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Articles

Volume 81: Hygiene as a Value Driver

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Many practices claim to be focused on hygiene, but few execute very well on this mission. This article will focus on the ongoing reasons to consider a renewed focus on hygiene and on the value creation this focus will have when you sell.

Hygiene normally accounts for roughly 30 per cent of the gross revenue of a dental practice. We have seen this number range from 15 – 55 percent. If we consider the impact this range will have on a practice that grosses $1,000,000 in total revenue with 1,700 patients, the case for focus on hygiene becomes compelling.

At 15 per cent of gross the hygiene side of the practice produces $150,000 in revenue and the dental side produces $850,000. This is only $88 per patient per year in hygiene revenue. While you might think someone would see this as untapped potential, the more likely sentiment is that the patient base is non-compliant and the future revenue stream is therefore uncertain. There would also be serious concerns about the $500 per patient annually that the doctor is billing. This is far higher than average and would leave people thinking they could not reproduce those results as there is likely treatment being performed that they either can’t or won’t do. Further, the net profit of this practice would be negatively impacted because it costs less to produce hygiene revenue, therefore, hygiene revenue is more profitable for the overall practice. This is primarily due to the cost of the provider. A hygienist typically bills three times what they are paid or roughly $120/hour. This equals 33 per cent of their gross as compared to the 40 or 45 per cent you pay yourself or an associate to produce revenue. This also highlights the reason that you should not do your own hygiene. You are too expensive to perform this kind of work! Besides, hygienists are much better than dentists at hygiene. This low hygiene producing practice would be penalized from a value perspective by roughly 20 percent due to the above factors. That is $250,000 to $360,000 in today’s market. Certainly, this is something to avoid!

At the other end of the spectrum is the practice that derives 55 per cent of its revenue from hygiene. In this case the practice would generate $323 per patient annually from hygiene. This would be close to or at the maximum hygiene revenue per patient, and would indicate an older, very compliant patient base. I would expect a high percentage of patients to be on a three or four month recall schedule. Contrary to how high patient production is viewed on the dentistry side of the practice, this high hygiene production would be viewed as very positive by prospective buyers. They would assume the patients are of high dental I.Q., that they are loyal to the practice and that they do not mind paying out of their pocket for good dental care. They would also make the assumption that there is untapped potential in the charts because the dental revenue is so low compared to hygiene. This practice would also enjoy a strong bottom line profit due to the high percentage of lower cost (as previously discussed) hygiene revenue being performed. The other intangible factor that would be appealing in this type of practice is the profit being generated through other provider’s time rather than by the owner. Purchasers are happy to pay a premium for that. All of the above factors would contribute to this practice realizing a premium of 25 to 35 per cent over the standard 30 per cent hygiene prac-tice. This equals $325,000 to $455,000 premium on the sale price. This is certainly an undertaking worth pursuing.

There are also other reasons that make hygiene extremely valuable. 

• The schedule for hygiene is generally booked much further out then the dentist’s which makes the practice appealing.

• The revenue can continue when the dentist is not there.

• Most hygienists are good at diagnosing (or confirming your diagnosis) and some patients appreciate the confirmation coming from someone with nothing to gain.

• If the dentist has serious health problems, the goodwill of the practice can be preserved by the hygienist’s continuing to see the patients until the practice is sold or the dentist recovers.

If you and your team can focus on bringing your hygiene percentage up over 30 per cent you will reap rewards during the time you own the practice and also have a more marketable practice to sell when the time comes. If you are not sure how to go about improving your hygiene production, I would encourage you to consult with a Dental Practice Consulting firm who can guide you to increased profits and value generation. 

David Lind is a Principal and Broker of Record in Professional Practice Sales Ltd. (www.ppsales.com), which specializes in the valuation and sale of dental practices.  He can be reached at (905) 472-6000 or 1-888-777-8825 or e-mail at: david.lind@ppsales.com

 

The Professional Advisory

  1. Understanding Practice Valuations

  2. What To Expect When Selling Your Practice

  3. The Chart Sale

  4. One Year Later

  5. Dealing with Unsolicited Offers

  6. Covid-19 Practice Sales Update

  7. When is the Right Time to Sell Your Practice and Why?

  8. Partnership Pitfalls

  9. The Real Cost of a Dental Practice Set-up

  10. Smaller Practice Realities

  11. Dental Market Update - 2019

  12. Creating Your Own Most Valuable Practice (MVP)

  13. Small Practice Economics

  14. The Market is Very Efficient

  15. How Can Dental Practice Values be Rising and Declining?

  16. Hygiene as a Value Driver

  17. The Value of a Good Team

  18. Is it Time to Move?

  19. Staging A Dental Practice

  20. The High Cost of Dying

  21. Deal-Busters

  22. Patients - Attract and Retain

  23. Should I Stay or Should I Go?

  24. Is There a Buyer for Every Practice?

  25. Good, Better, Best - The Market has Spoken

  26. Smooth-Sale-ing

  27. Buying Time

  28. Patients, Patience, Patients

  29. A Real Patient

  30. Why Do a Practice Valuation? I'm not Selling

  31. Irrational Exuberance or The New Normal?

  32. Do dental equipment and dental technology affect a practice value?

  33. Finding and Being a Mentor

  34. Bigger is Better

  35. Dave's Top Ten List for Buyers (Vendors should read this too!)

  36. How Well Do You Know Your Practice?

  37. Dave's Top Ten List for Vendors

  38. What will happen to dental practice Values in the next 10 years?

  39. Your Premises Lease is an Important Asset

  40. What are Associates Thinking?

  41. There is Life Outside the GTA

  42. When Is the Right Time to Sell My Dental Practice?

  43. Mergers are a Viable Option

  44. Is Your Associate an Asset or a Liability?

  45. Has your Practice Facility Kept Up With Your Billings?

  46. The 100 per cent of Gross Myth

  47. The Past, The Present and The Future

  48. Caveat Emptor

  49. Overpaid Long Term Staff

  50. Selling your Practice in Stages

  51. A Potential Pitfall of Selling Shares

  52. Value in Your Practice Through Balance

  53. Only Trusted Staff Can Defraud You

  54. To Own or Not to Own Practice Real Estate? That is the Question.

  55. Coping With A Large Patient Base

  56. Successful Dental Practice Transitions

  57. Taking Care of Business

  58. The Investing Dentist Phenomenon

  59. Two areas to focus upon that could negatively impact the value of your practice

  60. Organize your Debt in Order to Sell your Practice

  61. Having a Better Team

  62. How Do I Prepare My Practice For Sale

  63. How Do I Prepare My Practice For Sale? Part 3

  64. How Do I Prepare My Practice For Sale? Part 2

  65. How Do I Prepare My Practice For Sale? Part 1

  66. Advice to My Son or Daughter Graduating from Dental School

  67. Transition - What to Expect

  68. Discussion on Digital X-Rays

  69. Partnerships and Shotguns

  70. Strategic Planning - How to Get Started

  71. Calling All Vendors - Practices have Gone Up in Value

  72. Purchasers: Expect to Pay More for a Practice because of Lower Professional Corporation Tax Rates

  73. Matrimonial Practice Valuations

  74. Purchaser's Guide to Affording a Practice

  75. Location Improvements Throughout Your Career

  76. Small Practice Valuations

  77. Partnerships – The Best and The Worst

  78. Changing Location When the Opportunity Comes Along

  79. Visual Presentation of Your Practice

  80. Presentation of Charts

  81. Your Premises Lease Can Be Your Worst Enemy

  82. How to Select an Appraiser for Your Practice

  83. How Are Your Billing Ratios?

  84. It Pays to Invest in Your Tangible Assets

  85. The Importance of Separate Financial Statements

  86. Five Time Frame Levels to Sell a Practice

  87. 12 Suggestions to Safeguard Computer Data

  88. How to Buy a Visible Practice

  89. Why is there a shortage of good practices today?

  90. The Importance of Equipment in the Purchase of a Practice

  91. The Balanced Practice

  92. Will My Practice Be Saleable in The Future?

  93. Buyer Be Aware

  94. Excess Profit - The Second Key

  95. Patients and Profits are the Keys

  96. Plan Ahead

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