Humans are social animals. Social animals exist in tribes, and for the survival of every tribe you need order. For there to be order, there needs to be control. Social animals are hard wired for control, and because of this a lot of businesses become unsuccessful because the owner or CEO abhors delegation and feels the strong need to control everything. How does the CEO of a Fortune 500 company run her operation of 100,000 employees if she doesn’t delegate anything? It would be impossible! The leaders who rise to the top don’t fear risk or delegation – they retain and attract quality key people, give them responsibilities and then get out of their way. Success is counterintuitive to how humans operate.
Another great example is how most dentists imagine the way they are going to retire and sell their practices at age 65. At age 55 they start thinking, “Well, I’m going to retire in 10 years, so the last thing I’m going to do with this practice is invest in any new equipment or new technologies or implement any new techniques into my repertoire.” They’re content with milking the cow dry and refuse to feed it anymore oats, grass, grain or water. But here’s the amusing part: when it comes time for that dentist to sell her practice, she thinks it is going to sell for some huge amount, but it’s not going to happen. Nothing in the practice has been updated, new patients have dwindled to zero and it has become a business that nobody in their right mind would purchase at the price in the dentist’s head.
You have to realize the final 10 years that you are in practice are the most important years to double down on your business bet! In this time you can’t be milking your practice of what it’s currently worth only to sell it for pennies on the dollar. You need to modernize your practice. You need to move it from a lousy 1,000 square foot rental space on the third floor of a medical building to a premium 4,000 square foot building right out on Main Street with a huge sign. This is the time for you to upgrade from 2D X-rays to 3D cone beam computed tomography! This is the time to invest in CAD/CAM! In dentistry the only dogs that can’t learn new tricks are dead dogs!
If your practice is neglected because you milked it for the last 10 years, you will end up with an illiquid asset. You have to get your business poised for growth. You can’t sell a sinking ship. Just like with the sale of a home, when a window breaks, you don’t say, “Let’s just wait until two other windows break and then we’ll fix it.” No way.
Here’s another housing example tied to liquidity: a three bedroom, two bath house in Phoenix, Arizona, can easily sell within 30 days, but a 10 room house with an eight-car garage and a tennis court and Olympic-sized pool can sit there for three years because it is just not a liquid asset. Nobody wants it or can afford it. Along these same lines: the corner commercial lot on the corner of 1st and Main, you can sell in a heartbeat for premium price. But if you go just 300 yards down the street either way, you might be looking at half the price and, worse, you might never be able to sell it. I mean there are intersections in Phoenix that are still vacant from when I moved here 25 years ago because they just weren’t perfect. This is why location is key! So if you’re renting in a medical building or you aren’t set up on a great location, you need to be poised to sell, so get moving!
Here’s something else you need to think about if you’re considering retiring and selling your practice in the next 10 years: interest rates on CDs right now are at two percent, so that means for every million dollars in cash you have in the bank, in government bonds or CDs, you are going to make $20,000. Let’s say the average dentist makes $140,000 dollars a year. That means they would have to have $7 million in cash in a two percent government bond or CD at Bank of America or Chase to maintain their income. That is just not going to happen. I don’t know of too many dentists that can walk away at 65, sell their practice and have $7 million in cash earning two percent.
If you’re a renter and you sell your practice for $400,000, that’s it. That’s all you get. But if you owned your practice and you owned the building, you could sell your practice for $400,000, but keep the building, so you would charge rent to the new dentist who purchased your practice. Every year you can adjust the price of the rent based on the Consumer Price Index, and over the next 10 years, you could earn an additional $400,000. Then, maybe, at the end of the 10- year lease, the new dentist wants to buy the building. Then you finance that to the new dentist and you end up with yet another 10-year income stream. Think about it: the renter made $400,000 and gave half of it to Uncle Sam, so she’s sitting there with $200,000, which at two percent is making $4,000 a year. At that point the renter dentist is going to have to go be an associate somewhere else (at age 65) in order to live the way she did when she was practicing! So instead of continuing to rent the space for your practice, you need to get poised for growth. Buy that premium property on 1st and Main or a 4,000 square foot building right next to a WalMart, then sell your practice and rent out your building to earn revenue the smart way.
But this only applies to dentists who want to retire. Me, personally, I never want to retire. Sure, the first year of retirement is fun – you get to golf all the time and go fishing. It’s like a really long vacation. But by the second or third year of retirement, you start to see some dysfunctional behavior. There’s no passion for life. They let themselves go. They don’t have a reason to shower in the morning, let alone get out of bed. Here’s something you should consider if you’re actually considering retirement: don’t retire! I’m serious! There are 5,000 new dental school graduates entering the dental profession every year and they’re looking for a job. These kids are so desperate for a job, when the government asks them to join the military and sit on an aircraft carrier in the middle of the Pacific Ocean or Afghanistan, it sounds really enticing to them. And I hear the excuse all the time from dentists in rural areas that they can’t find an associate because they practice in Middle of Nowhere, Montana. Really? You can’t convince someone to stay in America where nobody’s shooting at them but the government can convince them to practice in Iraq? Stay in practice and be a mentor for crying out loud! Do you know what your unique selling proposition is to these new grads? Do you know what you have to sell more than anything? You! You get out there, you get poised for growth, you go to the finest finishing schools in America like The Pankey Institute or Spear, you get your practice to the very top of your game, and then you get your pickings from 5,000 graduates, some of which are seriously considering going into the military and practicing dentistry in some third world country. Instead you could just reach out and say, “Hey you, new grad, come work for me. You’ll probably look back on this decision when you are 65 years old and realize it was best decision you’ve ever made, because I’m going to teach you how dentistry gets done. It’s all going to be cool, we are going to have a good time working together and you are going to become a very successful dentist.”
Best Tips for Better Practice in 2013
Dentaltown Magazine wants to know what you’ve done this year to make your practice the best it can be! Visit www.dentaltown.com/BestTips2013 to tell us what you’ve done to improve your practice. Keep your eyes peeled for the December issue of Dentaltown Magazine and your tips could be featured in that issue. One lucky contributor will be drawn to win a copy of Dr. Howard Farran’s One-day Dental MBA DVD.
See more at: http://www.dentaltown.com/Dentaltown/Article.aspx?i=334&aid=4538#sthash.iedaYMzG.dpuf
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