and need-based dentistry.
5. Is production growing or declining?
As indicated by the Levin Group Data Center™, 75% of practices have experienced production declines since the recession. Does the production data indicate that a practice is growing or declining? This is often the first statistic that potential buyers will want to see. A growing practice often sells itself. A practice in decline requires much more work and salesmanship.
Questions that help dentists estimate whether the practice is growing or declining include:
- Is production growing at 15% annually?
- Has the practice been flat or declining since the recession hit in 2008?
- Does hygiene represent 25% of production?
- Is practice overhead 59% or below?
- Does elective treatment account for more than 20% of production?
- Is the use of patient financing, such as CareCredit, growing by 10% or more every year?
6. Are you a good leader?
Prospective buyers can quickly spot a practice that is mismanaged and under stress. Efficiency, productivity, and communication are all reflections of your leadership skills. Therefore, dentists who work to improve their leadership skills can measurably reduce the stress and increase efficiency in their practices.
Good leaders have learned to work through their teams, not around them. The most successful dentists have figured out how to delegate responsibilities to team members. Delegating responsibility accomplishes two things -- dentists reduce their stress, and team members gain a sense of empowerment. Staff members want to feel they've played an important part in practice success.
Leading by example is another facet of leadership. Team members learn how to act by watching the leader's behavior. A dentist who is positive and motivational inspires team members to act in the same way. On many verbal and nonverbal levels, doctors can communicate how patients should be treated. On the other hand, doctors who say one thing and do another have forfeited their ability to inspire their teams. Inevitably, that kind of disconnect between word and deed on the dentist's part creates a climate of resentment, tension, and stress in the practice.
7. Do you work with outside experts?
Frequently, dentists find it hard to take a step back and "remove" themselves from the practice in order to assess it objectively. At times, an outside opinion about practice performance and operations is crucial.
Just as your patients have regular check-ups, practices themselves need to be examined periodically. Dental practices face a host of challenges that in some cases didn't even exist 10 or 15 years ago. There are new competitors, such as national dental service organizations and more multi-doctor practices, than before. Also, there could be new technology that other practices are using extremely well to attract patients.
Levin Group has identified significant challenges for thousands of dentists during in-office practice analyses that the dentists often could not see for themselves. For example, a Midwest dentist had experienced double-digit declines for the past three years. The doctor couldn't understand why this was happening since his new patient numbers had increased each year. Our analysis showed several problems that seemingly undermined his positive new patient numbers:
- Case acceptance was below 50% for all services.
- The number of inactive patients was growing due to poor scheduling procedures.
- New patients weren't remaining with the practice. In addition to an ineffective schedule, the practice was beset with poor customer service, which prevented the office from building strong relationships with patients.
By pinpointing causes for production declines, Levin Group can target solutions that increase client production when some dental offices are sure nothing can make a difference.
Outside experts help dentists achieve their full practice potential and therefore, the greatest practice value. Successful dentists realize they cannot do everything, nor should they even try. By bringing in experts in targeted areas, dentists can focus on building a profitable practice that they can sell.
You have invested your time, effort, and energy into your practice. When the time comes to sell, be sure to get the most out of what is your principle asset. By asking these seven questions and formulating effective courses of action, you will maximize your practice's value.
To learn how to run a more profitable, efficient, and satisfying practice, visit the Levin Group Resource Center at www.levingroup.com/gp -- a free online resource with tips, videos, and other valuable information. You can also connect with Levin Group on Facebook and Twitter (Levin_Group) to learn strategies and share ideas.
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