By Dr. Rick Huot
According to the ADA Health Policy Institute’s recent research brief, statistics show that dental offices have been lagging behind other business entities to recover from the Great Recession that started in 2008. Except in rural and urban areas that have a numerical shortage of dentists, most dental practices are reporting flat earnings and are just keeping up with the increasing costs of running an efficient practice.
The measure of growth in a practice due to internally referred patients and patients obtained by external marketing is called organic growth, since it is “home grown” from the efforts that the present office has done all along.
Another “fast track” of achieving growth is to purchase an existing practice in your practice neighborhood, by either merging into the larger office, or purchasing the existing patient base and obtaining the services of the present dentist, and many, if not all, of the doctor’s staff members.
This is the first year that millennial dentists will outnumber baby boomer dentists, and many of the boomers are approaching their 70s, which is past the traditional retirement age of 65 for the majority of America’s workforce for the last generation. However, people (and dentists!) are living longer, and quite possibly need to work longer, as they are financially short of their retirement goals.
For a young dentist (Dr. Millennial), buying an existing practice from a nearby colleague (Dr. Boomer) is a win-win situation, and some of the immediate benefits include:
- Purchasing an existing patient base is a more efficient way of securing new patients. The patients that belong to Dr. Boomer are existing “vetted” patients with a track record of seeking care, and a desire to keep their doctor-patient relationship with a young dentist, knowing it won’t be long before they have to choose a new dentist. Retaining upwards of 90 percent of the patient base is not unusual in this type of practice purchase, especially if Dr. Boomer occasionally practices in the new office.
- Every dental practice has a core of outstanding staff members, and the ability to retain those staff members will give Dr. Boomer’s patients a “familiar face” to see when they come in for dental treatment.
- The small equipment and additional supplies purchased with Dr. Boomer’s practice will increase efficiency in terms of instrument turnaround, such as extra handpieces and instrument setups, and reduce the future need of high-cost items, such as extra digital sensors and computer workstations.
- Dr. Millennial has a ready-made “temp service” in Dr. Boomer, which keeps the practice open for longer periods of time during vacation times and in the case of a female dentist, maternity leave. Having the practice open for more days and longer times increases the profitability of a business, as fixed costs are already accounted for and variable costs are less.
For Dr. Boomer, this also is a win-win situation, as some of the benefits include:
- The ability to take time off without the worry of provider coverage, and paying the costs of running a practice at a time in life when we physically slow down.
- If Dr. Boomer becomes a solo independent contractor to Dr. Millennial, the pension laws for someone reaching 50 years of age dramatically allows the older doctor to get a direct tax deduction for a considerable amount of retirement funds ($215,000 for a defined benefit plan, and $54,000 employee contribution to a defined contribution plan not including the matching provision), while taking a reduced amount to live on, since the practice sale would have provided funds for living expenses.
- Since Dr. Boomer is now a self-employed solo dentist, a Subchapter S corporation would allow practice profits to “flow through” their normal tax return (1040), and could provide tax bracket benefits.
As with any financial and business transaction, all of these practice purchase sales should be done with competent financial and legal advice, and might include a transition specialist who could facilitate the merger.
So, Dr. Millennial, it is time to look “around the neighborhood” and find someone compatible to your practice and business philosophy. The decision you make may prove to be the most financially astute one you will make in your entire practice career!
Dr. Huot is a general dentist in Vero Beach and the founder of Beachside Dental Consultants Inc., a dental practice management consulting business. He is on the FDA Board of Trustees and can be reached at firstname.lastname@example.org.