by William C. Sutton
The who, what, where, why, and when of starting your first practice
In this article we’re going to explore many reasons why a graduating orthodontic resident should consider buying a practice or setting one up from scratch. This article’s conclusion is not definitive, but it will be my experienced opinion. This article will give you food for thought, whether you’re a resident or already in practice. You may agree or disagree with my experienced opinion and my style of presentation. Most of my clients, past and present, will agree with the majority of my thoughts—they’ve lived them with me.
You may discover by analyzing my thoughts whether you should buy an established practice or build one from your vision. By the age you are as you read this article, your personality is set—it cannot change.
Who Should Be on the Team?
A graduating orthodontist can study all the literature about practice valuation and purchases and still know too little about the deal. The art of the deal is everything! By the same token, most practicing orthodontists think their clinical study group knows more about practice management than practice-management consultants. My experience has been that most of your colleagues know the same or less than you do about the business of orthodontics, at any stage of your career.
I also believe that it is almost always unprofessional for an orthodontist to sell his or her own practice. When did you become a real estate/orthodontic practice-transition expert? You don’t believe in general practitioner (GP) orthodontics, do you?
I urge every orthodontist to employ an ortho-savvy certified public accountant (CPA) from the day you begin your orthodontic career. Generally, orthodontists who try to sell their own practices with their own CPAs and attorneys will fail to realize the real economic value of their practice in a sale.
What you require is a transition specialist. In my experience, most transition specialists are worth far more than what they are compensated, and are in fact worth keeping on a retainer. If your selection of a consultant has been in business for 5 or more years, he or she will almost always be fine.
The other crucial member of the team is the practice manager. Most orthodontists are too egocentric to employ a real practice manager. Their view is that what works for all other service businesses does not apply to orthodontics. Folly! Orthodontists worry that the rest of the staff will not like, appreciate, or respond to the proper manager. If the rest of the staff doesn’t like the practice manager concept, invite the most vocal of the “rest” to find a new job in another practice.
What Should I Avoid?
“They” do not teach you in orthodontic school how to start a practice, buy a practice, or sell a practice. As a result, too many orthodontists in practice spend too much time in clinical continuing education (CE) and not enough in practice-management CE, and the majority of practicing orthodontists are poor businessmen and -women. Starting out, always consider associating, partnering, or buying an established practice with a well-timed transition provided by the senior partner/seller before setting up on your own. There are many fine practices looking for the right partner/buyer, saving you the time and struggle of beginning from scratch. Most new grads are better off buying an established practice. It’s much easier, and success will come sooner.
Most practice sellers believe their practices are worth more than the price at which they are appraised, and most practice buyers believe the practices they’re looking at are overvalued. In truth, there is no one correct way to value a practice, whether the ADA, the AAO, or any “governing body or expert” says so or not. Business valuation becomes more transparent every day. That being said, there is a minority of practices for sale that are almost worthless.
Any practice operation or transition that involves “family ties” is inherently more complex and fraught with emotional issues than one which is not. Family involvement adds another variable that can carry geometric probabilities for adding to any already routine business balancing act. Also, beware of practice-valuation benchmarks, rules of thumb, and short-form valuations. Be skeptical of too much attention to “vision and mission statements” by a practice owner. Real service businesses spend thousands of dollars in doing their due diligence about an acquisition. An orthodontic practice is a real service business. If an orthodontist who wants you to buy his or her practice won’t tell you all about it and provide you a succession plan, don’t buy that practice.
If a practice has a low valuation and is not growing its gross or recall, don’t buy it. A practice grossing $500,000, if not a satellite, is probably not worth acquiring. If an aging orthodontist wants to “give you his practice,” don’t accept it. Run!
The majority of practicing orthodontists treat their patients better than they treat their staffs. If you visit a practice and see that the orthodontist treats his staff poorly, do not buy that practice.
What Should I Look For?
In most cases of practice scrutiny for acquisition or partnership, cash flow means everything. A validated recall protocol and its dollar value are worth as much or more than a practice’s contracts receivable. Recall is not “counted” in valuation techniques that do not weigh both objective and subjective facts.
If you’re a grad who is buying or partnering, expect to make an earnest payment for the opportunity. If you’re not willing to have your skin in the fire with the owner, you’re not worth having as a partner/buyer.
As a buyer, you have certain advantages (not the least of which is that most orthodontic graduates serving as associates are overpaid during their first 2 years in practice). A recent graduate, fresh from orthodontic school, can afford a mistake even after the buy-in or sale begins. A veteran orthodontist near the conclusion of his career cannot afford a mistake. I advise sellers to take your time looking at several candidates. There is no such thing as a recent grad who is the “last” good deal or the “best” ortho graduate, who “I must choose now”—unless you’ve begun looking too late. Generally, accepting a partner or selling a satellite when you are in your 40s or 50s is never a mistake. Selling too late in your career is usually disastrous. The often-quoted opinion from otherwise rational orthodontists that “I can have the same money by selling now as I could by working 2 more years and then quitting” is malarkey, and dental-think rather than business-think. Sellers and buyers should remember that if a buyer and seller are both unsure if the deal is right, fair, and simply okay, then it probably is!
I have said that most new grads are better off buying, but if you’re graduating from orthodontic school and have previous experience in the business world and/or in running a successful dental practice, you should consider starting your own orthodontic practice. If you set up on your own and are located near “senior” orthodontists, set your fees within $100 of the orthodontist with the highest fees in the area. You’ll be fine. Practice differentiation is not setting low fees.
Being successful in your practice will be due to business planning, hard work, and loving people. Loving money is a cancer. Usually, the financial rewards of your practice will not be apparent for at least 5 years after you begin your career, whether you buy, partner, or begin a new practice. “Controlling the size of a good practice” is a bad idea. Growth in successful businesses of all kinds is the reward. No real businessman or woman would control his or her growth.
If an orthodontist graduates from orthodontic school at age 30 and is not successful by age 40, either the orthodontist’s vision is flawed or he or she does not work hard enough or should be in research. Running a great practice, even a good practice, is very sales intensive.
If you save 5% of your gross income from the day you accept your first patient, your retirement will be enjoyable.
Where Should I Go?
If you’re setting up a new practice, do not avoid a geographical area that’s “saturated.” There are many, many children and bunches of adults walking around who need and can afford orthodontic treatment. There are not too many orthodontists and never have been. There are, however, too many orthodontists located in certain cities.
If you love living near your relatives and that requires years and years of running a poor practice before you can generate a dime, your location selection is very simply wrong. God made airplanes.
Why Be an Orthodontist in the First Place?
Providing good orthodontic treatment in a fun environment is totally rewarding. Most recent orthodontic graduates can deliver good orthodontic treatment—regardless of what practicing orthodontists think. On the other hand, most recent orthodontic graduates have poor written and verbal communication skills.
If you’re ready to provide good ortho in a fun environment from a nice office, you’ll do well. If you think you can provide great orthodontics in a static, stoic environment from a mediocre office and be successful, you’re wrong. If you don’t love people and social interaction, stay in research.
Most practicing orthodontists are good clinicians but poor managers. In the great majority of cases, orthodontist burnout is a product of poor delegation, even if you’re working with well-trained, veteran staffers. Most orthodontists undervalue their staffs. Too much staff turnover is bad, but so is too little. Turnover of about 10% per year is fine. I have found that if a practicing orthodontist calls himself an “expert” at hiring staff, his turnover will be too high.
Operating a practice without state-of-the-art technology is not wise; it doesn’t tell your patients that you’re well-educated and up to date. There are more practices with overheads that are too low than those with overheads which are too high. A fine facility is always worth the investment. If a patient does not prefer or is not attracted to an attractive office, let that patient seek treatment elsewhere. If a patient presents with an attitude or is argumentative, or if your gut tells you that this patient will be trouble, let your colleague down the street treat him or her.
A few other thoughts to remember:
? GPs, pediatric dentists, and management service organizations doing orthodontics are not your enemies.
? A large number of orthodontists in practice need clinical treatment themselves. What’s wrong with this picture?!
? Adult orthodontics is worth the effort and will build an excellent practice.
? Being an Angle- or American Board of Orthodontics-certified orthodontist is worth the effort.
? Delivering quality orthodontic treatment is not as difficult as it used to be. Retention is forever!
As an orthodontist, you are a health care professional who is fortunate enough to treat patients who very, very rarely die. Act professionally. Dress professionally. And thank God every day that you’re an orthodontist!
When Should I Start Planning?
Begin looking for a practice to build or buy the same day you begin orthodontic school. In my experience, the “most attractive” orthodontic grads have already found their deal by the time they graduate.
Ladies and gentlemen, we’ve been on a mind trip today. We’ve slipped the surly bonds of brick and mortar and grown great food for thought. If my article has made you think or form opinions, or has made you disagree or agree with some of my assertions, then I’ve been successful. Thank you for your attention, and enjoy the marathon of life and the game of orthodontics!
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Should I Buy In or Start Up? Gleaned from my “traveled experience and opinion,” the following summaries describe the character traits of the orthodontic grad (or practicing orthodontist) who is best suited to either start his own practice, as opposed to the orthodontist who should become an associate/partner or buy a practice. A Buyer Will: A Start-Up Orthodontist Will: |
William C. Sutton is the principal of Sutton Consulting, Greensboro, NC. He can be reached at [email protected].
