In my capacity as director of private sector development for IDH, I have to be careful to make my articles as impartial as possible. A recent comment in my blog, about practice goodwill prices falling in the post-recession economy, brought a few squeaks of protest from dentists who accused me of trying to ‘influence market prices’.
I’m not at all sure how authenticity gets criticised – but it does – so I need you to know that, before you read what follows, there is no conspiracy theory at work here – I just thought you might be interested to read about the observations I have made over the last three months on ‘what’s going on out there’. Yes – these are sweeping generalisations – but useful nonetheless!
The three common types of general practice I’ve noticed that almost all of the general enquiries I have responded to are from three basic sizes and type of practice:
Type 1 – The ‘one-man band’ or ‘lifestyle practice’
• Typically, two surgeries accommodating a principal dentist, plus one full or part-time associate and one full or part-time hygienist/therapist.
• Gross revenues are £500,000 for the general dentist and up to £750,000 if the principal is doing higher value treatment.
• Pre-tax profit tends to be as much as 30% in a well-run practice – so that’s not a bad living.
The problems are usually that:
• The principal is commercially lonely
• The principal is taking lots of work home
• The long-suffering working spouse or practice manager is doing ‘everything else’
• It’s very difficult to see an exit route from the business – with less money in the acquisitions market, this type of practice can seem less attractive to a corporate buyer, who runs the risk of inheriting the practice when said dentist retires, becomes infirm or loses the plot
• It’s equally difficult to see this type of practice
purchased by another individual dentist as when ‘Elvis leaves the building’, they may be concerned about patient loyalty.
The advantages are that it’s a relatively simple (if not easy) life and, best of all,
people problems are kept to a minimum.
Type 2 – The ‘million-pound practice’
• Typically three-to-five
surgeries occupied by one or two principals and a collection of associates and hygienists/therapists (depending on which business productivity model is utilised).
• Gross revenues are between £800,000 and £1.2 million, depending on the type of dentistry delivered and the mix of clinicians.
• Pre-tax profit will drop to 25% because the operating and people costs have risen – but still potentially a very good income for the principal(s).
Problems commonly include:
• The principal(s) are still commercially lonely and, in a mature practice, are wondering ‘what next – is this it?’ You know – that mid-life crisis thing
• The principal(s) may still be taking work home if they haven’t recognised the need for a business manager to work alongside their practice manager
• Associate productivity is almost always below that necessary to create strong profits – so the principal(s) and the hygiene department are ‘cash cows’ but the
associate team are a profit hole in the practice
• Staff problems are a constant source of irritation – either recruitment, getting people to follow brand standards and operating systems, replacing leavers or maintaining income expectations
• The patient journey can be flaky if the old-timers in the team are struggling to adjust to 21st-century practice management
• The constant need for re-investment to keep up to date with the practice
environment, clinical governance, the latest ‘kit and new marketing methods
The advantages are:
• The principal(s) get to take some holidays!
• When it works it works very well
• The practice is a disposable asset – either to a corporate or an independent buyer – it looks like a good proposition to an outsider;
• There are often growth opportunities to the existing owner or a new purchaser in changing the business model and improving productivity
• There can be a valuable asset base of loyal patients who have the desire to buy more and refer their friends and family
Type 3 – The Dental Polyclinic
Typically, six-to-ten surgeries with one or more principals and a range of permanent associates, full or part-time specialists and a hygiene/
therapy department. Gross revenues are £1.75 million to £2.75 million depending on the mix of clinicians and the type of dentistry delivered.
Pre-tax profits will usually drop to 20% but that’s 20% of a very big number! The problems:
• People – managing the team is a constant bugbear
• Leadership – the principal(s) can sometimes be prima donnas who are hard work to work for or advise!
• Indirect marketing. Referrals – the practice is often dependent on a database of referring dentists – who need constant coaching to continue their flow – a particular problem in these recessionary times
• Overheads – the practice requires enormous investment to maintain market position and the debt servicing costs can be very high
• Oh – and by the way – when its working the principal(s) get bored and start buying stupid investments such as dress shops for their wives and idiotic business ventures with their golfing mates
• And when its not working the principal(s) ‘rescue’ the business by allocating more clinic days (they are usually the highest grosser) and sacrificing personal time as a result
• Are they an attractive proposition for a purchase?
That clearly depends on external market conditions – there have been plenty of such practices bought in the last few years but I suspect that particular bandwagon may have moved into the mists of time. It’s difficult to see how such a practice would be attractive (or affordable) for a private buyer – so if the corporates are being much more careful (or they are marking time) then where do the principal(s) go if they want to sell? I suspect some bigger practices will be taken off the market in the hope that the boom years will return. Advantages?
• If the principal(s) have had the foresight to listen, they will have built a superb
senior management team around themselves:
• Managing Director
• Finance Director
• Marketing and CRM Director
• Operations and Clinical Director
• HR Director
• They will be able to spend 80% of their work time on big ticket treatment and 20% on leadership of the management team;
• If the Marketing and CRM Director is working with the principal(s) on developing the referring dentists, then their new patient flow will be secure
• If the HR Director is constantly managing the team, problems will be kept to a minimum
• If the principal(s) don’t get bored, there is hope!
So that’s what I’m seeing out there today. Who’s to say which of these is best? It truly is a lifestyle choice and I meet the happy and the miserable in all three categories.