A few years back I was speaking with a practice owner about her options for selling the practice and retiring. Her timing was excellent as she still planned to practice for at least 5 more years. This is an ideal situation for most buyers as it gives sufficient time for the purchaser to smoothly transition the practice’s staff and patients so there’s no disruption in the business.
But as we looked at the practice’s operations something stuck out – although the revenue number was excellent, the profitability was nowhere near what it should have been for the revenue that was being produced.
Typically when this happens there will be the “big glaring monster” that’s easy to find, and correct. There is a set of “ranges” that expenses groups and lines items should fall into. When we looked at the groups, they were all at the high end of the ranges. Digging deeper into each expense line item, again we discovered that virtually all of them were at the high end of the ranges.
How could this be?
The Big Drag On Her Practice
I knew the dentist was looking at selling the practice and staying for at least 5 years so we decided to put off looking for a buyer for 1 year to fix the financial statements.
This particular practice was very generalized and offered a gamut of services – family hygiene, cosmetic dentistry, Invisalign, periodontitis treatments, etc.
The issue was that by offering so many services with just one dentist, that practice was unable to become highly efficient in any one area of the practice. As a result, they were underperforming in every category they offered.
The solution was simple, but it wasn’t going to be easy.
The first step was to analyze how much each of the different service offerings was bringing into the practice. As expected, cosmetic work had much higher margins than family hygiene. But family hygiene generated far more revenue. We looked at the local demographics for the neighbourhoods that surrounded the practice and we looked at other practices that competed directly with our dentist.
Once we had that data, we learned that the area had a significant number of young millennial families moving in and based on their demographic data, we determined that the practice could grow the hygiene side of the business enough to offset the loss of the other services.
Additionally, by focussing the practice on providing nothing but family hygiene, we could achieve sufficient operational efficiencies to solve the profitability issue.
With the help of the staff and a few key patients, we invested 3 days creating:
- A precise “avatar” of our ideal patient. For this dentist, that avatar was an employed, married mother of 2, with a combined family income of at least $100,000 and a dental insurance plan. Her children were aged 10 and 6 and attended a local public school.
- A marketing plan to introduce the practice to people in the surrounding neighbourhoods that most closely matched the avatar.
- The Identification of the top 3 channels we could use to find our avatar and get the marketing message into their hands.
- Online advertising, determining ways to leverage the relationship with current patients, and planning events at the practice.
- A list of the services that were offered but were unprofitable and/or disliked by the staff.
Once that was done, we aggressively rolled out the new plan and as the booking calendar filled, we discontinued the services that we had identified during the planning session.
A year later, the practice had actually increased top-line revenue, dramatically increased profits, and, as a serendipitous side benefit, experienced zero staff turnover.
For the dentist, the changes added well over $1,000,000 to the amount she could expect when selling the practice. A most significant improvement!
