Part of the American dream is to own your home and own your own business. In today’s business environment, there are many challenges facing the next generation in achieving the American dream. The repayment of student loan debt is one of those challenges. Recent dental school graduates can be overwhelmed with their student loan debt. Many are afraid of taking on more debt, such as that for starting or purchasing a practice. New and complex tax laws and burdensome government compliance can also be factors when new dentists choose not to own a practice.
As a dental CPA, my role is to help dentists become entrepreneurs, and to guide them toward finding the rewards and minimizing the risks of realizing the American dream.
Mistakes young dentists make when preparing for practice ownership
1. Waiting too long to own a practice
I find that many dentists are initially comfortable working as associates. Many associates eventually consider owning their own practices. However, some dentists decide to move to practice ownership too late in their careers. It can take up to 15 years to pay off practice acquisition debt. The risk of practice ownership at a late age may not provide the reward that comes with the prospect of a longer horizon to retirement.
2. Building the Taj Mahal
Beautiful, well-decorated offices do not need to be expensive. Many dentists do not realize that once an expensive office is built, the costs of debt service and maintenance can be excessive, which takes away from profits and cash flow. The real value in a practice is the dentist’s relationship with his or her patients.
3. Failing to create the “why”
When new dentists think about practice ownership, they usually think about how it will look or how they will treat their patients. These are only partial aspects of a practice vision. The most important part of a vision is to create a broad perspective of “why?” Why do you come to work every day and what will inspire your team to come to work every day? It is important for a new dentist to create this vision, share it with the team, and continuously reinforce it. I find that practices with a clear and well-communicated vision have less employee turnover and better practice performance.
4. Guiding a “rudderless ship”
Dental offices do not run by themselves. The owner of a dental practice needs to lead. Being a leader includes being an example for others to follow. Leaders take responsibility for overseeing the day-to-day operations. A system of reporting the practice’s vital statistics should be implemented to keep the doctor aware of practice performance on a daily, weekly, and monthly basis.
5. Hiring the wrong people
When putting a team together, make sure to do your due diligence, including background checks. If a practice is purchased with a team in place, allow some time to evaluate the team. Do not allow poor performers to linger. If one team member is not working at his or her best, it is a signal to other team members that poor or mediocre performance is tolerated.
6. Wondering, “Where am I?”
Before choosing a location for your practice, a demographic study can be extremely informative. These studies can assist a new dentist in understanding the economic makeup of the surrounding community. The studies also provide a perspective on other dentists in the area and if the area can sustain another dentist. The studies are filled with data to help new dentists make informed decisions about where to open their practices.
7. Having no management training
Most new dentists do not have the training to run a practice. They are great technicians, but they spend most of their time working in the practice rather than working on the practice. This can be a formula for financial disaster. Working with a CPA who understands how dental practices operate can lead to setting up systems that will help with practice management.
8. Not knowing the numbers
The lack of business management training often leaves dentists in the dark about how their practices are performing. Sometimes dentists believe that if their production has increased from one year to the next, the practice is performing better. This analysis leaves out many considerations, including collections of production. The dental profession has metrics and benchmarks that can be helpful in managing the business of dentistry. New-patient flow, hygiene profitability, and overhead as a percentage of collections are examples of a few practice metrics.
9. Not preparing for the unexpected
What do you do when the unexpected happens in your practice or life? I believe that appropriate insurance coverage is important to include in a financial portfolio. There are policies available to help with a fast recovery from any disaster that can strike your practice. There are policies that can continue to provide you with income if you are unable to work, and that even cover your practice overhead. Your insurance needs can change as your financial situation changes. It is important to review your insurance coverages periodically to make sure your current coverage is appropriate for your situation.
10. Not staying close to home
When you become the owner of a dental practice, you become part of the community. Almost all of your patients come from the same community, and it is important for a local dental professional to be visible. This visibility goes beyond just advertising in the local paper or supporting a Little League team. Being seen outside of the office in the community provides comfort to patients. It demonstrates that you are more than just doing business in the area. A commute of fewer than 15 minutes helps keep you close to your practice and makes it much easier to be seen supporting local establishments, just like the community supports your practice.
DAVID J. GOODMAN, MST, CPA, is managing director of LB Goodman & Co. at lbgcpas.com, located in Fair Lawn, New Jersey. As a member of the Academy of Dental CPAs, Goodman provides a unique perspective on dental practices. He can be reached at [email protected] or (201) 791-8300.
