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Once these three steps are in place then we market the practice and let others know about the amazing experience you have to offer. These steps are in a specific order, as the next step won’t stay in place long term without adhering to the former step. Once you have committed to these steps it will completely change your culture, stress and ability to have the final step in the process: Financial Impact.
Pillar Four: Financial Impact
Five Pillars of Dental Leadership: A Four-Part Series Part 4
by Eric Morin, MBA
In the first part of this series I discussed the importance of becoming the CEO of your practice. Becoming the CEO is the first Pillar of the “Five Pillars of Dental Leadership.” In that article I discussed the importance of moving from just being the practice owner, to gaining skills and implementing systems that allows you to move into the Chief Executive position. In the second part of this series I talked about the importance of building a world class team. A world class team is growth oriented and allows you to have a self-managed organization. This will allow you to have reduced turnover and stress while providing overall better patient care. Building a world class team is the key to reduce the amount of time you must be in the chair and increases your ability to focus on the things that you enjoy the most. Pillar three focuses on the importance of creating repeatable systems which only happens if step one and two are fully ingrained within the practice.
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One of my core missions is to truly educate dentists on how to understand the amazing value of a dental practice. Once you understand this value you will find yourself becoming more excited about the reinvestment within your practice and by doing this you can dramatically change your wealth, retirement and the ability to impact your family, team and community. I also have a goal to assist private practitioners compete with large dental corporations that are entering the profession at a record pace. One of the reason these dental corporations are coming in is that they understand a dental practice can yield them somewhere between a 15% to 30% and higher rate of return with a very limited amount of risk. In fact, the risk of a dental of fice going out of business is approximately one percent. That is a significant return with a very limited amount of risk. What I want to do is help dentists realize the value in their practice and that by investing back into their practice, and using what comes out of it, they can create amazing wealth. This will allow your assets and income to go up every year, even af ter you stop actively practicing. First I think it’s important to look at what financial impact and wealth truly are. Wealth is control; it’s having the time and money to do the things you want to do. If you don’t have a mortgage, if you’re not surrounded by debt, if you have multiple streams of income, if you can practice when you want and you have the financial means to impact those around you – then you are financially wealthy.
One of the clients I work with just took her family
Featured Article Therefore, an additional dental chair can give you a 50% rate of return. You can take that 50% rate of return, which should be about $10,000 a month, and allocate it towards paying down debt. Let’s assume that the operatory costs you $60,000 and you borrowed the money. With $10,000 a month of additional revenue, you could pay of f the operatory within 6 months and then you would have created an additional $10,000 a month in revenue!
to Europe for two weeks. Her practice remained open the entire time she was away. Her earnings were the same as if she would have made if she had been practicing. She has complete control of her time and the financial resources to go where she chooses. Isn’t that wealth? She didn’t lose any money being away. She has control of her calendar and her time. You might be asking where to start or how do you get to this place of having a practice that allows you to have financial impact and business autonomy. I think a great place to start is simply looking at what “return” within your practice looks like.
Investing into Equipment
Let’s assume you purchase a new operatory. Ma ximum production for an operatory is around $40,000 a month. Imagine that we are only bringing in about half of that revenue – approximately $20,000 a month. When I say producing, I mean collecting. As an MBA, what mat ters to me is actual revenue coming into the business. With an investment such as this, you are truly only taking on additional variable costs.
To explain how powerful that is; a million dollars invested in the stock market at 5% would yield you approximately 4,200 dollars of income per month. Therefore if you isolate the investment adding an additional operatory can literally yield you more cash flow than a retirement account that has 2 million dollars in it! Now, let’s assume we have a million-dollar building. If we applied the $10,000 to the building, we could pay it of f in approximately 6 years! In this example, the practice is growing and we are paying of f a significant amount of debt at the same time. Are you starting to see the financial power of a dental practice and why it is such and amazing place to invest? Do you see why dental corporations are coming in?
What would happen if we made these types of decisions over a 3, 5 or even a 10 year period? You can only imagine where you would be financially. Now that we have excess cash, we can also fund retirement accounts. In fact, now we have a dif ferent problem – determining where to allocate all the cash. It’s hard for most people to imagine, but one of my clients’ biggest problems is that they don’t know where to put all the money. I know that sounds silly, but it’s true.
Investing in Marketing
Now, let’s say we look at investing in the practice again. I’ve talked about equipment, but this time we are going to invest in marketing the practice.
Fourth Quarter 2018 | Dental Explorer
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Featured Article First, I need to help doctors understand a few marketing terms, such as “acquisition cost” and “average revenue per new patient”. Doctors need to know how much it is costing them to get a new patient through the door and how much that patient is worth to them. Let’s assume your acquisition cost (i.e., the cost to get a new patient) is about $115, which is typical for a general practitioner’s of fice. Let’s also assume your average revenue per new patient is approximately $1,700, which is also typical of general practitioners in the United States.
If I take $40,000 and put that into marketing, and it costs me $115 per new patient, that works out to 348 new patients. If I take 348 new patients, and multiply that number by $1,700, that gives me $591,600 in additional revenue. If I assume a 30% profit margin, I would have an additional income of $177,480 af ter one year! Between this example and the operatory example, we literally just increased your income by over $250,000 annually and we haven’t even got ten started yet! Now you’re starting to see how to build significant wealth utilizing a dental practice.
Once we become an expert at investing into our practice is opens up unlimited opportunity. For Example: About three years ago, one of my clients was asked to leave his dental partnership, as the older partners felt he was too ambitious. He asked, “Eric, what am I going to do?” I replied, “It’s the best thing that has ever happened to you.” He ended up buying a practice which had never collected more than $900,000 in 30 years. During his first year of ownership, with my guidance, he collected $2.6 million. We talked about the importance of financial
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impact and utilizing his practice to create the life he has always wanted. He now has no debt, is growing his net-worth dramatically, and has an amazing practice.
You might ask how this story could get bet ter? I am privileged to tell you that this same individual is now working to create a $30 million dollar trust. Currently, this doctor has a nine-year-old, a sevenyear-old, and a six-year-old. His goal is to spend the rest of his career creating the trust, which his kids (as the trustees) will be able to manage, give money away, and make an impact on the world around them. Now that is financial impact.
This is just one example of how utilizing the financial power of a practice can make dramatic dif ference in your life and those around you. This does not have to be your goal, your goal might be simply to reduce stress, pay of f debt or provide for retirement. What I know is, once you learn the financial impact of a practice it truly can take your personal, financial and practice life to a whole new level!
Eric J. Morin, MBA, specializes in business and financial consulting for dentists. He has been in the industry for over a decade and also assisted his wife in establishing a thriving multi-doctor practice.