Dental Practice Life Cycle: The Purchase & Growth Stage

Dental Practice Life Cycle: The Purchase & Growth Stage

by Theron Sikora, Senior Accountant, Jones & Roth

Regardless if you purchased a practice from a retiring dentist or started your patient list from scratch, the first five years of your practice are going to be marked by high debt, tight cashflow, and rapid growth. These are exciting years, but can be very stressful as you will be constantly distracted from your dentistry by the realities of running the practice and being a business owner. Your primary goals for this time should be to implement good systems and create a plan that lets you harness your practice and allow you to reach your goals. Of all the issues you need to address, cashflow, practice administration, and planning growth are the most important.

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Jones & Roth Dental Practice Life Cycle - Stage One: Purchase & GrowthCashflow, and the lack of it, can be a huge problem for many dentists starting out in their new practices. Often times, the biggest strain on cashflow is the dentist’s compensation. While an established dentist in a healthy practice can expect 30% of gross collections as compensation, a dentist just starting a practice should consider maintaining their associate salary until the practice is through its first year. This allows you to build up a cash reserve, get a feel for the monthly cashflow requirements, and determine how much you want to take as compensation, and how much you want to invest back into the practice to increase your patient experience, standard of care, and, overall, your enjoyment. Sacrificing an increase in salary for yourself in the first couple years and investing in the practice can lead you to a happier and more profitable future.

A good rule of thumb is to keep at least two months-worth of your required payments (loan payments, payroll expenses, rents, etc.) as a cash reserve so that you rarely have to wonder if you can make payroll next week or need to pull another two thousand in production this week to make rent. Similarly, you should reserve at least 30% of any money you take out of the practice for taxes. If your practice is a corporation, your withholdings from your paycheck should also be around 30% of your gross pay.

Practice administration is the managing of your new employees, your patients, your accounts receivable, your recordkeeping, and all the hundreds of little decisions you need to make every week. You should strongly consider hiring a practice administrator and retaining the services of an accountant. The practice administrator will help you manage the practice by maintaining the daily record keeping, making collection calls, helping you address staffing issues, and generally help you handle anything that distracts you from your most important task—dentistry. An accountant, ideally a dental CPA, will review your bookkeeping regularly, help you develop a plan for taxes and your financial future, and help you monitor the health of your practice.

Many times you will be working with an unfamiliar team when you first start out. Some of your team will adapt to your style and will thrive in the new culture, but some will not be a good culture-fit. This is a normal part of business, and while it can be unpleasant and difficult to deal with, it is better that those employees having a hard time adapting, move on to other opportunities. If someone is having trouble with performance, address it with them early and often. Encourage good team members with performance bonuses and public recognition. Surrounding yourself with a team that you can trust and rely upon is a great start to your practice.

Planning growth for your practice is very important in your first few years. You will be establishing your reputation with the community and your new patient base during this time. Regardless if you’ve purchased a new practice or are building your own, you can communicate a lot to your patients by deciding what level of care you want to provide and establishing a comfortable environment for your patients. Often times you will need to invest a lot initially to get the practice equipment, facilities, and décor up to your standards.

Once you’ve get your practice’s identity established, you can work on bringing in new patients, plan for expansion, and plan your continuing education so that you can start performing more comprehensive and high value dentistry. Short term growth planning can be as simple as setting daily production goals and rewarding your staff after you have a good day. Near term goals should be focused on increasing recall and patient referrals as well as evaluating active marketing options like mailers for general dentists and building relationships with other practices for specialists. Long term goals should look at making sure your equipment and operatories are sufficient for your needs and evaluating fee schedules and PPO participation.

Starting a practice of your own is difficult, but with some foreknowledge and planning, you can greatly reduce your stress and increase your long term rewards from the practice. Take advantage of industry and financial professionals and remember that you don’t have to run your business alone. Hiring someone to assist with the business portion of your practice frees you to focus on providing excellent dentistry and taking time away from the practice to rest and recharge.

 

Theron Sikora, Senior AccountantTheron Sikora is a senior accountant on the Jones & Roth Dental Team. He provides dental practices with an end-to-end suite of financial services to maximize efficiency, profitability, and long-term success.