**Dental Practice Ownership: Are you buying yourself a job?**
Owning a dental practice is an investment and sufficient profits do need to be made in order to have a return on that investment. Yes, there is no doubt, as clinicians, our first duty is to serve our patients and do what’s in their best interest. However, like any profession we shouldn’t shy away from the fact that we should be compensated well to do this. Further, a dental practice owner is also a small business owner and a profit needs to be made in order to sustain that business and compensate the owner for the risk, time commitment and stress that ownership brings. Serving our patients and turning over a profit are not mutually exclusive. In fact, one would argue that any practice owner who didn’t put their patient’s interests first would likely not be able to run a sustainable business.
We’re currently seeing a scenario play out across the country with many practices not producing a profit beyond the clinician remuneration. That is, the owner is still drawing out money through their personal billings but if they stepped away and had an associate do the billings they would not be drawing out any money or put another way the business has no profit (and many may in fact produce a loss). These are typically lower billing clinics (<650K per year) and with costs rising in our industry this lack of profit is becoming much more exposed. Although, we also sometimes see it in clinics with higher billings that have not kept expenses in check.
Consider a high billing associate that typically bills 1 Million per year in a busy associateship position. They now go and start-up a practice in a poor location and 7 years in they’re only billing 500K per year. Yes, they would still be drawing out some money from their own clinical remuneration (likely on a much lower than 40% effective commission). However, this is a terrible situation both from the aspect that the clinic is likely making a loss and from the missed opportunity cost of this associates billing ability – they could be have billed more in the busy associateship position. The value of the start-up business is also probably not worth more than what it cost to start-up.
Moreover, consider an associate that purchases a practice from a retiring clinician. The associate lives nearby, likes the type of dentistry being done in the clinic and gets along with the retiring owner and staff. The practice bills 700K per year and the retiring clinician is taking home 260K per year. The associate takes home roughly the same from their current associateship position. They see the practice as a perfect fit. Fast forward several years. The practice is now billing 600K as some patients loyal to the owner have left to find a dentist closer to where they live (they may have lived closer to the practice many years ago but moved away and kept coming to see the previous owner). Further, a few good staff members have moved away or gone on parental leave. New staff are hired. Several of these turn out to be severely toxic and create a terrible culture. The former associate now spends at least 10 hours per week dealing with HR and admin tasks. They talk to a business advisor to try and get a better understanding of their business. The business is making a loss with the associate taking home 170K and on an effective commission of 30%. The business is worth less than what they purchased it for. Although, not a disastrous situation as the associate is still taking home a considerable sum. However, they would have been much better off staying an associate and taking home the 260K per year without the additional 10 hours of work and the stress associated with ownership.
Associates need to ask themselves – am I buying myself a job? Proper analysis can mitigate this risk. There are obviously business profits to be made by starting-up in a good location or purchasing a great practice or a practice with significant growth opportunities.
The whole reason for this article is to ensure associates are aware of what they may be getting into with purchasing dud practices or starting-up in poor locations. We will say there are associates that are not concerned with making a profit beyond their clinical remuneration. They may prefer complete job autonomy and control. They may gain happiness from creating a practice that they’re proud off and building an excellent working environment for staff or providing an important service to the community. That is certainly fine and this article is probably not relevant to them.
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Our next start-up and buying seminars are coming up in Sydney on Friday 26th and Saturday 27th of July 2024 and in Melbourne on Friday 18th and Saturday 19th of October 2024. Please register asap using the link below to avoid missing out.
We also offer expert guidance in various areas of practice ownership. Please see the below link for more information.
https://www.practiceownership.com.au/expert-guidance/
We’re holding our 2nd Dental Manager’s Conference (#DMC2024) in August. This is the premier event for dental manager’s (many owners also attended in 2022) and not to be missed. We have an amazing line up of speakers and the learning and networking opportunities will be immense. Please see the link below for more information.