The Biggest Mistakes New Dentists Make

Earl Douglas, DDS, MBA, BVAL

Iam going to start this article by explaining that it is not intended to teach you mistakes that you should make, but rather make you aware of things other dentists have done and wished they hadn’t. If you learn from these mistakes, then you can go out and make new and original mistakes of your own and learn from them.

I’ll admit it took me many years to decide to take expert advice rather than ignore it when I didn’t agree with it. I was pretty headstrong and, as a result, had to suffer through many experiences that I was warned about.

I think that listening and accepting opposing views is now a strength that has benefited me a lot. In my fourth quarter, I now know that I don’t have enough time to make all the mistakes myself and am quite open to wise counsel. I was once wise enough to tell an associate who joined me, “Doug, I’ll never take away your opportunity to learn from your mistakes. Or to learn from mine either.” Enough about me; let’s talk about dentistry as a career and how one might make the most successes and the fewest mistakes. Here are some of my personal observations that might just benefit you.

First, remember that you are entering a profession, and it is not immune to failure. Dentistry is quite vulnerable, and it is under attack by forces that would seek to own and control it for their personal profit. “What’s wrong with that? It provided a job, right?” Well, in order to generate the greatest profits for the shareholders, management must increase fees and lower its overhead. And dentists are part of the overhead. The average net, as a percentage of personal production, for sellers that I deal with, is 52%, and it is not unusual to see it higher. DSO commissions that I have seen are about half that. I believe that most new graduates have about a million-dollar investment in their eight years of college and dental school and lost earnings opportunities. I have heard that the average debt upon getting a dental license is in the range of $400,000. So, the takeaway here is that with that kind of debt and investment in time, money, hard work, and stress, I shouldn’t settle for a position that pays half of what I could make. I also believe that investment should prepare me to enter a profession, not just a workforce.

Another mistake that I see new dentists make is to seek the advice of a friend who has already entered practice and believes that they are the source of the best advice and information about dental careers. It’s my opinion that when someone chooses one option out of many, they have very little perception of what is good or bad – they have very limited experience. It’s like going to a Japanese restaurant and ordering off of a menu written in Japanese when one doesn’t speak Japanese. One doesn’t know what they could have ordered or what Japanese dishes they even like. They might like or dislike their choice and have no idea what another option would be. So my sense tells me to look for an interpreter of Japanese who knows the cuisine and seek expert advice rather than ask a friend who unknowingly made one choice and has no basis for comparison. Or, to put it differently, when faced with career choices, seek the advice of expert counsel who has seen all the choices and can help the uninitiated make their best-informed choice.

Another area involves risk assessment. New dentists may feel that it’s too risky to own their own practice. One statistic that I look to is the default rate for practice acquisition loans, and according to several dental practice lenders that I work with, their default rate is less than one-half of one percent. That means that over 99.5% of practice buyers are making their payments and would surmise that they are also successful in their practice.

I’ve told dental students in my lectures that dentistry is such a good profession that even dentists can succeed in it. And today, we have the benefit of so much professional management advice and counseling that would prevent mistakes in the business of the practice. But if someone did run into trouble, it’s possible to cure any issues and easily and quickly be right back on track.

Many new dentists are not aware of the actual financial workings of a practice. Looking at a practice tax return will mislead more new dentists that enlighten them. We need to keep in mind that the purpose of a tax return is to compute how much tax one needs to pay, not to clearly disclose what a practice net income is. I’ve discovered a few fascinating facts over the years. One of the best is the value of a hygienist. In over 90% of the practices I examine, I find that the profit from the hygienist – after paying her salary – will more than pay for the payments for buying the practice. And in a number of cases, will also pay the mortgage payments for the building too. So when a new dentist says he can’t afford to buy a practice, I’ll suggest that he let the hygienist pay for it for him.

It’s disappointing to see a new dentist forgo an excellent opportunity to buy a practice because they feel it is too expensive, thinking that a cheaper, smaller practice is a safer option. This is exactly the opposite of the fact of the matter. The biggest mistake a new dentist can make is buying a small practice with very little cash flow to live on. This is the riskiest proposition one could take because a lack of adequate cash flow will result in financial failure. Alternately, larger practices, in a great majority of the time, provide a very strong cash flow for a purchaser and, unlike the small practice, are much farther away from the dangerous break-even point and even of losing money. If the hygienist is going to pay for your practice, let her buy you a strong profitable practice, not a low-earning one on the edge of bankruptcy.

Thinking that dentistry is a tooth business rather than a people business will cost a dentist dearly. You’ve heard it said that you can go anywhere and just do excellent dentistry, and you will succeed. But if a dentist doesn’t care about people and shows his patients through his and his whole staff’s attitudes and actions, his excellent clinical work won’t impress anyone. I noticed from my practice days, as well as my own dental care, that patients cannot judge the quality of care. How many times have you heard a patient compliment a dentist by saying, “Gosh Doc, that’s an amazing margin!” If you can match the shade of a single upper anterior crown, which was my biggest challenge, then patients will be able to judge your work, at least the shade selection and custom staining. They can’t judge the prep and the margins, though. But patients are acutely aware of the respect they were shown and the friendliness and helpfulness of everyone they encounter in your office. And that is why they will or won’t refer others to you.

One more piece of advice to chew on. I’m a numbers person, and I prefer excellent odds over long shots that don’t pay off. This applies to where one decides to put down roots and practice. My excellent odds suggestion would then say, pick an area that needs a dentist, rather than an area that is overserved with dentists. I’ve noticed that affluent rural dentists are able to enjoy the bright lights much more than dentists living in the metro area and struggling to afford the lifestyle. My perspective has consistently shown me that getting outside the highly competitive bright lights will provide a number of important benefits.

For one, patient share is much higher in rural areas because dentists are not crowding to be there. Think about how much marketing expense one could put back into their pocket. There’s even room to do a start-up if there’s not a practice for sale. If you do find one to buy, expect the price to be much less than a practice in the high-demand bright light areas. Staff salaries will be lower, another savings. One is much more likely to be able to very reasonably build a building to their own specs, since there is usually land available and costs are lower. Alternatively, even renting is much less expensive than in the bright lights. Patients will be much less stressful to deal with; take it from me. I’ve practiced in the bright lights, and those patients can be demanding and unappreciative. The cost of living will be lower as well, and people tend to be friendlier. And it won’t take an hour each way to drive five miles to your office and back each day.

These are the issues that I see on the top of the lists that new dentists could benefit from understanding. I also realize that the solutions to these issues are not always comfortable or attractive, but I sincerely believe as uncomfortable as they may be, they are more comfortable compared to the unintended consequences of alternative choices. But whatever choices you end up making, I wish you the best outcome and the best success possible.

Earl Douglas, DDS, MBA, principle of ADS South, LLC, began his dental career in 1971, practicing in the U. S. Army Dental Corps for six years and another five years in private practice. He began his dental transition career in 1982 and completed his MBA training in 1984. His company, ADS South, LLC, performs appraisals, equity associateships, and sales of dental practices throughout the Southeast. In addition to his Doctor of Dental Surgery degree and Masters in Business Administration, Dr. Douglas earned the BVAL designation (Business Valuator Accredited in Litigation) from the Institute of Business Appraisers. He is the author of numerous published articles on practice transitions and has presented to numerous dental organizations. In 1996 Dr. Douglas organizedADS, the largest independent dental appraisal and brokerage organization in the country www.adssouth.com