When Freedom Produces More Income

When Freedom Produces More Income

“The government reports that all income earned by taxpayers for that period between January 1st to May 7th of each year (4.25 months) is paid to the government in one form or another as taxes. The average dental practice has a 55% overhead, which means that this taxpayer/dentist/owner works for 6.75 months just to pay the office overhead. When you add up the time it takes to pay the taxes and overhead, it comes to eleven months, which leaves one month of practice income for the family. Since the average family uses 98% of that income, we figure that the average dentist gets to enjoy the total benefits of the revenue generated on December 31st of each year in practice. What if you take that day off? You will then have to wait until the end of the next year before you can get some spending money. Have a great year!!!”

Of course, this is (somewhat) an exaggeration, but it sure feels that way sometimes, doesn’t it? When you think about all the years you have spent working to build your practice; I’m sure you wondered if there would ever come a time when you had things under control well enough to begin enjoying the fruits of your labor. It takes a lot of work to build and maintain a practice. It is a labor-intensive business that requires a commitment that few realize, and fewer yet are willing to make. Other people think you’ve got it made, that you are rich, or better yet— you are lucky. And you are wondering when you will begin to feel that way too.

Few people are willing to work their way through eight to ten years of post-high school education to get to where you are. It was a period of your life that was dominated by huge education expenses, little or no personal income, twelve hours a day of school and study, part-time jobs to provide some living expenses, and then suffering through that boot-camp called dental school. But you stuck with it, became a dentist, built a practice, and hopefully by now, are reasonably successful (which usually equates to reasonably secure). Don’t get me wrong; there are still a lot of others who have had to work even harder than dentists at this game of life. All we are doing is recognizing the sacrifice and effort it takes to make it as a dentist in this world.

Most dentists, who have been in practice for fifteen or twenty years, still work a four or five-day schedule. They do this even though it is not necessary to generate the same income they are now making. So why do they do it? They are used to it, they think they need to, or they believe that it is expected of them. After all, working less than four or five days a week would seem… almost sinful. And then too, there is the office overhead at 55% or greater. Surely you have to work at least that many days to pay expenses and still make a reasonable income.

You notice I did not use the term “profit.” That’s because there is usually no profit resulting from the operation of a dental practice. By the time you figure in the cost of labor for the doctor’s clinical work, there is little or no profit. Whatever amount the doctor receives after expenses, it represents compensation every bit as much as the compensation (salaries) paid to the other employees of the practice. The only difference is that the doctor’s compensation is paid only after everything and everyone else has been paid. That’s just one of the “benefits” of ownership, I’m afraid.

Believe it or not, office overhead does not have to dictate the number of days you spend in your practice. There are a lot of options for overcoming the overhead obstacle to “Quality of Life,” but you will need to discuss them with your local AFTCO analyst to find out more about them. That is not the purpose of this article, which, in case you are still wondering, is why dentists work four or five days a week when they don’t have to? Is it out of habit, guilt or ignorance? I suppose it’s because dentists are not aware of the alternatives.

AFTCO developed the Pre-Sale Program through which we have sold thousands of dental practices. The Pre-Sale Program has enabled us to make some interesting observations. Under this program, we sell the practice and merge it into another existing practice, with the seller having the right to continue to practice (working for the purchaser) for five to fifteen years. Then the seller usually begins to work a three-day schedule and continues until he/she is ready to retire. This seller had originally been working four to five days a week before the sale/merger and now works only three days a week! What do you think happened to the seller’s personal clinical production (every dentist I’ve asked this question immediately knew the answer) … that’s right, it increased!!! The dentist’s production rose by an average of 20% per year once he/she began working three days a week instead of five days.

Why? First of all, you have to understand that over time the average dentist develops a perspective of scarcity as it relates to patients and the practice. No matter how long they’ve been in practice and no matter how busy they are, they feel that they must see every new patient that walks in the office. I’ve seen practices that have two to three times the number of patients a dentist could treat and still maintain a reasonable practice schedule. It’s as though they think some terrible plague will hit their area and wipe out half of their current patients; so, they better see all the patients they can so the practice will survive this ultimate calamity.

Whatever the case may be, I believe this compulsion to treat everyone they can is borne out of a scarcity perspective that few are ever able to overcome. Once a dentist is confined to working a three-day schedule, the seller now stops taking every new or emergency patient that walks in the office. Next, the seller begins to turn less productive patients over to the purchaser. If you were to rate your patients on a scale of one to ten (with ten being the highest), you would find that the highest rated patients are those who have been with the practice for the longest period. Early on you weren’t very busy in your career, and you had more time to spend with those patients, and they ultimately became your best patients.

Those who received a lower rating are patients who have more recently joined your practice. Because you are busy, you have less time to spend with them, and you do not develop the same relationship with them that you have with your higher rated patients (there are, of course, exceptions to this rule, but they are exceptions).

So, what happens now is the seller must make a choice. Since the seller’s appointment time is now limited to three days, then he/she wants only the best-rated patients to be scheduled on his/her appointment book. Therefore, the seller gradually begins to transfer all the lower rated patients to the purchaser. Now the seller finds that he/she has more time to spend with the higher rated patients, and these are the patients who are more receptive to comprehensive treatment planning. Comprehensive treatment is the kind of treatment the seller did not have time to present to these patients (when he/she owned the practice) because they were trying to see everyone who walked in the office.

As a result, the seller worked fewer days and hours, saw fewer patients, and increased his/her production by as much as 20%. Working smarter also considerably increased the seller’s net income over what he/she was making before selling the practice. However, you don’t necessarily have to sell your practice to enjoy the benefits of working less time and making more money (although it is an excellent way to reduce stress and enjoy your last ten or fifteen years of practice without the hassles of ownership). You could have someone join your practice, and both of you could work a three-day overlap schedule that would, most likely, considerably increase practice productivity (ask for AFTCO’s article titled “Quality of Life Scheduling” for more details).

Selling your practice or having someone join your practice is a choice that should be discussed with your AFTCO analyst. We will conduct a complimentary analysis of your practice and then we will be glad to make recommendations based on our findings. We want to improve your Quality of Life now, and eventually get you out of this business alive, with your health intact and the money to enjoy many decades of retirement. The important thing is that you understand that you can work fewer days, see fewer patients and earn more money, now! Less time… more money. This is when “Less is More.” Don’t lose out. It’s time to call AFTCO!