Financial Hygiene: Financial and Business Planning for Dentists

Ltd

PART I

Planning your financial security

I want it all, I want it all, I want it all, and I want it NOW (famous lyrics from Freddie Mercury). Okay, so suppose you have it ALL and you have it NOW, what are you going to do with it?

I have seen many people focus only on the money. Everything will be okay once I get the money. But can money buy happiness? Can money buy love? friends? and good health?

Many seem to sacrifice their health and family time for the sake of their careers and then try to reclaim them when they decide to stop working in their 60s and their children have grown to adults. A terrible formula that never seems to work!

For those aspiring to be great dental professionals it will help shape the lifestyle you can afford and, if invested properly, it will provide a life of prosperity that will look after you when you no longer wish to work. There will be no neglect to the people who matter more than anyone – your family and loved ones.

This book has the answers for many who want to create wealth, build on that wealth and protect it in the future. In this first part, we look at how to become financially successful, set goals and select a good team to help you achieve financial security.

1. A career in the dentistry profession

How exciting to be working in this fantastic dentistry profession. You have completed your study, got registered, taken out your insurances and have your licence to practice. Just like 007, you now officially have a licence to thrill patients with your stunning skills and abilities and make them happy about their teeth. You have lots of plans which are probably not written down yet; but you will get to that later, right?

In my research, I have found that dentists generally are not terrific business people - it just does not seem to be an area they focus on.

If you can relate to this comment then this book is definitely going to help you to become a better business person and successful investor.

You won't have to change who you are or why you want to help people have better teeth and dental hygiene. You will simply increase your awareness and understanding of good business practices and how to manage your finances.

If you can do this, you win, your family wins, your staff wins and you will have more time to see patients or pursue other interests and passions.

Why did you become a dentist?

Congratulations on working in the dentistry profession. You have joined the ranks of 18,803 dental practitioners registered in Australia (as at 2011). Of these, 14,179 were dentists, 1,065 dental hygienists, 1,044 dental therapists, 1,088 dental prosthetic specialists and 994 oral health therapists.

Just over one-third of employed dentists in 2011 were women (35.6%), an increase from 29.0% in 2006. Oral health therapists, dental hygienists and dental therapists were more likely to be women (87.9%, 96.1% and 97.1%, respectively).Their average age is 43.5 years (slightly down from 45.1 years in 2006) and 23% were aged 55 or over. Dentists worked, on average, 37.4 hours per week in 2011, with 29.9% working part time (less than 35 hours a week). This is a slight decrease from 38.5 hours per week in 2006.

There were 1,426 dentists working as specialists. Orthodontics was the most common specialty (567 dentists). Most specialists worked in private practice in major cities.

You could not have joined this profession soon enough. Australia, as well as any many other not-so-lucky countries, needs your skills, caring attitude and dedication to deal with the rising trend in dental neglect.

Dental disease is high among Australian children, with around half having a history of dental decay. Those from disadvantaged families, or living in rural, non-fluoridated communities have a far higher rate of disease than children from wealthier families living in urban, fluoridated communities. Australia's aged population is also missing out on appropriate dental care. The many thousands of residents of nursing homes around the country often lack access to the basic dental services which are so important for them to maintain adequate nutrition.

Poor oral health is also associated with the increase in a raft of other diseases such as heart disease, arthritis and stroke. Oral disease and most of these systemic diseases have similar risk factors - poor diet, obesity, smoking, for example. Modifying the risk factors for oral disease may well reduce the crippling burden of other conditions on the community.

Nearly half a million Australians are currently on waiting lists for care in public dental facilities. Most will be requiring some form of tooth restoration or even tooth extraction. Clearly there will be a need for more dental health practitioners to work in the public system to provide the necessary services.

The newly announced Medicare Dental Scheme will go some way address poor dental health. More than three million children will be eligible for Medicare-funded dental care, starting 1 January 2014. Under the scheme, families who receive Family Tax Benefit Part A will be eligible for $1,000 worth of Medicare-funded treatment over a two-year period. About 3.4 million children between the ages of two and 17 are expected to benefit.

New dental programs have often been set up in association with rural campuses (Charles Sturt University, for example), with the expectation that at least some of the graduates will practice in currently under-served regions of Australia. This model of rural training has certainly been successful for medicine. Access to services in rural areas could also be enhanced with better use of tele-health/dentistry services - digital technologies to deliver health care, consultations and education.

Dentists treat people, not just teeth and mouths. They interact with people of all ages, cultures and personalities. The dentist's typical day is diverse and interesting. You probably considered the pros and cons of dentistry well before you embarked on this course of study. The table below is a reminder.

The pros and cons of dentistry

Source: http://lolabees.me/2013/01/27/the-pros-and-cons-of-dentistry/

Notice that three of the cons are finance related - the high cost of initial and ongoing education, costs of running a practice and insurance - all of which can lead to financial stress. Balancing this on the 'pro' side is good income and job security.

Who are you going to work with?

Are you going to buy into a practice or work in an existing practice or even work with a big corporate? About four-fifths of employed dentists were working in private practice and two-thirds of dentists in private practice were working in group practices in 2011.

There seems to be a current trend to join bigger practices or corporates that can offer dentists higher salaries and offer patients a range of specialists under the one roof. Larger corporate practices can achieve economies of scale that you would find difficult to match if you went into practice on your own.

Interestingly buyers of dental practices cover a broad spectrum. They tend to fit in one of the three following categories:

• new dentist (just graduated);

• a dentist who has already worked as an associate and is now a first-time buyer;

• previous owner dentists who are relocating or merging with another practice.

It seems unusual that new graduates just out of school would be buying into a practice, as they would struggle to get the finance for the transaction. Good financial hygiene is vitally important if you are buying a practice or buying into a practice, no matter what stage you are at in your dentistry career.

The corporate influence is going to grow in Australian dentistry as it has in other countries, for a number of reasons:

• Costs: Costs of equipment, staff, supplies - fixed costs and variable costs - continue to go up with revenues staying flat or declining. One way to beat this is through economies of scale available in managed group practices.

• Fragmentation: The dental industry is fragmented with a high proportion of dentists practising solo. Corporate dental companies see a clear financial windfall in targeting these individuals and amalgamating them into groups.

• Recession-resilience: Dentistry as an industry is recession-resistant, growing at an annualised rate of over 5%. Capital investors see tremendous opportunity in corporate practices, as do entrepreneurs and professional senior executives. They all see managed group practice as a very attractive future.

In a corporate environment where cash is king, it is little wonder that these conglomerates are targeting the dentistry profession.

WEALTH TIP

Remember if cash is the king then cash flow is the queen.

Health funds are also targeting corporate dental practices. In December 2012, Bupa Australia Health Pty Ltd (Bupa Australia) announced its plan to acquire Dental Corporation (Dental Corp), through a Scheme of Arrangement (Scheme) under the Corporations Act. Dental Corp is Australia and New Zealand's largest dental group, comprising 190 clinics and over 560 dentists.

Patients - the lifeblood of your practice

Whether you join a practice, buy into a practice or work on your own, as a dentist you are a brilliant technician and an expert at your craft. But when it comes to assessing your financial hygiene, it is less about your work and more about your patients.

A few key measures of the success of your practice are:

• Your current patient base: Are your patients predominately maintenance-based or is there still scope for operative and restorative work to be done?

• Your current ratios for new patients: Is there a regular flow of new patients, say 12 to 15 per month, or is it more like 60 per month. A higher number would indicate that patients are not returning for ongoing treatment.

• Annual treatment revenue generated per new patient.

• Comparative analysis of recommended treatment versus accepted treatment.

• Patient demographic: What is the economic status, demographic profile, age, etc. of your patients?

Dentistry is all about relationships and it is through those developed relationships that your recommended treatment plans will be accepted. Your ideal patients will most likely come to you via referrals from existing patients. Ensure you develop a system for following up on referrals. In fact, make it part of your practice culture to always be telling new and existing clients about how happy you are to be receiving new patients via referral.

Your dental practice is not only a place where you do great work for patients it is also a business and an asset. The most important and valuable assets of your practice are the goodwill, patients, dental team and the functionality of the practice.

Interviews with dental professionals

I felt talking with dentists first-hand would help readers understand some of the bigger issues and challenges – financial and otherwise – currently facing their profession. Before I interviewed the dentists, I gave them the option of being quoted 'on-the-record' or 'off-the-record'. Two opted for off-the-record and the third was happy to be quoted. I include two interviews here and the third at the end of the book.

INTERVIEW #1: Practising dentist for 30 years, business owner of a multi-dental practice

Q: What do you see as the biggest changes currently affecting the dental profession?

A: Changes in legislation, specifically a thing called 'scope of practice'. Scope of practice means you will not be able to do anything in a dental practice that you were not trained in at university. This will impact enormously on the young graduates.

The other major force is the influence coming from the corporates where big health funds like BUPA are buying up dental practices in the hope of making them preferred-provider practices. NIB is also developing referral services that they are promoting. The outcome could well be the middle of the market disappearing and the market moving to higher volume, limited scope practices and the development of a higher end, higher quality fee-based practice for those who can afford this level of service. The corporates can only make money by cutting costs and ultimately quality. The losers here will be the patients.

There is a trend for younger dentists, after five or so years to go and work for the corporates because of the packages being offered. The small dental practices make up 80% of the market. The corporates could cause a seismic shift in this current demographic.

Q: What have been the biggest changes you have seen since starting to practise as a dentist?

A: The biggest significant change in dentistry has been the increase in the use of science. Dentistry 30 years ago was a lot more art than science. This has now reversed and science is playing an increasing role in whether or not certain treatments should be done. There are more options available to people now.

In days gone by, dentists could do most procedures themselves. However, it is impractical in many cases now to expect a busy dentist to be up-to-date with all the latest techniques and research to perform treatments at a world-class level. Successful practices now work with referral arrangements with other complementary specialists whom they know and respect. This adds to the depth of services they can offer patients.

The challenge here, though, is that it is difficult to have all these specialists available in the same location or facility. The trend is that there is an undersupply of these specialists and there are such small numbers of them there is also nearly no incentive for these specialists to break away from the larger corporate-run practices. The numbers of specialists are small. As a consequence a large proportion of work is referred to these specialists.

A dentist's primary obligation is to their patients, however. You cannot care more than your patients. Patients will decide what is best for them and will be influenced by the cost of treatment.

Q: How do you manage to divide your time between patient time, managing staff, running the business and keeping up-to-date with the latest techniques?

A: The complexity of compliance is increasing for the smaller practices. Keeping the practice running smoothly is one of the biggest challenges if you don't have a strong referral culture from your patients. I have been very lucky as I manage to spend a very high proportion of my time treating patients.

Q: In my research I have found US dentists are much more focused on statistics, such as their take up rate for recommended treatments currently averaging around 30%. What have been your observations?

A: Australian dentists tend to focus more on what is best for their patients. Dentists think in terms or biological choices, meaning their work once done may not be reversible. In this situation, patients are usually encouraged to seek additional opinions to confirm their options before finally deciding.

When you are first starting out in your career there is enormous pressure on you to cover the cost of setting up and running your practice. The cash flow required is high and can be the making or breaking of your practice. It's worth noting that patients will come back to you when they know you have their best interests at heart.

A wise dentist once said You cannot treat everyone anyway, so you may as well do the best thing by everyone who seeks your opinion.

Q: How can you tell if you are getting good business and financial advice?

A: Hopefully, by reading this book I will be better prepared to make this judgement. Some dentists just want to know the number to have financial independence. Is it $2 million, $5 million or even $10 million you need to stop working? But who knows the answer to that question? Hopefully a good financial planner can help you understand your unique situation, goals and aspirations and the amount needed to comfortably replace your professional working income.

INTERVIEW #2: Practising dentist for over 22 years, periodontic specialist and business owner

Q: What do you see as the biggest changes currently affecting the dental profession?

A: I think, in terms of dentistry and my field of expertise (implants) I would say it would be restorative dentistry, specifically the introduction of computer-milled restorations. The technology exists now that if you need a filling, you take a photo or a digital impression of a tooth, a six-axis milling machine mills the filling out of zirconium which is then cemented into the tooth. You then have a choice of colours and staining capabilities that make the tooth look very natural.

Q: I have had it mentioned to me that dentistry has evolved from being an art to a science, what do think?

A: I agree. I think there is an element of art and it's important to remember that you cannot just rely on the technology. You have to build from a base of knowledge. You need to learn how to do it manually first so you know what to look for. For example, you need to know what a good crown looks like before you glue in your computer-milled crown because if there has been a problem somewhere you may not pick it. So you still need those basic skills and experience.

Q: What have been some of the biggest changes you have experienced since starting to practise as a dentist?

A: Human resources probably. However, we are helped in this area by employing a practice manager.

Q: How do you manage to divide your time between patients, managing staff, running the business and keeping up-to-date with the latest techniques?

A: This is certainly a challenge. Some of this is handled by our staff. As a specialist we generate a lot of paperwork, letters, etc. You can’t do that while you are working so I find I do that later in the day.

Q: Where do you see dentistry’s future?

A: I see this going very much in the direction of the corporates. For whatever reason, I think they are producing too many dentists. Graduates these days are finding it tougher to get work. Corporates will be in a position where they can employ dentists and potentially pay dentists less than they are worth. They will be able to heavily influence treatments and recommend preferred providers and insurance-based treatment. At the end of the day, the standard of treatment could suffer. The innovators are probably the corporates. Unfortunately this can create