For the first 15 years of my practising life, changes in regulations and practice culture arrived infrequently and, in hindsight, were usually for the better. During the last 15 years, the amount of change in the practice (especially for those who are keeping up) has increased dramatically and there is a lot more ⇔waiting in the wings. In this article I want to look at the effects of these changes and in particular, the pressure such changes will exert on increasing your fixed costs decreasing your profits and what you should do about it.
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 they reach the point where most or all of their profits have gone and their practices are no longer viable.
Here are nine 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 and so on.
2. The supply of dentists and demand for dental services
Two decades ago, the Government controlled the supply of UK-trained dentists and 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, such as optics, by many corporates and (major) retailers in opening dental practices. Their economies of scale can and will create significant, profit-making opportunities.
More competition will come from:
- dental corporates
- major retailers
- new squat practices
- re-invented principal-owned practices
- web driven dental tourism
- price comparison websites.
The presence of the above physically and digitally, means you will have to spend more on your marketing to get your message heard by potential new clients, and to keep your existing patients.
4. New dental graduates
Many new dental graduates are struggling to find a position in the kind of practice 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 CVs 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.
5. 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 per cent of their fees (unless they gross consistently high fees) or a hygienist £35 per hour (unless they have a surgery occupancy in excess of 90 per cent and the hygiene fees generate more than £100/hour).
6. New skills and equipment
Clinical skills are becoming more sophisticated with new, improved techniques and materials. We've come a long 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.
7. 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.
8. Materials and laboratory costs.
Quality materials and laboratory work are becoming more sophisticated and also more expensive.
9. 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 elements is that profits in general dental practice are very likely to fall. The National Association of Specialist Dental Accountants has benchmarked the profit in their client's dental practices at between 33-39 per cent of turnover. At Breathe Business, we see practices producing profits of between 0-30 per cent of turnover with significant downward pressures.
So, what can you do about this to future proof your practice profits?
I suggest that you:
- Assess the profit you want to create in your practice and then build a functional, accurate business model that will deliver this.
- Set sales targets for all your clinicians and review these targets together monthly.
- Monitor your costs every month and use benchmarks to compare them with industry standards, as we do at Breathe Business.
- Monitor your profits every month against your monthly targets.
- Only agree to deliver a service if you have identified a clear and sustainable demand for it, not because you want to deliver it.
- 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.
λ 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.