H. M. (Hy) Smith, MBA
The law of supply and demand will prevail. For the first time in many years, dentists are and will be able to charge what they should for their services.
Approximately 30 years ago, universities throughout the United States perceived that a dental school, as part of the post-graduate programs offered, would attract students, generate income and alumni support for the university, and provide much-needed professionals for the community at large. Dental schools graduated thousands of dentists in the 1960s and 1970s before some schools began to close.
However, the damage had already been done. The thousands of dental school graduates created a glut of dentists in the 1970s, 1980s, and early 1990s. The increased numbers of dentists in the population contributed to a highly competitive market in which advertising was introduced, discount dentistry was offered, clinics and chains of dental offices were opened, insurance companies entered the dental marketplace, and Wall Street consolidators tried to skim the profits from the dental profession.
Those dentists that graduated in the '60s, '70s and '80s - the "Baby Boomers" - are now nearing retirement. That means the number of retiring dentists is approaching or exceeding the number of graduating dentists. In addition, it is estimated that up to 50 percent of dental students graduating in the future will be female. They are expected to work between 30 percent and 50 percent less than their male counterparts throughout their careers. Many of these women practitioners will not purchase practices, but will seek employment as employees or independent contractors.
What does change in the dentist/patient ratio mean for dentistry? First, it is probably one of the best things that could happen for the dental profession! The law of supply and demand will prevail. For the first time in many years, dentists are and will be able to charge what they should for their services. Discount dentistry is quickly becoming a thing of the past, and managed care will most likely disappear.
That's the good news! The bad news is that this demographic shift is moving the practice sales market from a "seller's market" to a "buyer's market." Just as the Baby Boomer generation begins to retire and sell their practices, this shift is causing the value of dental practices to fall. This is occurring because there are more options to choose from and it is easier to start up a practice from scratch due to less competition. This is especially true for specialties because the number of specialists remains fairly constant and specialists make up a portion of the Baby Boomer population that is retiring.
What does this mean for dentists who want to sell their practices? If this trend continues, unless a dental practice is an optimum practice, it will be very hard to sell. An optimum practice can be defined as one that is well-managed, with all its systems functioning well, does not do reduced-fee dentistry, has a high gross and net income, and utilizes state-of-the-art equipment. Instead of buying into a less than optimum practice, a new dentist will come in next door and start from scratch the kind of practice he or she has always dreamed about ... and succeed!
A quality practice will always be marketable, and it will command a fair price because it will generate a profit with little or no risk to the purchaser. But mediocre - or less than mediocre practices - will have less and less value as more and more dentists retire.
H. M. (Hy) Smith, MBA, is president of Professional Transitions Inc., a full-service practice-management and dental-practice brokerage company with associates throughout the state of Florida. He has been assisting dentists in transition for over 25 years. Smith also is director of transition strategies for the Pride Institute. He can be reached at Professional Transitions at (800) 262-4119 or by email at hysmith @aol.com. Visit his Web site at professionaltransitions.com.
