Definitive guide to buying a practice: part two
Don’t kid yourself, the investment is more than cash, says Dan Fine.
With practice prices as they are there’s a good chance you’re going to be investing £1m to acquire a practice. Now you’re through the door you may need to spend a bit of cash to make the place look presentable and kit it out clinically, let’s say £100k.
There is no point buying a practice if you are not going to grow it. It will be effective marketing that drives this growth. With that in mind there may be a marketing systems investment of let’s say £35k. Then, your monthly budget to think about. Your monthly budget should be 5% of the revenue you want to have in 12 months.
So a practice growing from £1m to £1.3m (ambitious but reasonable 30% growth) will require an annual budget of £65k, or £5.4k per month. So all in you could be £1.2m in the hole.
The capital investment is the easy bit in a sense. It is tangible and specific, but just because you spend it doesn’t mean it is going to work. Ultimately what decides whether the investment and risk pays off is…you. This should be a terrifying and exhilarating insight. You are responsible for your own destiny but you will have to own it.
We can make a few assumptions about what will happen when you take over your business in the first 12 months:
- You will work harder than ever before
- Nothing in your experience has prepared you to be a business owner
- At times you will be exhausted
- Sometimes you will want to give up.
These assumptions point to where the less tangible but often more expensive investments will have to be made. Take them in order:
You will work harder than ever before – this does not mean clinically (although it often does too), it means you will have to invest a significant amount of time running the business. Quickly you will understand time is one of your most valuable commodities. How it is created and invested is critical in the success of your business.
Nothing in your experience has prepared you to be a business owner – even though you are more educated than 98% of the population (estimates vary) nothing in that education has direct application to the chaotic collective of people, processes and projects that is a business. You will have to learn rapidly and continually, formally and tacitly. Your investment in becoming an effective and diverse learner will best allow you to interpret and capitalise on the chaos.
At times you will be exhausted. With more hours worked and continually learning new things you will need to invest energy to drive this. This is not something to be taken lightly, it will take everything you have to keep the business running. But simply maintaining is not enough, you have to grow and this will require you to dig deep and invest energy that you did not know you had.
Sometimes you will want to give up – running a business is lonely and thankless. Your patients will think you charge them too much, your staff will think you will pay them too little, and your partner will not care. The emotional investment is often the one people are least prepared for and the one that will often make or break your success as a business leader.
So before buying a practice make sure you have thought through the true cost and consider if it is something you are happy to pay.
Your growth plan
Few businesses and very few dental businesses are good at assessing their capabilities and identifying skill gaps. Here are five ideas to try out in your new practice, says Luc Wade, management consultant at Hive Business.
Know your numbers (…again)
It’s just silly that many practices couldn’t tell you their new patient enquiry rate, treatment conversion rate or average patient value.
It’s a fact that knowing them at the start of a growth programme will make a difference. You won’t know if you’re making the right decision otherwise.
For example, if you miscalculate your average patient value you’ll favour unproductive marketing campaigns and stop ones that were actually making a profit. If your competitors calculate this value accurately they’ll have more budget to outbid you and steal market share.
Despite the heavy time resource, knowing your numbers is your most worthy marketing investment.
Be open about the direction of the business. Tell the team
Simplify your goals down to six metrics. Share these KPIs so the whole team can see how they’re doing.
Making this highly visible will help with morale. If you don’t have these systems in place you risk slowing down growth and looking at marketing as a series of one-off events.
Avoid one-off events
One-off events negatively impact growth. They are essentially any marketing effort that lasts for a limited period and feels gimmicky. They display a lack of confidence.
Practices that focus entirely on this type of marketing hurt growth because they force their teams to scramble around getting campaigns ready, launched and promoted, only to earn a return on that investment for a limited period.
This type of marketing investment, for instance on monthly promotional deals, isn’t scalable over time and you’re only as good as your last offer.
To grow faster, focus more of your time on a blend of brand building and sales activation campaigns that are unaffected by time and won’t expire.
Love the bottom of the funnel
This is about loyalty and advocacy, including efforts to retain patients and generate more word of mouth referrals and increased patient value. Don’t hesitate to ask for testimonials and online reviews across all the digital channels available to you.
By spending more time on the bottom of the marketing funnel you’ll generate additional revenue from every new customer without extra advertising costs.
This will allow you to spend more at the top of your funnel too, building market share and growing your business faster.
Don’t move slowly
This holds back so many practices. How quickly you make business decisions, get new initiatives live and test them is of critical importance to your commercial success.
Slowness seems ingrained in many dental practices and it is hard to change.
Becoming an effective business leader
People tend to have innate leadership qualities, for instance you might be a great communicator, charismatic or decisive. However, unless you are engaging in your own development you probably won’t be a well-rounded leader.
With four books on leadership published a day, it’s an incredibly deep subject with a lot of chaff, so here are two simple principles to start that development.
We all have jobs that we get paid for, that we spend most of our time doing, that we aim to become exceptional at, and this expertise blinds us from becoming an effective leader.
As a clinician you have rigorous training that allows you to interpret information in a certain way, always with the wellbeing of the patient in mind.
As a business leader this information is relevant but not gospel. It can actually impede your thinking unless you are able to detach from it.
When thinking through a problem or a situation, assume you have your clinician’s hat on. To detach you need to drop your professional expertise and consider other points of view.
What would the shareholder say? What would my enemy think? Would this improve my team?
As a dentist you are more educated than the vast majority of society, so unquestionably you are intelligent. But knowledge of this may block you from gaining insights that allow you to become an effective leader.
You have to take yourself off the pedestal and assume that people you interact with have something interesting to tell you.
What got you to the party in the first place is not going to make you an effective leader — understanding this is the first step to getting there.
Creating order from chaos
When someone acquires a new practice a common fallacy occurs. It usually sounds something like: ‘I’m just going to run it as is for a year or so, get my knees under the desk…’ For a number of reasons this is an unacceptable strategy to take when acquiring a business.
Commercially speaking there is no reason to acquire a dental practice unless you are looking at growing it and in the dental marketplace growth looks like 30% per annum.
Because the growth opportunities are so wide it essentially means you will need to create a new business each year.
Your role as a business leader is to create order out of the potential of the future. This means you will have to have a clear vision, be comfortable with uncertainty, and embrace and understand risk. To grow a business means stepping out of a binary world of right and wrong. Thus, creating your own context by which to interpret emergent events.
The context will be the strategy of the business and your own leadership values. Without these as an anchor you will never know the opportunity you have missed out on.
The stoic philosopher Seneca the Younger says: ‘A good person dyes events with his own colour and turns whatever happens to his own benefit.’
To lead a growing business you need to understand and internalise this concept and create new order from chaos.
If you want to get ahead you need to work more than conventional hours, and I don’t know anyone who is successful in business who hasn’t understood this, at least in the period when they were building their company.
If you’re running a business you’re moving in a high-paced environment. You have to accept that things will go wrong, but despite that you’re choosing to move forward.
In business, if you haven’t set your intentions clearly you won’t be able to interpret the complex information that emerges around you consistently. On the other hand, if you’re clear on your purpose, everything that emerges around you becomes a potential opportunity.
Read part one of this article here
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