Date: December 22, 2022

The last few years have created so many shifts in how we work, travel, and live that there is virtually no area of the economy that remains untouched. That is just as true for dental practices as it is for everyone else. And it’s equally true that all businesses – including dentists and dental specialists — need to revisit the value of their business enterprise in the new economy. Since the pandemic, dentists have reported a range of business challenges, from being understaffed and overworked, to experiencing exponential growth and a surge in their business. Others have decided that retirement is closer to reality either due to general aging among experienced dentists, burnout after Covid-19, or lucrative exit opportunities with the rise of DSOs. The results of our doctors vary widely depending on many factors, ranging from geography to specialty to patient demographic, as well as the mindset of the clinician. One important way to navigate the state of your own business and your personal future path is to stop and reset, take an overall inventory of your practice and career, and understand your enterprise value in the current marketplace.

Here are four ways to get a reset on the value of your practice.

The value of your services. In simple terms, the value of your practice is often measured by financial professionals in terms of EBITDA (earnings before interest, taxes, depreciation, and amortization). Without getting into the weeds, at a basic level you want to know how much net profit your practice is bringing in, which services are most lucrative, and which dentists or staff are the most productive in terms of revenue versus compensation (that isn’t the only determination of their worth overall – this is just one input you should know). You may need to network or do research to find out if prices have risen and why – is it because there has been population growth (increased demand), salary increases for staff, or other factors (inflation and supply shortages). Your accountant can help you with a formal evaluation of your current practice, and make sure you are asking the right questions that could impact the future. Understanding your practice EBITDA is a first step to understanding its value in the current market.

The cost of doing business – literally. The revenue that comes into your business is always a historical snapshot, meaning it’s always backwards looking (anything forward-looking is just a projection of what you expect to earn). This is true for profits but applies equally to costs. Can you accurately estimate the expenses required to generate that recurring revenue? Prices of goods can increase, your suppliers may experience new shortages or you may have other new costs in the future that you hadn’t planned for.

The challenges of the recent economy mean future costs may have significantly changed from historical pricing. Certainly less frequent purchases – for example if you need to replace equipment that is ten years old – will be more expensive now. But inflation and supply chain shortages mean that even more frequent expenses may be much higher than they were even a year or six months ago. Some of these recurring costs you have probably already noticed, for example, if the utility bill is higher than this time last year. But what about not yet realized costs – expenses not yet incurred yet but coming in the short- to medium-term? Is your lease due for renewal? Is your office ready for a refresh? Do you have imminent hiring needs and at higher salaries than in the past? While the value of your business at this moment is X, you are trying to prepare for your future, and that means understanding what is coming and what is yet to come.

The end of the year is a great time to review your agreements with suppliers and negotiate the terms as many sales teams are trying to make their annual targets. While you have probably already seen prices increase for one-time purchases, take a careful look at anything with annual contracts or subscriptions. You might need to brace yourself (or negotiate against) a steep increase for next year. Alternatively, consider alternative vendor options through TruBlu Dental Management or similar organizations that stand for the preservation of private practice dentistry and offer private practitioners access to services, purchasing power, and programs previously unavailable to independent doctors. 

Review your revenue opportunities. On the revenue side, now might be the time for negotiating your PPO contracts. If network fee schedules are significantly changing (for better or worse), this will impact your receivables even if your client base remains steady. Be sure to understand how the relocation of millions of Americans may have impacted your client population. Many people changed jobs in the last two years, which means they may have lost or changed employer-sponsored dental insurance. What is important is to be able to anticipate some of these shifts and how they impact the value of your practice.

The price of people: staff salaries. One of the key costs to consider is the cost of keeping your team in place. Even if your staff seem happy in the practice, that doesn’t mean they aren’t considering other opportunities. You can be sure they are getting contacted regularly by personnel agencies offering them new opportunities and increased compensation. One of the key changes over the last few years was the Great Resignation – more than forty-seven million people left their jobs in 2021 alone. Importantly, for on-site jobs that can’t be performed from home, the number of potential workers has decreased dramatically in the wake of Covid-19 concerns. If you have not raised the salaries of your staff since before the pandemic, you may be living on borrowed time, especially with the dramatic inflation facing the workforce. According to an ADA study, 79.8% of owner-dentists in private practice have increased wages for their dental hygienists in the past year. The last thing you want is for a competitor to poach members of your team. Consider proactively increasing salaries now to at least be consistent with inflation. For experienced members or hard-to-replace specialists, retention bonuses might be appropriate.

Whether you sell, expand, or keep on with business as usual, knowing your value is priceless.

All businesses should stop and evaluate their current state because the landscape has shifted so much, and so rapidly, over the last few years. Even if you are not planning to change your practice (same location, same patients, same staff) it doesn’t mean the market around you hasn’t changed. If your local economy is in decline, there may be ways to temper the impact. If there is new growth fueled by the redistribution of the population thanks to the Great Resignation, you may want to leverage the opportunity. Information is power. What you do is informed by how much you know.