A Profitable Dental Practice

Since 1974, my company has appraised and sold thousands of dental practices of varying sizes, types and styles. Each dental practice was unique, but some are more unique than others and they are worthy of mention. This column is about such a practice.

The appraisal of the subject practice reveals considerable data, including the following:

  • The dentist and hygienist work four days per week.
  • The office is open Monday to Thursday; late morning to early evening. It is rarely open on Fridays and never on weekends.
  • Truly “active” patients number 1,000.
  • Monthly production averages $60,000.
  • The practice is just five years old and was started from scratch.
  • It is situated within a major city.

So what makes this practice unique?

  • The office consists of only two operatories.
  • It is situated in a non-visible location and within a very high-rent district.
  • There are numerous dental offices within very close proximity, most with far superior exposure.
  • It does not have a bathroom, a private office, exterior windows, and other amenities that many dentists would normally desire.
  • The most interesting fact is that it occupies less than 350 square feet!

During the process of appraising and subsequently marketing this practice, I discovered that the majority of dentists found it difficult to believe that this practice could succeed. Most imagined a claustrophobic environment packed to the ceiling with materials, supplies and old models and charts. The opposite was true. It was clean, uncluttered and very pleasing aesthetically.

This was, by far, one of the most efficient, well-designed and patient-friendly offices I have ever appraised, given its size. I received dozens of inquires about this practice but only 10 or 12 dentists took the time to view it. Most were very skeptical at first, but the majority began to appreciate its absolute simplicity and the incredible, practical use of space. Some marveled at the manner in which the owner managed the office and went on to suggest that they had now changed their attitude about what a dental practice is, and more importantly what is profitable. I predict that those who recognized the ‘magic’ of this particular practice will ‘downsize’ their vision for the dental practice they will eventually purchase or perhaps set up.

An important practice value determinant is ‘true’ operating overhead. I have hundreds of financial statements from dental practices crossing my desk each year; I estimate that less than five percent of Canadian dental practices have overheads of less than 40 percent. Today’s norm is about 60 percent, Canada-wide.

The subject practice exceeds most of the key financial determinants by a wide margin. When we consider that the performance statistics are realized within such a small space, I believe this may be the most profitable dental practice in Canada, based upon the gross and net income per square foot method. To compare, look up your annual net and gross and how many square feet you occupy. Then divide your square footage into both and you have your gross and net income per square foot.

These are simple performance measurements for management purposes only and many other measurements should factor into your management plan.

Yet the ‘per-square-foot’ measurements reveal that practice size does not necessarily relate to practice profitability.