The Perfect Storm

The expression, a Perfect Storm describes an event when a rare combination of circumstances aggravates a situation drastically. I wonder whether dental practice owners are about to face such a combination of circumstances, precipitating a perfect storm? The result might even be that some practice owners see their costs rise so significantly that they reach the point where most or all of their profits have gone and their practices are no longer viable.

Here are 10 elements that if they occur together, could create havoc with your practice profits:

1. Politics, Economics and Society.

As our politicians like to remind us, we are living in straightened times. The days of people using the equity in their house to fund high value courses of dental treatment have gone. The “feel-good factor” driven by aspiration and easy credit has gone too, and the government and media depress us all by reporting on rising unemployment, house price deflation, negative equity, public service cuts, budget deficits etc etc…

2. The Supply of Dentists and The Demand For Dental Services.

Two decades ago the Government controlled the supply of UK-trained dentists and the Government allowed a limited number of foreign nationals to register as Dentists in the UK. With the expansion of the EU, we now have many EU-trained dentists who are willing and able to work in the UK, some for substantially less pay than the levels their UK-trained colleagues will agree to. This may depress fees.

Two decades ago, the Government (mostly through the blunt instrument of the NHS Fee Guide) controlled what patients could have in the way of dental services, and dentists duly delivered. Now the media generates substantial patient demand for cosmetic and peripheral procedures that used to fall outside mainstream dental care. These services do not address pathology but supply fashion. I am not suggesting that dentists should ignore this demand; I am suggesting that dentists no longer control the services they offer. This will lead to price competition as non-dentists begin to supply these services for less!

3. Deregulation.

In 2007, the Government deregulated dentistry so that non-dentists could own dental practices through limited companies (as long as the company’s directors included at least one registered dentist). The result of this change in the law has created interest (as in Optics) by many corporates and (major) retailers in opening dental practices. Their economies of scale can/will create significant, profit-making opportunities.

4. More Competition.

From:

• Dental Corporates,
• Major Retailers,
• New Squat Practices,
• Re-invented Principal-Owned Practices,
• Web driven Dental Tourism,
• Price Comparison Web Sites,

The presence of the above, all around you, both physically and digitally, means that you will have to spend more on your marketing in order to get your message heard by potential new clients – and to keep your existing patients.

5. The Regulators.

HTM 01-05, the Care Quality Commission and revalidation will significantly increase the fixed costs in all dental practices.

6. New Dental Graduates.

Many new dental graduates are struggling to find a position in the kind of practice that they had hoped to work in, and many have several part time jobs or are unemployed for some of their week. They often compensate for this by adding courses to their CV’s without sufficient opportunity to practice their new skills. This is creating an oversupply of newly qualified, inexperienced graduates without sufficient experience or interpersonal skills to gross high (enough) fees… In other words, skilful, profitable associates are hard to find.

7. Associates, Therapists and Hygienists Remuneration.

Some associates, therapists and hygienists in General Practice expect ever-higher pay, despite objective evidence that the profit in dental practices has fallen (due to some of the elements of the Perfect Storm). The fixed costs associated with a contemporary, well equipped, well staffed general practice mean simply that it is impossible to pay an associate 50% of their fees (unless they gross consistently high fees) or a Hygienist £35per hour (unless they have a surgery occupancy in excess of 90% and the hygiene fees generate more than £100/hour).

8. New Skills and New Equipment.

Clinical skills are becoming more sophisticated with new, improved techniques and materials (we’ve come along way from Amalgam fillings and plastic partial dentures). New treatment options require dentists to pay to learn new skills and invest in new equipment. This will add another upward pressure to your practice’s fixed costs.

9. Staffing Costs.

The costs of professional HR advice, maternity leave, recruitment agency fees, practice managers, business managers, treatment coordinators, GDC registration, and CPD requirements will increase the costs (fixed) of employing the right team.

10. Materials and Laboratory Costs.

Quality materials and laboratory work are becoming more sophisticated and also more expensive.

11. Fees.

In my experience, private practice fees (and UDA Values) have not increased fast enough to compensate for the increasing costs of running a good practice. Understandably, practice owners are reluctant to raise their private fees in the current economic environment and because of this, their profits will fall.

The net result of these ten elements is that profits in General Dental practice are very likely to fall! The National Association of Specialist Dental Accountants have benchmarked the profit in their client’s dental at between 33-39% of turnover. At Breathe Business, we see practices producing profits of between 0-30% of turnover with significant downward pressures!

So, what can you do about this in order to future proof your practice profits?

I suggest that you:

1. Assess the profit you want to create in your practice and then build a functional, accurate business model that will deliver this.
2. Set sales targets for all your clinicians and review these targets, together monthly.
3. Monitor your costs every month and use benchmarks to compare them with industry standards, as we do at Breathe Business.
4. Monitor your profits every month against your monthly targets.
5. Only agree to deliver a service if you have identified a clear and sustainable demand for it – not because you want to deliver it.
6. Hire people for their ability to create strong, empathic relationships with clients and your team, not because of their CV. Dentistry is a relationship business.
7. Have an exit strategy with a time-line attached.

I know that many of you reading this will want to bury your head in the sand or deny the possibility of this Perfect Storm. Bad news is usually (at first) met by denial. However, my advice is that you should assume that all of these elements would combine to reduce your profits and therefore take considerable action to mitigate the effects! If the storm turns out to be just a severe gale, rather than a hurricane, your preparations will still deliver you more profit and so they will not have been wasted.

New Year – New Business Resolutions

Here are my top 12 New Year’s resolutions, designed to help you achieve truly satisfying professional – and personal – success in 2011:

1. A clear vision of my professional and personal future.
2. A simple way to monitor and control the flow of money through my practice.
3. A strategy to distinguish my practice clearly and easily from the rest of ten thousand UK Dental Practices.
4. An understanding of exactly what type of new clients I want my practice to attract.
5. A marketing strategy that is: effective, on budget and giving an obvious return on my investment.
6. Effective sales training and sales strategies so that we can increase our gross fees and profits.
7. A happy, strong and functioning support team that enables me and my fellow fee earners to gross the right fees.
8. A completely systemised practice so that regardless of whether I am there or not, the practice runs just as I want it to.
9. An accurate forecast for 2011 so that I can set targets for: my fee earners gross, the numbers of new patients my practice has to attract and the right profits.
10. Free time, health, fitness, family time, time and passion for my business!
11. A plan to exit my practice at the right time and for the right sale price.
12. A fabulous profit for all of my endeavours.

Is 2011 the right time for Breathe Business to help you create these 12 outcomes? If so, contact the Breathe Business Team.

Wishing you a happy, harmonious and prosperous New Year!

Simon