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28
Apr

Life in Dentistry “Post” COVID

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Whether you are located in rural America or a major metropolitan area, dental practices and businesses in general are still feeling the effects of what COVID has done to the current job market. The lack of people looking to work at this time while the employment rate is at a claimed all time low is still riddling to me. This crisis has put added pressure on dentists and due to the lack of supply & high demand, employment terms and expectations have skyrocketed.

From our experience the ‘new’ norm for employment terms that we have been seeing regularly are:

· Hygienist getting paid between $36.00 to $45.00 per hour
· Assistants getting paid between $22.00 to $29.00 per hour
· Front desk getting paid between $18.00 to $23.00 per hour
*Does not include other auxiliary benefits

Employees have smelled the blood in the water and have been leveraging the supply & demand issue in effort to increase their pay and benefits either at their current location or taking a new job elsewhere. I’ve heard the same story on multiple occasions from dentists who have employees of decades that were viewed as “family” and were now being told that they have to increase their pay $5.00+ per hour otherwise they are going to work down the street.

Due to this staffing crisis from COVID-19, you could say “the rich get richer”. The pandemic has to be the best thing that ever happened to DSOs (corporate dentistry) for a number of reasons that we should discuss.

On top of competitive pay, DSOs are able to offer health benefits, 401k match, and continuing education to team members because they are able to operate at a lesser overhead than a general practitioner. These offered benefits cost significantly less for a DSO due to their shear volume. For most staff members that live pay check to pay check, this is a huge deal. This alone has allowed DSOs to recruit employees with more success than a privately owned practice during these times.

While the staffing costs may increase, the DSO will make up for it by utilizing their economies of scale on lab cost, supply cost, IT support, medical waste, insurance reimbursements, and so on. Due to the overall employment terms that a DSO can offer to those in the dental field, they have been adding experienced team members at the detriment of private practitioners. Private practices are having a tough time competing for employees all while operating at a higher overhead. More stress and less profitability is not conductive to a healthy mental state.
Even before the pandemic, the number one complaint from most dentists was human resources. This pain point has gotten even worse and it has added even more pressure on the shoulders of dentists. Dentistry was already stressful enough and now it has increased which has led many dentists to consider affiliating with a DSO to take the management headaches off their plate. We have been getting countless calls every month from dentists in their 40s and 50s who still have a lot of work life left but hate running the business. Partnering with a DSO has been a great decision for these doctors as it made them happier now that all management duties are off their plate. Most larger DSOs have employees that work for them internally to handle items like IT, Human Resources, Billing & Collections, Recruiting, Accounting, Insurance & Payor Relations, Compliance, Marketing, and so on…This allows you to just focus on your clinical dentistry while still making a healthy living. A lot of these doctors reaching are out are willing to compromise some income in return for happiness & freedom. The number of DSO owned and operated practices in American is now over 12% and like it or not, that number will continue to increase as the years go on.

I feel that there are two common misconceptions with DSOs:

1. They are all factories with production goals to where you will be forced to “sell” dentistry that patients don’t need. I will say that not all DSOs are created equal and like anything in life there is good, bad, and ugly. While a few of the early DSOs gave them a bad reputation, there are others out there that do not operate in this manner.

2. You will make significantly less money as you now are working as an associate and not the owner. While that could be true, it really all depends on how well the DSO you affiliate with does when they sell (recapitalize) and that is where choosing the right DSO is extremely important. Some DSOs have a joint venture (JV) model to where you actually get a quarterly distribution of the profits. Other DSOs allow you to invest into their parent company which could provide returns of 3x+ of the money you invested every five or so years. When you factor these two items into the equation, you could actually make more money and have less headaches.

If this article hits home and you have been unhappy managing your business like many in today’s environment, know that there are options out there.

28
Apr

Covid-19 & Practice Transitions

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  • How is the closure of dental practices due to COVID-19 affecting practice values?
  • How is the closure affecting practice sales?
  • Should I sell my practice now and get out? Or should I wait until all this blows over?
  • Are there any buyers out there still looking to buy?
  • Is financing still available? How are banks dealing with all of this?

These are big questions. These are important questions. These are questions we are being asked a lot lately, as you can imagine. While there is no definitive answer, we have insights that will be useful to you if you are contemplating a sale of your practice currently, or in the near future. Your practice is one of the most valuable assets you own. The answers to these questions are critical for you. Now is the time to rely on the experience and knowledge of a trusted professional who specializes in practice transitions to guide you through these unchartered waters. Call us to discuss the impact COVID-19 is having on your market specifically and practice sales in general. We are presently offering a no-cost, no-obligation consultation by phone to address your specific questions and concerns as they relate to the affect this pandemic may have on the value and sale of your practice.

In the meantime, here are some thoughts to consider:

The forced closure of dental practices to all but emergency care should have little to no negative impact on practice values, at least not in the short term. That is the prevailing sentiment among practice brokers and appraisers nationwide. Whenever a practice is closed to patient care for any period of time due to duress of any kind, there is risk of patient attrition. Specifically there is concern over patients of that practice seeking treatment elsewhere rather than waiting for the practice to open again. That risk of attrition results in a loss of practice value. However in this instance, where are patients going to go? All other practices to which patients could turn as an alternative are also closed, which effectively eliminates the risk of attrition during closure.

The bigger concern, then, is the pending economic impact created by the widespread closure of businesses during the COVID-19 pandemic. Unfortunately, we simply do not yet know what that impact will be, nor how it will directly affect dental practices, nor do we have a comparable event in history to turn to in order to make an estimated guess. This is simply unprecedented. While economic forecasts vary widely, there is one thing we are certain of: uncertainty. Among the myriad problems with uncertainty are: A) it cannot be quantified, and B) it affects perceptions. This means when it comes to valuing practices specifically, the potential risk associated with the future economic uncertainties cannot be converted into a dollar amount or even a discount percentage.

So, all other quantifiable factors being the same, practice values will be subject to the subjective perceptions of value found in the minds of prospective buyers. Right now, those perceptions are being influenced by the fear and risk of the unknown. This is causing some prospective buyers to abandon the idea of purchasing altogether. Others are taking a step back, adopting a wait-and-see strategy. And yet others see this as an opportunity to pick up bargains. This third group is relying on fear and panic among sellers to result in deeply discounted prices. We are seeing several DSO and corporate dental buyers taking this approach. Some sellers are falling victim to it, while others are keeping their wits about them and staying the course, realizing their timetable for a sale may need to be adjusted a bit, but confident in the knowledge there are buyers out there who recognize practice ownership is still the best option for most dentists in terms of providing a higher level of job satisfaction and higher income. The buyers who understand this, also understand their success is not reliant on external factors, including the state of the economy.

Most economists agree the economic fallout from the COVID-19 business closures will not reach the severity or extent of the economic recession initiated by the collapse of the sub-prime mortgage lending market in 2008; however, if that recession provides in any way a pattern for the economic impact to be anticipated in dentistry, we have reason to be optimistic. Based on our informal survey of clients during the years following the 2008 recession, the majority of practices were flat in terms of revenues. They did not grow, but they did not shrink. While this was not ideal, it was certainly survivable. Some practices did decline, however, and quite considerably, but we found most of those practices were heavily focused on providing elective, cosmetic and aesthetic dental treatments to a largely fee-for-service patient base.

Additional optimism can be found among lenders who specialize in practice acquisition financing. The prevailing attitude among lenders is that things will snap back to relative normal quickly and practices will continue to perform as well or better than they have historically. Many of these lenders are still processing applications for financing and approving loans for practice purchases, with the caveat that funding of those loans will be contingent on monitoring practice performance through a pre-determined period of resumed operations after the forced closure is lifted. If the practice performs at or above its pre-closure levels during that monitoring period, as anticipated, then the loan will be funded as planned, allowing a sale of the practice to take place.

As stated, there are many unknowns in the marketplace right now and there are a number of factors to consider. Every market is different, every practice is different and every seller is different. What might be right for you and your practice may not be right for another, so call us to discuss your specific needs and objectives. We can discuss current challenges and opportunities and tailor a transition plan for you, despite the uncertainties of the time.