Will the Pandemic Alter Your Career Plans?

In Business by Dental Entrepreneur

The Pandemic certainly had a profound impact on everyone. Our dental profession had its ups and downs this past year, but now dental practices have leveled off and are operating at an average of 80% of their 2019 patient volume. As with any arithmetic average some practices were equal to or better than their 2019 patient volume while others struggled below this 80% average. The American Dental Association’s, Health Policy Institute has been conducting a biweekly panel of thousands of dentists across the country since March 2020, tracking their progress and compiling useful statistics regarding the impact of COVID-19 on dental practices.

For many of you who were employed as associates or independent contractors some of you may have been furloughed during the lockdown and when you returned to your practice you may now only be employed on a part time basis. In fact according to the ADA’s Health Policy Institute, approximately 80% of associate dentists were fully employed as of November 2020 but another 20% were partially employed. So, if you still are impacted economically, now may be the time to do some critical thinking about your career plans. This pandemic has created new opportunities for many non-owner doctors as there may be many more opportunities to purchase a practice due to the impact of COVID-19 on many practitioners with a growing number accelerating their practice transition plans. Historically there have always been an imbalance between the number of dental graduates and retirees.

As you can see from this chart, the differences have been dramatic and until only recently have we seen this gap narrowing. It’s safe to predict that in 2021 or 2022 we will finally see a reversal in that trend with more doctors retiring than dentists graduating. This shift will be fueled primarily by dentists over the age of 65 who are considering, with increasing frequency, selling their practice or retiring in 2021 or 2022. This premise is supported by data collected by the Health Policy Institute indicating that 40% of dentists in this age bracket will make the decision to retire or sell their practice in 2021 if their 2020 patient volume is not at the same level as it was in 2019. So it now appears that for many of these doctors, their transition time line is fast approaching! To put this in perspective, this “over 65” age group represents 33,000 practicing dentists! So you can readily understand why there will be a dramatic shift on the horizon with retirees out numbering dental graduates.

Prior to COVID-19, this imbalance between an excess of dental graduates versus retirees led to the creation of a “ Sellers Market” for many years in most parts of the country, with the notable exception of practices in small towns or rural areas. Since most young dentists now aspire to live in urban and suburban areas, quality dental practices in these markets have always been highly sought after and frankly practice values have been typically higher. This is a great example of supply and demand economics whereby there has been an excess of Buyers versus Sellers. As this shift reverses itself in the coming years, Buyers will have more choices and dental practice values may begin to decline in certain areas of the country as supply may exceed demand.

For certain, the Pandemic of 2020 has accelerated this trend. Surveys of recent dental graduates still report that the majority want to be in private practice and the majority still prefer practice ownership. To further underscore this fact, the American Dental Education Association’s Annual Survey of graduates recently reported that 65% of the class of 2020 changed their plans due to COVID-19 and intended to enter private practice. One of the best aspects of ownership is that you cannot “fire yourself ” as you are not dependent on a practice owner or corporation deciding if you are still employable!

Another trend worthy of noting is the growing number of dental graduates who have no debt. The class of 2020 Survey reported that 20% of its graduates had no debt and another 20% incurred total educational debt of less than $ 200,000. Arguably dental education debt continues to be high for the majority of our graduates with an average of $305,000 for undergraduate and dental school education for the Class of 2020. Thus we will see more of our dental graduates begin their careers with no debt or with amounts considerably less than the current average. However for those graduates with debt in excess of $ 300,000 you do not have to assume that you are destined to remain a long term employee delaying your goal of practice ownership for the foreseeable future in order to reduce your student loan debt. We maintain that if you find a profitable practice to buy or join a strong practice looking for a partner, you are better off in the long run to purchase equity sooner rather than later.

Various articles have been written comparing the economic benefits of practice ownership over long term employment and in the majority of cases practice ownership wins out. Every entrepreneur has heard the adage you have to spend money to make money as the economic benefits of acquiring a profitable dental practice certainly can place you on track to retire your student debt more rapidly, meet your financial obligations for a practice acquisition loan as well as live comfortably.

If you are capable of producing monthly at least $40,000 to $50,000 or more, implement a plan to purchase a practice with Gross Receipts in excess of $800,000! If you do not fit this profile now, there will be an ample supply of practices in the range between $ 500,000 to $ 700,000 of Gross Receipts , for example. You can still purchase a practice a purchase decision that suits your style. When purchasing any practice one of the key indicators for future financial success is the practice’s historical income stream. For example if you were to purchase a $800,000 practice with a net income of 40% that equates to an annual net income for this practice of $320,000 if you consider a enjoying a 25 year career and keeping this income constant over that time your total career earning will amount to at least $8 million. The odds are in you favor that can easily exceed this number.

For those doctors who may have already purchased a practice but want to significantly increase Revenue and Net Income, you may consider purchasing the patient list of a doctor in your area who plans on retiring. This type of acquisition can jumpstart revenues and income 20 to 30% in the first year! The financial terms of a record acquisition can be very manageable for you ,and this is an option you should seriously consider especially with the influx of older practitioners who will be transitioning in the coming years.

For those practitioners considering another location you may find several opportunities in your area who want to sell their practice as a going concern with equipment and technology in place. Another factor which supports your taking action now to purchase a practice is the current interest rate climate. Most dental lender lenders are funding practice acquisition and partnership buy-in loans with rates between 3 to 4% . Even if you have significant student debt all lenders are aware of the high cost of dental education and remember they are in the business to making loans! Banks are eager to finance as long as you maintain good credit, purchase a practice with good cash flow or join a partnership that is highly profitable. Additionally you need to document your clinical production as an associate and it must be commensurate with the size practice you are considering to purchase.

Although 2020 has been a challenging year for all of us and with the impact that COVID-19 had on our profession, it has opened up many new doors of opportunity for you that otherwise may not have been available thus making 2021 a potential game changer for you !!

Dr. Tom Snyder, DMD, MBA is Senior Director of Practice Transitions for Henry Schein Professional Practice Transitions. He is a nationally known speaker, author, and consultant who has been advising dentists for many years in dental practice transitions, practice valuations and strategic planning. Dr. Snyder received his DMD from the University of Pennsylvania’s School of Dental Medicine and his MBA from The Wharton School, Graduate Division, at the University of Pennsylvania. He serves as a regular columnist for Dental Economics. He is on the Editorial Board of Dental Entrepreneur Magazine. He is also a member of the Faculty at Penn Dental Medicine.