There are many different models of “Corporate Dentistry”. Some, like Pacific Dental, are very active in starting practices from scratch. The same for Aspen Dental, although their actual operations are very dissimilar to Pacific Dental.
However, many of the larger groups are buying up practices or groups of practices. Why are they doing this? What are the economics of doing this? See below.
Practice/Collections/Mo. $ 100,000
Practice Operating Net/Mo. (at 36%) $ 36,000
Dr. Prod./Mo. (2/3 of $100,000) $ 66,000
Non-Owner Dr. Compensation
(30% after lab and write offs: $66,000 x .30) $ 19,800
Practice Sale Price* (36,000 x 12 x 1.75) $ 756,000
Debt Service/Mo. on Practice
($756,000 x 8 years x 8%) $ 10,687
THE PAY OFF:
Practice “Operating Net”/mo. $ 36,000
Doctor Compensation $ -19,800
Debt Service $ -10,687
Operating Profit/mo. $ 5,513
Operating Profit $ 432,000
Non-Owner Doctor Compensation $ -237,600
Debt Service $ -128,244
Operating Profit Per Year $ 66,156
The Bottom Line: For an outlay of $128,000 a year in debt service, the owner(s) receives $194,000, a 50% Return on Investment. Where else can you get that kind of R.O.I? So what seems to be on the surface, a sort of slim net of about 5%-6% on collections per month, when leveraged really adds up over the course of the year. Now add to that some solid management for practice profitability and growth and the numbers really pop.
DOCTORS, YOU ARE SITTING ON A GOLDMINE:
If you can step outside yourself for a moment and look at your labor as a Doctor separately from your role as an owner, you can see what a desirable investment your dental office is. Later, “The Key Points of Increasing Profitability of a Practice.”
*For this example based on a simplified Rule of Thumb of 1.75 X’s Net Income for illustration purposes.