back-to-top
X

CONTACT US







hamburger-menu-icon

Articles

Volume 81: Hygiene as a Value Driver

Download the PDF version now!

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. One Year Later

  2. Dealing with Unsolicited Offers

  3. Covid-19 Practice Sales Update

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

  5. Partnership Pitfalls

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

  7. Smaller Practice Realities

  8. Dental Market Update - 2019

  9. Creating Your Own Most Valuable Practice (MVP)

  10. Small Practice Economics

  11. The Market is Very Efficient

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

  13. Hygiene as a Value Driver

  14. The Value of a Good Team

  15. Is it Time to Move?

  16. Staging A Dental Practice

  17. The High Cost of Dying

  18. Deal-Busters

  19. Patients - Attract and Retain

  20. Should I Stay or Should I Go?

  21. Is There a Buyer for Every Practice?

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

  23. Smooth-Sale-ing

  24. Buying Time

  25. Patients, Patience, Patients

  26. A Real Patient

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

  28. Irrational Exuberance or The New Normal?

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

  30. Finding and Being a Mentor

  31. Bigger is Better

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

  33. How Well Do You Know Your Practice?

  34. Dave's Top Ten List for Vendors

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

  36. Your Premises Lease is an Important Asset

  37. What are Associates Thinking?

  38. There is Life Outside the GTA

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

  40. Mergers are a Viable Option

  41. Is Your Associate an Asset or a Liability?

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

  43. The 100 per cent of Gross Myth

  44. The Past, The Present and The Future

  45. Caveat Emptor

  46. Overpaid Long Term Staff

  47. Selling your Practice in Stages

  48. A Potential Pitfall of Selling Shares

  49. Value in Your Practice Through Balance

  50. Only Trusted Staff Can Defraud You

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

  52. Coping With A Large Patient Base

  53. Successful Dental Practice Transitions

  54. Taking Care of Business

  55. The Investing Dentist Phenomenon

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

  57. Organize your Debt in Order to Sell your Practice

  58. Having a Better Team

  59. How Do I Prepare My Practice For Sale

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

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

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

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

  64. Transition - What to Expect

  65. Discussion on Digital X-Rays

  66. Partnerships and Shotguns

  67. Strategic Planning - How to Get Started

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

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

  70. Matrimonial Practice Valuations

  71. Purchaser's Guide to Affording a Practice

  72. Location Improvements Throughout Your Career

  73. Small Practice Valuations

  74. Partnerships – The Best and The Worst

  75. Changing Location When the Opportunity Comes Along

  76. Visual Presentation of Your Practice

  77. Presentation of Charts

  78. Your Premises Lease Can Be Your Worst Enemy

  79. How to Select an Appraiser for Your Practice

  80. How Are Your Billing Ratios?

  81. It Pays to Invest in Your Tangible Assets

  82. The Importance of Separate Financial Statements

  83. Five Time Frame Levels to Sell a Practice

  84. 12 Suggestions to Safeguard Computer Data

  85. How to Buy a Visible Practice

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

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

  88. The Balanced Practice

  89. Will My Practice Be Saleable in The Future?

  90. Buyer Be Aware

  91. Excess Profit - The Second Key

  92. Patients and Profits are the Keys

  93. Plan Ahead

celebrating-30-years
test
SUBSCRIBE TO OUR NEW LISTINGS SERVICE