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The Gold Watch |
The Future of Dentistry, Your Practice and Your Retirement |
by Tyson Steele |
We are currently in an unprecedented age of prosperity in the dental industry. Buoyed by a strong economy, baby-boomer patients and a reduced number of active dentists, many practices are enjoying heightened profits.
Some of you may remember struggling just to keep your practice afloat in the late seventies. But times change, and the nineties have been good to dentistry.
Prosperity can be dangerous, however, if it leads to complacency. You see, many of the same factors currently helping to increase profits could eventually limit your ability to sell your practice. And, if you're counting on your practice to become the proverbial "gold watch" in your retirement portfolio, you could be in for a sobering dose of reality.
Keep in mind that I don't intend to be a doomsayer, I just want you to develop a realistic assessment of the chances of selling your practice ten to twenty years from now. Given that, I want you to understand "why" your practice may not be worth as much in the future.
Fewer Dental Schools
Several dental schools have closed in the last twenty years. I suspect that this is fallout from the late seventies, when times were tight and the industry faced a glut of new, young dentists competing for limited patient dollars. (It takes most bureaucratic universities a couple of decades to actually change anything.)
Regardless of the cause, the end result of having fewer dental schools is the same -- fewer dentists, and fewer potential buyers for your practice.
And, based on past experience, don't expect these schools to re-open any time soon.
Fewer Dental Students
On top of school closures, graduating classes from most dental programs have reduced substantially. The total number of dental school graduates in 1997 was 3,930, a 26% decrease from the 1984 total of 5,337. (In case you're wondering, graduating class sizes decreased consistently throughout the eighties and early nineties before they stabilized at our current levels around 1993.)
A portion of this decrease can be attributed to school closures, the other part is due to school budget cuts and decreased class sizes.
Whatever the cause, you're once again faced with fewer potential buyers for your practice.
More Part-Time Dentists
In the last several years, approximately 40% of all dental school graduates have been women. Fortunately, the increase in female dentists has brought an additional level of skill and patient care to dentistry.
Unfortunately, however, many of these women are only practicing dentistry full-time for several years before reducing their hours to raise a family. Although this is clearly a generalization, it would be short-sighted to expect all women dentists to pursue their careers with the zeal of their male counterparts.
Many women run excellent practices. Just don't expect the percentage of female prospects for your $75,000/month practice to be the same as the percentage of male prospects.
Increased Managed Care
As you know, I don't think managed care will wipe-out independent dentistry as we know it. However, I do believe that managed care will continue to change the way dentistry is delivered.
Managed care companies will be ideally suited to snatch up many part-time dentists by providing them with salaries, benefits and retirement plans to complement their reduced hours. Managed care is also an ideal place for the non-entrepreneurial dentist to hang his or her hat without the headaches of owning a practice.
Talk to many who've had a young associate in their practice lately and you're destined to hear about the recent graduate's lack of initiative and work ethic. (My personal experience shows this to be a valid perception of some current dental graduates, who often come from affluent, professional families and have never worked a day in their life.) These dentists are unlikely to suddenly become driven, focused entrepreneurs. Instead, they are the future workhorses of managed care.
Increased Viability of Start-ups
The percentage of active dentists per capita has been projected to drop 23% from its high in 1987 to the year 2020. (If you live on the West Coast, expect the drop to be a staggering 40%!)
Think about it . . . as the number of active dentists decreases and the population increases, why would a young dentist purchase your practice? That dentist could easily create a successful start-up with a fraction of the investment of the traditional buyout.
This again reduces the number of prospects for your practice and could place you in the position of trying to sell your practice during one of the worst markets ever.
The Solution
I hope you're getting the message . . . your practice may not be worth even the price of a gold watch! That's the bad news.
The good news is that you can do something about it.
Every problem carries with it the seed for equal or greater opportunity. And the same trends that could render your practice unsaleable in the future could benefit you in other ways. Here's how:
- Start Planning Earlier
That's right. Start planning now. Consider the worst case scenario. In the event that you may be unable to sell your practice, how much extra do you need to contribute to your retirement plan now? Can you create a plan of action to consistently generate an extra $20,000+ in profit for the rest of your career? Can you reduce discretionary spending? Do you really need that new boat? Can you retire later and work part-time?
The truth is that even if you can't sell your practice, you can do many things about it if you start planning early.
- Look Into Mergers
I believe that large, multi-doctor practices will be common in dentistry twenty years from now. Eventually, patients will accept associate dentists the same way they accept hygienists. And, unlike in the past, you will be able to keep many new associates on board through the use of flexible hours, benefits and profit sharing plans (remember all those female and non-entrepreneurial dentists?)
By merging several practices into one large practice, you can create economies of scale, reducing your effective percentage of overhead and maximizing production. You will also have a much more attractive package for the rare entrepreneurial dentist who is a potential buyer for your practice in the future.
- Create An Attractive Package
Keep in mind that selling is the process of solving a prospects problem. How many obstacles to purchasing your practice can you plan to remove for a prospective buyer?
Consider offering special financing terms, selling your practice below value, throwing in a company Porsche, whatever will attract buyers. Of course, always remember that the most attractive practice is a profitable practice with lots of active patients.
- Recruit Your Successor
That's right. Break the old paradigm. Actively recruit your successor while they are still in dental school, or better yet, before they are in dental school.
Get your kids, nephews or nieces interested in dentistry. You may even consider paying the dental school tuition for your recruit in return for a contract to buy your practice. (Don't even ask me what the lawyers would do with that one. But, hey, it works for the military.)
If you haven't considered these facts in the past, I hope this article serves as a wake-up call.
You may not be able to count on selling your practice to supplement your retirement plan. But you can do something about it.
By taking action to get the most out of your practice both now and in the future, you may find your practice could be a "gold watch" after all. |
