Practice Economics Profitability
Opportunities for Growth
Is the practice profitable? In other words, after paying all the operating costs of the business, including market compensation for the dentists (even the owner), is there enough positive cashflow available to pay taxes, bank financing and support the lifestyle you want?
Is there an opportunity to increase new patient flow and decrease patient attrition to grow the patient base, for example through internal and external marketing and improving the patient experience?
If the cashflow is minimal or negative, why is that and are there opportunities to boost profitability in an ethical way by growing the patient base, increasing billings or reducing costs? Conversely, if the practice is extraordinarily profitable, is that something you will be able to duplicate to arrive at the same level of cashflow?
Or, is the practice already space constrained, so the office is purposefully limiting new patients, and currently unable to meet the dental needs of its existing patient base? If the latter, is there the ability to expand the office hours or add further operatories to treat more patients and deliver more care?
Revenue Generation
Cost Management
In addition to growing the patient base, is there potential for incremental revenue in your hands? For instance, do you have a wider personal scope that will allow you to keep more procedures inhouse? Is the schedule booked out far in advance, which would suggest the patient base could support expanded hours of practice? Does the existing owner have an atypically conservative, “watch-and-see” approach, whereas, in your view, many cases could benefit from crowns or other procedures? Does the office bill less than the BCDA Suggested Fee Guide or provide significant discounts which could be gradually increased to the current fee levels with minimal patient attrition?
How do the costs as a percentage of billings compare to a “typical practice”, and are there opportunities to reduce costs to improve profitability? The three most significant costs to a dental practice are staff wages, rent/occupancy costs and dental supplies.
Alternatively, compared to your practice style, does the existing owner have a much wider personal scope of practice or more aggressive treatment philosophies which would make it challenging for you to sustain current revenue levels?
10 | Dental Practice Buyer’s Guide & Workbook
Rent costs may be high due to the location, and/or if the space is too large for the size of the patient base. Growth of the patient base would result in better utilization of the space and lower occupancy costs relative to revenue. It may be possible to achieve lower supply costs through smarter purchasing decisions, and lower wage costs by consolidating staffing and ensuring wage rates reflect current market levels. Keep in mind, any thought to terminating employees or changing their terms of employment should be done in consultation with an employment lawyer to minimize potential liability and determine appropriate severance.
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