In the normal course of selling a practice, one of the most frequent questions we receive is “What hours and days is the practice open?” The hours of operation have also become one of the key factors in attracting a compatible purchaser for a practice. There are many philosophies about what hours are best for a practice. This article is intended to explain the opinion of todayâs purchasers.
It is customary to work evenings and weekends when working as an associate. When considering the purchase of a practice, purchasers frequently say they hope to eliminate the need to work these hours. They often remark how they have ãpaid their duesä in extra hours and hope to be able to commence a more regular schedule and broaden their lifestyle options.
We appraise practices located in every imaginable type of location – including retail – and recognize that evenings and weekends are required in some instances. Retail malls often demand the practice open during mall hours (typically 9 a.m. to 9 p.m.) and this is included in many leases. However, the dentists who are buying practices today donât seem as interested in this type of schedule as in the past.
Why is this? I believe there are a few reasons. Firstly, there is a growing trend in our society towards less work and more play. This is likely due to the new Generation-X philosophy that says young dentists (under 30) have different attitudes about when and how much they should work in practice. They donât lack the work ethic; they just want to work more traditional hours and enjoy a more active lifestyle.
Secondly, our estimates forecast that in the next three to five years, between 60 and 70 per cent of graduates from Canadian dental schools will be female. As they enter the child-bearing years of todayâs generation (roughly between 28 and 38 years old) they wish to own a practice that provides for the opportunity to raise a family, and work part-time while doing so. If you project the predominance of females in dental practice over the next 10 years, it is likely that the average weekly hours worked will decline. I estimate the average work week for a dentist could decline to as little as 20 to 24 hours per week, when calculated on an annual basis. This equates to 1,000 to 1,200 hours per year.
With this in mind, we can also project the average annual gross and net income of the dental practice of the future. Assuming constant dollars (zero inflation and no fee increases) it is possible that average annual gross incomes will be between $300,000 and $350,000 in the year 2005. This is about 10 to 15 per cent less than the current average, according to recent statistics published in the ODA Cost of Practice Monitor. It is reasonable to conclude that average net incomes will go down by 15 to 20 per cent, as fixed costs could consume a higher percentage of the gross income.
While this may seem unnerving at first, let’s consider the possible benefits. A reduced work week means the dentist requires fewer patients to make ends meet. Fewer patients per dentist will result in more patients for others who have more time available. More patients for some means higher gross income. This could also be classified as the ãEarnings Gapä between part-time and full-time dentists, and I predict it will widen even further.
Dental practices begin to develop a life of their own once established. My informal observations show that staff, patients, location and many other factors create a “practice” that cannot be easily altered by the owner without some repercussions. In many instances, the owner is somewhat incapable of actually controlling their hours, as the business now has its own pattern. However, while this is possible, loyalty is usually the more powerful determinant.
Those dentists working full-time will gross $500,000 or more, and those working part-time will gross under $350,000. There will always be a buyer for both types of practice, as the predominance of female dentists will keep the demand high for part-time practices. And furthermore, the present ratio of male to female, according to the RCDSO 1999 annual report, is about 70-30. In 10 years it could be more like 50-50.
What should you do if your practice is going through a change and your hours are being affected? Should you strive to maintain longer hours and work evenings and weekends to keep your gross up? Should you extend yourself to make the practice value higher? Should you allow a decline in hours worked, resulting in lower gross and net income, and thus a lower appraised value?
My suggestion is to follow the natural path that presents itself. Dental practices begin to develop a life of their own once established. My informal observations show that staff, patients, location and many other factors create a practice that cannot be easily altered by the owner without some repercussions. In many instances, the owner is somewhat incapable of actually controlling their hours, as the business now has its own pattern. However, while this is possible, loyalty is usually the more powerful determinant.
Your most loyal patients will attend during the hours set by the practice, but some patients are very sensitive to your availability. Regardless of nearby competitors who offer evenings and weekends, your loyal patients will stay with you until the end. If a patient threatens to leave just because you work traditional hours, say 9 a.m. to 4 p.m., Monday to Thursday, then you must accept that perhaps they are not the type of patient that is best suited to your practice style.
Do you really need to open evenings or weekends to retain patients? I have performed an analysis of overheads and find that most practices insisting on evenings – thereby increasing total hours worked and overhead – do not actually earn a higher percentage of the total gross income when compared to practices that operate on traditional hours. In fact, the extra hours worked often increase total overhead and result in a diminishing return on the gross income produced during those times.
It is true, however, that extended hours can attract many new patients. Practices in newer residential areas where young families are prevalent have little choice but to open when the patients are in the neighbourhood. For most of the practices it is absolutely necessary to open late during the early stages of growth. However, I challenge you to seriously consider the hidden costs of the extra time spent working as your practice matures.
In summary, lifestyle is becoming more and more important to the new generation of dentists. You may want to consider a modification to your practice to be more of a lifestyle-compatible dental office, versus one that requires extended hours. The ideal hours of operation are a personal choice, not a requirement, but they do have bearing on the saleability of your practice, among dozens of other issues. My suggestion is to arrange for a professional practice appraisal and see how the various issues affect value and saleability. You may then decide to modify not only your hours, but your lifestyle as well!
Ontario Dentist – September 2001