Dentists wanting to buy out their boss or become associated practice owners

By Graham Middleton

Based on having over 30 years of experience advising dentists on practice management and financial matters has led me to formulate the following advice to ambitious young dentists.

Good advice for dentists

Seek employment in good privately owned practices. If the first practice you work in is a shocker, grit your teeth and quietly look for a better one.

Be nice to your dental school lecturers and demonstrators. They may have direct knowledge of good practices and occasionally point a new graduate in the right direction or drop a quiet word to a dental friend about a promising graduate.

Prefer private practices to large dental corporates. Nobody ever reaches the pinnacle of the dental profession through contracting to a corporate.

Beware of dental consultants offering fool’s gold. If an approach seems too good, check whether senior dentists you know have heard of the persons/organisation concerned.

Your chairside communication skills are as important as your clinical skills. If your boss always has a full book and lots of conversions to follow up appointments, there are good reasons for it. Learn how they communicate with their patients.

Over time, your boss will notice your conversion rate and in a longer time your personal referral rate. These will determine whether you are a practice builder, which is great, or a practice destroyer, which leads to dentists being shown the door.

4 5 6 7

If you’re fortunate enough to obtain employment in a good privately owned practice, learning the way it functions and the reasons for its success will provide insights you did not get at dental school.

Be nice to your boss even if you find them quirky. They can assist your development and influence the receptionist to push more new patients your way. Morning and evening greetings, smiles and sharing a joke or passing some information about a patient connected to your boss’s patients are practice relationship building. Initially you may be on a daily salary or contract fee, but you will work toward a percentage reward. The most commonly applied formula for this is:

Dental remuneration = 40 percent of (fees minus laboratory cost ).

Be polite to staff. Thank your chairside assistant for work well done or alerting you to a known-to-be-difficult patient in advance. You want to be the dentist who staff prefer to work with. Thank the receptionist for booking new patients to you and ask them for periodic patient feedback. A receptionist influences the size of your patient book and the practice owner will be receiving information from the receptionist as to how successful you are at converting patient appointments. Put on your best face before entering the practice each day and greet staff members. If you’re having a bad day, don’t take it out on the staff. Do find polite but firm ways of correcting staff if necessary.

If you’re successfully achieving a steady stream of conversions, thank your chairside assistant for their help.

Be eager to learn and participate in dental discussions with your boss and other assistant dentists in the practice.

If your chair is empty because of cancellations, then your chairside assistant is not being productive and practice bills are accumulating so it is costing your practice principal money. You should be attentive to looking for extra work. Profits and losses occur at the margin. Fitting in an extra procedure near the end of a session is good for the practice as well as for your percentage. Keep a personal scorecard. Record your best day’s fees generated, your best week and your best month. Treat it like a golf handicap and seek to improve on your best day, your best week and your best month. As you better each, they become your new targets to beat. Keep a tally of your conversion rates to follow up treatment and seek to steadily improve it. Keep a tally of your personal referral rate and seek to steadily improve it.

Be aware that slow dentists are not profitable for a practice as they absorb more chairside time and other resources per dollar of fees generated than do fast dentists. Fast hands along with agreeable chairside communication skills are the key ingredients of success. Invest in your own future by acquiring additional skills. Practice financial discipline. Resist the urge to buy an expensive motor vehicle on hire purchase soon after graduation. Discipline yourself to save a portion of your salary and set savings goals. When able to buy your first home, aim to reduce the home loan at a significantly faster rate than required—even faster if you have a partner with good income. When you do get the opportunity to buy a practice, a bank will be more amenable to lending to you if your savings/home repayment pattern indicate financial reliability. See also my book Financial Success for Dentists for vital financial information.

If the time comes to negotiate, stay cool and be patient. Keep on producing good fees and being polite to the staff. Be the person the staff want to buy the practice.

Be prepared to pay a sensible price and remember that the best practice to buy (or buy an associateship in) is the practice where you already have a reliable and steadily increasing patient list. A bank will be more willing to lend when buying a practice in which you have several years of employment.

Be patient if the selling price is unrealistic. Be sure to get informed advice (several opinions may be necessary) and be polite and patient in negotiation. Be careful not to close the door on negotiations or cause it to be closed but seek ways of keeping it open.

If you’ve been fairly remunerated as an employee, you should not expect to be sold goodwill at a discount to practice value.

Be aware that “take it or leave it” buy out demands to a practice owner invariably cause the owner to close the door. Pride has a steep price.

It’s essential that the practice has suitable premises available for purchase or long-term lease at realistic rent. Rent of about 4% of gross fees is about average but varies with location. Practice relocations require a very expensive new fit out.

Over the longer term

Become the dentist who the practice owner depends on and can leave in charge when on holidays, secure in the knowledge that all will have operated smoothly during their absence.

Aim to be the dentist who is both the logical long-term buyer/associate, or without whom no external buyer would want to buy the practice.

Be nice to your boss. Those who offend their practice principals rarely get to buy their practice. They are frozen out.

Accountants often give bad practice acquisition advice. Be very cautious concerning who advises you regarding price. The vast majority of accountants do not have many—if any—dental clients. Even those who have a few dental clients have little knowledge as to what makes some dental practices a good deal more successful than others. Many dentists get poor advice from accountants when buying a practice despite many having signage proclaiming that they give “business advice”. Most do little more for their business clients than tax accounting. Too often an accountant declares the price on offer is far too high without knowing what the price should be. In every industry or profession there are very few persons with sufficient knowledge to provide informed advice on value. E.g., I dealt with and advised many dentists and veterinarians for over 30 years but declined invitations to value businesses in industries with which I was not familiar. Many dentists have missed out on buying practices because of misinformed accounting advice which cost them dearly over time.

Remain cheerful and helpful, giving praise when due. In framing a counteroffer, be polite and explain logically why you believe that your counteroffer price is fair. Indicate that post sale you want the vendor to work for you on a gracefully reducing time basis or if a remaining associate, they will practice on for some years. Do not give any cause for offence which might cause the principal to end discussions.

The price a corporate will pay for the practice, which comes with dental earn out conditions, is usually significantly more than the fair price in a sale-to-dentist transaction. Where assistant dentists with high fee production, substantial patient conversion and significant personal referral are asked to sign an employment contract with a corporate buyer to enable the principal to receive a higher price than a private sale to them, they will normally refuse unless they receive a substantial signing fee from their employer.

They can use this as an opening to make a fair offer to buy the practice. They cannot be expected to make an agreement which destroys their own chance of buying the practice.

Pitfalls in starting your own practice

You will likely receive well-meaning but ill-informed advice along the lines of “why don’t you walk out and start your own practice”. Be extremely wary of such overtures as there are huge pitfalls. For starters, most of the patients you have been treating will continue to make appointments at the practice you have left. Any attempt to download or transfer a computer list of patients and contact them is regarded as constituting theft from your employer.

It also leaves an electronic trail easily followed up by forensic IT specialists. Other issues are: are often 3 to 4 times average rent in free standing dental premises. High rent means lower profit and can make it impossible to sell a practice. I have known dentists to walk away without taking up a lease option.

• If you make the decision to move, you must tell your employer because any attempt to obtain premises nearby and fit out as a dental practice will quickly become known and is likely to result in your dismissal. It is far better that they hear it directly from you.

• Fitting out a dental practice is invariably far more expensive than first estimated and is likely to suffer significant unforeseen delays.

• While you can search your memory and comb through local electoral rolls looking for familiar names and write to them, it is time consuming. Letter box circulars are a waste of money. Despite your efforts most patients you previously treated will have the telephone number of your previous practice recorded and ring it for dental appointments. Once treated by another dentist, very few will seek you out. Most dentists find the first few years after setting up a brand new practice very frustrating with high expenses and far too few patients. A busy practice nearby has a large referral base of patients and will continue to gain a steady stream of new patients while the new practice struggles to exist.

• Beware of severely rundown premises which will require huge expenditure to bring them up to contemporary dental practice standards.

Advice to practice owners

Measure the performance of your assistant dentists by:

• Fees produced per day. It is a mistake to allow them to spread over too many days. A dentist who has three days of appointments spread over four days costs extra chairside assistant wages and more electricity. Insist on reception blocking up days/sessions on the basis that when they are filling their days you will consider offering them another half day. If you have several dentists sharing a couple of surgeries, make sure that the assistant dentists have their schedules blocked up before contemplating creating another surgery. The most profitable single owner dental practices have no more than two chairs in addition to that of the principal dentist.

• Their conversions. Good assistant dentists have lots of follow-on appointments. Those who don’t destroy practices by driving patients away.

• It is nearly always best to buy a practice as even a run-down practice has a patient base to build on and provide cash flow during the practice building phase. Best of all is purchasing the practice in which you have been working and built up a significant patient list. So, it is back to being nice to your boss and finding ways to open/reopen the subject of succession in a non-threatening way.

• The best practices to buy are long established, located in the middle-income suburbs of major cities or in strong regional cities. There are too many dentists located in prestige suburbs and the rents are punitive. It is usually wise to avoid the suburbs which house the wealthy.

• Many of the worst practices are located in extreme high rent shopping centres in recent major city growth corridors with vast numbers of young cash flow poor families. Shopping centre rents

• Their personal referral rates.

Don’t raise ownership expectations until you are prepared to sell the practice or sell an associateship. Raising expectations which do not materialise is a certain way to lose your best employed dentist.

Understand that if ownership is offered but you cannot reach agreement on price/ conditions then the dentist will inevitably leave your practice within a reasonably short time.

Don’t enter into part sale contracts with corporates: it must be all or nothing. Look at the sad history of dentists who entered into joint venture arrangements with Smiles Inclusive Ltd.

Be careful in selecting your broker. Ask dental colleagues who have recently sold their practices which broker that they used and whether they were satisfied with the service that they received. Established brokers are more likely to know of dentists looking for a practice to buy.

The best dental practice to buy if a single owner

• It will have one or two surgeries additional to the owners.

• The practice is long established with a large loyal patient list.

• It will be located in the long-established middle-income suburbs of a major city or a substantial regional city.

• It will definitely not be a preferred provider to health funds.

• It will have suitable premises available for purchase or for long term lease with renewal options. Suitable attached parking is a big asset.

• Rental value of the premises is about 4 percent of gross fees.

• The owner produces the most fees of the practice dentists.

• Examination of the fees per dentist relative to number of sessions worked indicate good productivity and this is coupled by reasonable conversion rates.

• The practice DEBDIT is around 56 to 57 percent or better. Refer to Financial Success for Dentists

General Advice Warning

The information contained in this article is unsolicited general information only, without regard to the reader’s individual financial objectives, financial situation or needs. The information contained in this article is general in nature and you should consider whether the information is appropriate to your needs and where appropriate, seek professional advice from an accountant or financial adviser. It is not specific advice for any particular individual and is not intended to be relied upon by any person. Before making any decision about the information provided, you should consider the appropriateness of the information in this article, having regard to your objectives, financial situation and needs and consult your professional adviser. Any indicative information and assumptions used here are summarised, are not a product illustration or quote and also may change without notice to you, particularly if based on past performance. This notice must not be removed from this article.

About the Author

Graham Middleton disposed of his interest in Synstrat group on 30 June 2020 and won’t be starting another business; he spent the later 33 years of his working life advising health professionals on business and financial matters. Dentists were the most numerous of his clients. He is the author of the recently published Financial Success for Dentists.

Dentists may obtain a copy of Financial Success for Dentists by making a donation of minimum $60 to the Delany Foundation, a registered charity which assists schools in Ghana, Kenya and Papua New Guinea. Donations can be made at delaneyfoundation.org.au, then email Graham at graham. george.middleton@ gmail.com. A copy will be sent to you. All proceeds go to the Delany Foundation for its good work. Graham has paid for the printing and mail costs personally.

What is your level of job satisfaction?

By Julie Parker

In my last article, I asked the question, What is the level of your customer service? I detailed the four levels of customer service that I have identified, being...

1. Unacceptable. Patients complain to the practice, online and/or to friends and family about how terrible the customer is;

2. Basic. Patients are not so upset that they complain, but they are unlikely to return to your practice;

3. Anticipated. Patients are satisfied with your service and are likely to return; and

4. Unanticipated. Patients are so surprised and delighted by your service that they actively seek out your business, post online reviews and call friends and family to sing your praises.

I mention these four levels of customer service because it directly relates to the question I ask in this article: What is your level of job satisfaction?

You see, it has been my experience that my level of job satisfaction increased as I increased the level of customer service that I delivered.

Imagine the employee who delivers unacceptable customer service. They display behaviour that will likely get them fired. Are they happy with their job? No. They are typically resentful that they even have to show up.

At the level of basic customer service, the employee does just enough to avoid getting fired. There is not a lot of enthusiasm and no care or concern on whether a good or bad impression is being made. This employee would have quite an apathetic approach to the job, not caring one way or the other.

It’s not surprising that job satisfaction is achieved when anticipated customer service is delivered. An employee’s performance at this level is one where there is clear pride in their work, the practice superiors are happy with their efforts and the employee feels they’re an integral part of the team. And, of course, patients leave happy because it’s obvious that the employee enjoys helping them.

Whatever role I fulfilled, I had always been a happy employee and enjoyed working in dental practices. However, it was when I was delivering unanticipated customer service that I became passionate about work. I would wake up excited to go to work and leave at the end of each day feeling like I made a difference, to the team as well as to the patients.

Unanticipated customer service is providing patients with an experience that exceeds what they would normally expect. And, it turns out, the employee gains the same positive outcome. They start enjoying their work more than they ever expected to.

Feeling passionate about your work is no accident. It’s fostered within yourself. Find the meaning and purpose to your work and it will energise you.

Australasia’s Passion Provocateur and Julie Parker Practice Success Co-Founder, Charles Kovess, is the world’s expert on passion. Charles has shared the following powerful benefits of being passionate about work. The benefits are:

• Feel significant, that work is of importance and valued;

• Able to build a great team through effective leadership;

• Constant availability of high energy;

• Able to build great relationships;

• Able to take risks that lead to progress;

• Able to overcome fear to make the necessary mistakes to grow;

• Able to learn to love change - Work is always interesting;

• Able to clarify personal goals leading to personal power;

• Able to clarify a compelling vision for the future that fuels energy flow;

• Keen to act with integrity;

• Highly effective influencing skills;

• Able to love whatever happens each day; and

• Able to love work even when things go bad. This is an exceedingly enjoyable way to live life. Work is not a grind. Work is a gift. So, help your team members appreciate the value of delivering the unanticipated level of customer service, and watch your practice achieve unanticipated speed of progress.

About the author

Julie Parker Practice Success provides dental teams with coaching and training so they can work together and achieve successful outcomes for their dental practice. For more information, please contact Julie on 0407-657-729 or julie@julieparkerpracticesuccess.com.au