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Dental school equipped you with the tools to be a dentist, but if you’re considering buying a dental practice, now is the time to equip yourself with the right financial analysis tools.  

You don’t want to begin understanding the value (or lack thereof) of your practice after you’ve purchased it. Use this checklist to position and prepare yourself to make a solid financial investment.

1. Assemble a trusted team. Would you ask an accountant or attorney to perform a tooth filling? You can not expect yourself to have the knowledge and experience of a broker, accountant, consultant, banker and attorney. Hire a trusted advisory team. It’s a short-term expense that will protect your long-term investment.
2. What will a dental accountant look for? Reviewing basic financial information is a necessity and should include an analysis of:
   • Balance sheet and income statements
   • Comparative statements to industry standards
   • Three years of tax returns
   • Production/collection reports from the practice management system
3. Information is only as good as its source. Determine and confirm the source of the financial information provided. If you leave something to chance, you’re taking a chance. Even if buying a practice from an individual or group that you know or trust, it is too easy for mistakes to be made. Ideally, the financial statements you are provided are produced by a reputable accountant or CPA.
4. Is this practice the right one for you? Envision the practice you want in five to ten years. Don’t look for potential, look for performance. Potential is nice but if unrealized could lead to financial instability. Does a pattern exist of this being a high-performing practice?
5. How do you assess the value of a practice? “The ADA Practical Guide to Valuing a Practice: A Manual for Dentists” spells out the valuation process and dispels valuation myths, such as the commonly used "gross revenue" method of determining practice value. The ADA book also covers:
• Choosing the right valuation method for you.
• Explanations of valuation concepts, such as the capitalized earnings, discounted cash flow and net asset methods.
• Legal and tax issues.
• Guidance on buying an entire practice or portion of a practice and planning a future buy-in or buy-out.

Why do you use X-rays before diagnosing and treating? An X-ray allows you to gauge factors you can't see with the naked eye. Likewise, there is often more than meets the eye when buying a dental practice. Doing your financial due diligence with X-ray vision is guaranteed to give you a brighter smile.

For questions about financial analysis and practice valuation, contact Donovan & Limroth for assistance.

As a practice model, Dental Service Organizations (DSOs) have pros and cons. The same applies to private and alternative practice models. After you have read, researched and determined the right fit for you, maximize your practice’s return on investments.

According to an article in the Journal of Dental Education, “dental graduates report having strong intentions for the independence of private practice.” To satisfy dentists’ goals, provide quality patient care, be responsive to different urban and rural locations and be competitive in the marketplace, private and alternative practices need to know their competitors and their patients.

“In the midst of chaos, there is also opportunity.” Sun Tzu, The Art of War

Dentists have the opportunity for a lucrative, fulfilling career in spite of practice model shifts taking place. If you select a private practice or alternative model, however, you may be asking how best to compete and position your practice in the marketplace. In the midst of the chaos of industry and model shifts, look for the opportunities.

First, study and understand DSOs, what they offer patients and what their strengths and weaknesses are. From this, determine your practice’s strengths, weaknesses, opportunities and threats. The next step is to organize this information into a strategy.

A strategy is a set of ideas that can help you achieve your goals. To develop a strategy, you arrange those ideas into a plan. This helps you identify how you can reach your practice revenue goals and create a plan to help you stay focused on the goals, tactics and actions needed.

Succeed in planning, and you plan to succeed. With the aid of foresight, you have greater opportunity for a lucrative practice. Knowing your competition allows you to be better prepared to compete with DSOs and win.

Below are some alternatives to DSOs and traditional private practices:

1. Location is imperative. If opening a new practice or expanding your existing practice, study your demographics. Selecting a market and location where there is high demand and low supply of dental services positions you to gain access to greater patients. Moving or expanding into a strategic location gives you first opportunity to build patient relationships, loyalty and retention.

2. Services meet patients’ needs. How can you add value to your practice, strengthen your competitive position, maximize profits and attract more business from current or new patients through expanded services? Be balanced in your approach to services, making sure that you offer services that meet your community’s needs and that are state-of-the-art but that you can deliver with quality.

3. Differentiators are what make you unique. What sets you apart? Identify these, ask your team and survey patients to learn their perspective. Utilize this information to communicate those differentiators in your marketing, advertising and communications. These can include:

• Credentials and performance of you and your clinical staff
• Insurance acceptance, financing services offered and payment options
• Location, office setting, amenities, hours, parking, cleanliness and appearance
• Service, friendliness and ability of administrative staff
• Relationships with patients, including communication, time spent and treatment quality
• Clinical technology used by your practice
• Variety of services available

If competing against DSOs, they may have lower overhead and be able to charge less for services than your practices. If you do charge more for treatments and procedures, demonstrate the value and quality patients receive in exchange. If you want your practice to profit, communicate to patients how they will profit in choosing you as their dental care partner.

Get to know your competition, your practice and your patients.

“Know the enemy and know yourself; in a hundred battles you will never be in peril,” Sun Tzu, The Art of War

In this series about Dental Service Organizations, also known as Dental Support Organizations (DSOs), we previously analyzed the benefits and drawbacks of DSOs. Your options, however, are not mutually exclusive — a DSO or private practice.

There are alternative practice models emerging in the market. To choose the best course of action, consider how your professional goals, stage of your dental career, size, number, and geographic locations of your practice align with these alternative practice models.

Dentists, for example, who are newly graduated and have dental school debt, may prefer to temporarily practice as an employee. According to an article in the Journal of Dental Education, when school debt is decreased or paid off and clinical proficiency is achieved “dental graduates report having strong intentions for the independence of private practice.”

Below are some alternatives to DSOs and traditional private practices:

1. DSO-Managed Private Practices allow for a traditional practice to function with centralized outsourcing of some practice management, which can include services such as technology and supply purchasing, HIPPA compliance, insurance processing, revenue analytics and marketing.

2. Independent Practice Associations (IPAs) are made up of private practitioners that organize to form a self-directed group. IPAs allow dentists to maintain the independence of their traditional practice while providing cost savings through association-negotiated services, including office management, purchasing, HIPPA compliance, coordinated care systems, case management systems, IT, marketing, billing and collection.

3. Automated Dental Micropractices are “a high-tech, low overhead practice concept that automates many business-related tasks.” It outsources most non-clinical, business-related tasks to a network of expert dental service providers, who are off-site and on-demand.” This model provides automated services, such as a patient call center, patient communications, appointment scheduling and registration.

4. Multispecialty Practices include general dentistry services of a traditional practice plus specialists, who can be full-time or part-time. This diversifies the service offerings of a practice. It also offers convenience to patients with a variety of care at one location. Dentists and specialists benefit by sharing expenses and resources, such as non-clinical staff, appointment scheduling, registration, billing and collections, IT and facility/operations costs.

The ADA Health Policy Institute has proposed additional classifications of dental group practices. Some of these group practice models include large group practices, insurer-provider, not-for-profit, government agency and hybrid practices.

Because practicing as an employee is not a preferred, permanent choice for a majority of dental school graduates, alternative models will continue to emerge and evolve. These models will need to satisfy dentists’ goals, provide quality patient care, be responsive to different urban and rural locations and be competitive in the marketplace.

In last week’s blog (below), we explored the benefits of dental service organizations (DSOs). To offer a balanced perspective, this week we look at the drawbacks of DSOs.

According to an article in the Journal of Dental Education, it was forecasted that “large DSO-managed group practices will be the setting in which the majority of oral health care is delivered by 2025.” This viewpoint, however, was also countered.

Due to the disadvantages of DSOs, one counter argument predicts, instead, that alternative practice models will evolve. It is imperative that you research and educate yourself on the benefits of DSOs, disadvantages and models that may evolve in the future. This will equip you with information needed to choose the best course of action for your practice, career, personal fulfillment and patient care.

What are the most significant disadvantages of DSOs? As you study the practice landscape, consider these:

1. Traditional Practice Appeal

The fulfillment of being your own boss, being an entrepreneur and experiencing true dental practice ownership is lost.

2. Time

You have less flexibility and freedom with your own schedule and time.

3. Practice Structure

The structure and staff are not yours to create to the same extent as in a private practice, and you have less control over hiring and firing.

4. Patient Care and Services

There are limitations on your treatment and referral decisions and control over the services your practice will offer, potentially leading to a less broad-based practice.

5. New Practice Offerings

Similarly, the ability to test new services, techniques and materials may not be as easy to achieve without clinical autonomy.

6. Learning the Dentistry Business

When focused on patient care, you have less opportunity to learn and develop your business/practice management skills. 

7. Financial Rewards

A DSO may not be as financially and professionally rewarding as private practice ownership, where you are in charge of how much you work, how smart you work and the leadership you provide to your practice

Keep in mind that DSOs vary widely. Their services, size, investment ability, negotiation options may provide some relief to the limitations and restrictions listed. Also, you have a unique set of goals and reasons for being a dentist. One dentist’s limitation may represent another dentist’s freedom. For example, some dentists want to focus solely on patient care and do not want the responsibility of practice management and leadership.

With corporate dentistry on the rise, be aware and be smart about your values and what you want to achieve long-term. If you choose the private practice model or one of the alternative evolving models, be savvy and strategic. To compete against corporate dentistry, the same points that sold you on private practice need to be communicated to your patients. Plan to sell those points to your patients and target markets as strengths and differentiators that set you apart.

What are the top challenges for dentists today? For starters, dentists have to wear many hats in order to keep up with practice management.

With more expenses, government regulation, legal issues and technology, dentists are not able to focus on dentistry and patient care. Instead, practice management, including tasks from HR and supply purchasing to HIPPA compliance and technology, require time and money.

DSOs are providing ways to address these challenges, which may be a solution for some practices. In this two-part series, this blog looks at the benefits of DSOs, and next week’s will look at DSO drawbacks.

What is a DSO? It can be any size — two practices or hundreds. And services to member practices can vary widely. The Association of Dental Support Organizations states that:

Dental Service Organizations (DSOs) contract with dental practices to provide critical business management and support including non-clinical operations. The creation of DSOs has allowed dentists to maximize their practice with the support of professional office management. The DSO model enables dentists to focus on the patient while delivering excellent dental care.  

As businesses in almost every industry have changed models over the years, dentistry is no different. How, specifically, can DSOs help you keep up with the administrative work of running a practice? Listed below are services commonly provided to DSO members, although they do vary widely by DSO. Because they are organization-wide services, they are usually more affordable and the services specialized for dental practices.

1. Technology

Quality dentistry is driven by technology. DSOs help make technology affordable and accessible, resulting in higher quality patient care. On behalf of its members, DSOs invest in cutting-edge technologies, including software and systems for online record keeping and scheduling, radiography, intraoral cameras, 3D imaging, oral cancer screening and more.

2. Insurance

From practices to patients, not wanting to handle the burden of insurance is universal. DSOs pave a smoother road for all parties with software tools that verify insurance and co-pays at the time of appointment and with better rates from insurance companies based on the economies of scale of a DSO network.

3. Compliance

As government regulations change, practices struggle to stay abreast of changes and implement them in a timely manner. DSOs can help make the process easier and smoother. From HIPPA compliance to AED training, their services provide automatic reminders, support, tools and training for your staff.

4. Community

Having a professional community can mean you have coverage while taking time off or going on a vacation. It can also mean more experienced dentists being able to provide mentorship and leadership to others. Camaraderie, networking and ongoing educational opportunities help members invest in themselves, their organization and, ultimately, in their patients’ care.

5. Entry and Exit Strategy

As newly-graduating dentists begin their careers, they are starting with school loan debt, averaging $300,000. This makes the dream of owning or starting a practice less realistic. Likewise, dentists who are approaching retirement or are ready to retire may be considering selling their practices. A DSO makes owning a practice more affordable and offers options to dentists who want to sell and retire or want to sell and continue working for a period of time without the stress of practice management.