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Owning Your Own Practice: How to Avoid the Pitfalls-Dental

By: Jeffrey Jellerson

You've trained for years to become a dental professional, and now you may want to make the leap into practice ownership. Whether purchasing your first practice or building from scratch, it's important to move ahead with confidence and not hold back on your dreams from fear of failure. 

Nevertheless, you may likely make a significant monetary investment in practice ownership, and naturally there may be stumbling blocks along the way. What are the potential pitfalls to avoid? Not surprisingly, they may involve how you manage your finances -- both the funding from your lender, and your practice income. the following are some common obstacles to watch out for and guidelines on how to protect your investment to help ensure a successful outcome.

Inadequate build-out funding

One of the risks for dentists building their first practice is an inaccurate estimate of the amount of funding required to fully complete the project. They may overlook some of their less obvious needs, such as a parking area for easy access in a crowded downtown location. Or perhaps they're relying on an inexperienced contracting team that does not fully grasp the unique requirements of the dental office, such as specialty plumbing and enhanced wiring for today's digital equipment. To find yourself short of funds before your project is complete can produce considerable stress as you choose between cutting back on your plans or taking on greater debt. Ultimately, it may lead to poor decision-making.

Shortage of practice income

As you're getting your new start-up underway, you may face difficulties during the first year or two in generating adequate patient flow and income to cover expenses. When you are introducing a new service to a community, it may take a good deal of marketing and networking to gain visibility, attract patients, and generate loyalty. It may take two to three years to build a self-supporting patient base capable of sustaining a full-time dental practice. You may expect to balance your schedule with a part-time associateship as you build your business to ensure you have enough revenue to cover your practice overhead, as well as your debt.

Over-paying for a practice

Some new doctors attempt to manage the acquisition process themselves in order to save on the costs of purchasing a practice, rather than working with a professional practice broker. In doing so, they may be relying on the selling doctor's valuation of the business and terms of agreement. This may result in a higher price for your practice than its actual worth. To avoid potentially over-paying for a practice, consider hiring a professional appraiser who can establish the true and fair market value of the practice and working with a broker specializing in dental practices who can guide you to the best offerings.

Declining revenues after transition

When purchasing a new practice, you may experience declining revenues after the transition. When a new doctor is introduced, patients may begin shopping around, perhaps for a practice closer to home or with bundled specialty services. Try to understand the cause of your drop in revenues and determine how to get back on track. Before transitioning to your new practice, consider reaching out to patients with a personal letter describing your background and services. Perhaps, offer a promotional discount on hygiene for the first few months to bring existing patients back into the practice. Understand your practice numbers in order to properly evaluate the reason for patient attrition.

Seven steps to a smooth transition

Be prepared with a definitive back-up plan if you run into problems during your transition. The point is to not waste time floundering but to get busy working toward a solution.

Here are seven key steps to help ensure a smooth transition:

  1. Activate your team. You may want to consider working with a team of practice acquisition or start-up professionals before you begin your project. Working with them from the beginning and through the entire project may help ensure your interests are protected. Your team can help guide you through a significant project like a practice purchase or start-up without becoming entangled in potential obstacles or frustrations. You may want to include:
    • Acquisition: Attorney, Practice Broker, Lender, Accountant, and Insurance Broker
    • Start-up: Attorney, General Contractor, Lender, Accountant, Equipment Supplier, Insurance Broker
  2. Complete your due diligence before purchasing or starting a practice. Help prevent unpleasant surprises by asking to see charts, reports, inventories, and schedules -- any information that will help detail the daily operations of the practice you are purchasing. For a practice start-up, a due diligence exercise may help you prepare a comprehensive plan for technology development, staffing, marketing, Occupational Safety and Health Administration (OSHA) guidelines, and other critical business requirements of your practice. Another factor in your due diligence is understanding the size of the population in the area and how their dental care needs are currently being met, or not, by existing dentists in the area.
  3. Monitor practice performance. Examining your practice statistics regularly can be an important tool for maintaining the health of your dental practice. Profit and loss numbers may help you diagnose and treat problems, much like an X-ray can help you diagnose dental decay. In order to help you understand the strengths and weaknesses of your practice and systems, you can use the Milestones program from Wells Fargo Practice Finance.  The Milestones Program is a practice monitoring tool that may help you establish baseline measurements for everything from production to operating expenses.
  4. Manage your cash flow. Any business, large or small, may find itself with cash flow shortages at times. Consider making a plan to help you manage your cash flow by setting daily and monthly production goals, paying down outstanding debt, and saving 10% of income after expenses are paid. This may help ensure you have cash on hand in case of a bad month or an unanticipated expense.
  5. Beef up your marketing. Whether you choose to utilize an agency or consultant to handle these efforts yourself, it can be helpful to create a consistent marketing program to help build awareness and recognition of your practice. As your budget allows, explore the potential of internet ads, newspapers, billboards, or even radio and television. Consider sending personal letters to members of the community to introduce yourself and directly ask for their business. Requesting referrals from your current patients may be one of the easiest and least expensive methods of marketing. Don't overlook social media. Having a Facebook page for example can be a great place to create community and gives your patients a place to comment and refer others.
  6. Improve your treatment presentation skills. Consider working with your staff to improve your verbal skills in presenting treatment to patients and handling potential patient concerns. Keep track of the treatment you present, and whether or not the patient accepts your recommendation. Documenting the reason given for accepting or rejecting treatment helps create a complete patient file. This may help to understand what techniques you and your team are doing well, and what may need practice.
  7. Know your strengths and build on them. Consider surrounding yourself with specialists and staff who complement your skills. While you work to improve your weaknesses, your strengths can take the lead in guiding the tone and style of your practice. You may be happier in your work if you succeed while being yourself.

Transitioning to practice ownership can indeed have its occasional pitfalls. But by relying on your team of professional advisors and planning your success well in advance, you may find before long that you have made the transition not only effectively -- but profitably.

About the author

Jeffrey Jellerson is the northeast region Business Development Manager for Wells Fargo Practice Finance. With over 15 years of experience he helps doctors successfully transition into an ownership role, by providing not only financing options, but also leveraging his experience in the healthcare market to help ensure a smooth and successful transition. Jeffrey also enjoys speaking with seasoned practitioners to help them expand, grow and transition existing practices. Contact: jeffrey.jellerson@wellsfargo.com 888-688-7901

View all articles by Jeffrey Jellerson

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All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.

All financing is subject to credit approval.