20 Jun Reversing Your Profit Trend
The typical general dentistry practice in today’s economic environment has a 60% overhead leaving 40% of the practice collected production to filter down to the owner/doctor. However, some practitioners have discovered how to reverse this profit trend and are actually netting the 60% portion that the “Overhead Monster” normally devours.
How is such a dramatic reversal achieved?
You likely have colleagues in your own backyard that represent outstanding merger opportunities. You could acquire their practice and merge the practice into yours and start reaping the fabulous financial benefits immediately. But, if you are like most doctors, you would pass on such a merger opportunity simply because you really don’t understand just how great the benefits are for a practice merger.
You probably think that you are too old to take on new debt; or, that it takes too much time to merge in a practice; or, that it is just too complicated; or, that your staff will resist the change; or, maybe that your facility is simply not large enough to even consider a merger. The truth is that most every reason a doctor can come up with to not complete a practice merger is actually very easy to resolve!
Here are just a few great reasons why a practice merger may be the right career solution for you:
Excellent source of experienced staff: In many cases, experienced staff is immediately available as a result of your practice merger, including hygienists (who are becoming a rare commodity). You have the luxury of picking and choosing the best staff. The expensive cost of finding, keeping, and/or replacing staff is resolved.
Instant increase in quality new patients: A practice merger is an instant means of increasing your private-pay and insurance patients… and in many cases, these patients have been in a “basic maintenance” stage for several years. There is typically a lot of dental work that has been ignored after a doctor goes into the “basic maintenance” stage! With the right patient education, the merged practice production could easily double within 12 to 15 months by simply providing the necessary dental treatment to these patients. Compared to the cost involved in finding and cultivating new private- pay and insurance patients, you’ll find that a practice merger is a practical and relatively inexpensive way to instantly expand your patient base with very profitable patients.
Immediate increase in your personal income: Have you considered that adding an additional source of income in your practice, without fixed costs attached, will immediately translate into higher profits for you? Think about it. If you added an additional $100,000 to your practice collected production this year, your overhead on this additional $100,000 would not be 60%. It would actually be only about 12% to 15%. The only costs associated with an additional boost in production would be production related expenses such as lab fees and clinical supplies. Practice Mergers have this same financial effect. The influx of new money dilutes the overall effect of your practice overhead. Depending on the size practice you acquire for merger, it is not uncommon for a practice merger to immediately double or triple your net home income!
For example, if you were operating on a 60% to 40% expense-to-profit ratio, the reverse can realistically be true after completing a practice merger. Your total cash outlay can be 40% and your profits can become 60%.
Let’s apply real dollars to better understand how lucrative a practice merger will be for you. Let’s assume your current practice has gross collections of $500,000 leaving you a 40% profit, or $200,000 per year. After acquiring and merging a small practice, your new practice has gross annual collections of $700,000. Let’s further assume that the economics of the merger causes your overhead expenses to account for a lower percentage of the total collections of your practice (a merger will always do this). For example, your rent overhead percentage used to be determined by dividing the rent expense by $500,000. Now it is a lower percentage because you divide the same rent expense by $700,000. All of your overhead percentages become much lower. In this example (and this is typical), the total practice overhead percentage will drop to only 40% of the practice collections. This means your personal income from the practice (now 60%) increases to $420,000. That is an increase in your personal net income of
$220,000. Granted you will have to pay the annual debt service on the practice acquisition, but that will only be about $1,800 per month, or $21,600 per year. That still leaves an increased personal income for you of $198,400. So, this practice merger would make it possible for you to IMMEDIATELY double your personal income!
Practice Mergers are obviously not for everyone (although we can’t figure out why). But, for those who do see the economics, the vast financial advantages of a practice merger is staggering. Call your PARAGON consultant today for a complimentary consultation to learn more about what a practice merger can do for you. You will be very glad you did!