27 Feb Group Dental Practice: Challenges and Solutions
Of the four challenges consistently identified with scaling or exiting a group dental practice, a common denominator emerges in successfully meeting each of those challenges.
EBITDA: The Evergreen Algorithm
Despite the ever-changing realities of business, EBITDA (earnings before interest, taxes, depreciation and amortization) remains the essential measure of a practice’s financial health and its ability to generate cash. EBITDA is also a key measure of the practice’s valuation, as well as the amount a lender will continue to lend the practice on its growth journey.
Beyond these factors, EBITDA is also critical for helping to meet the 4 big challenges of scaling or exiting a dental practice. It’s the engine that powers a successful growth strategy — or makes a practice appealing as an acquisition.
More about creating and maximizing EBITDA later. (Resist the urge to read ahead.) Let’s take a look at the four big challenges;
#1The Founder’s Dilemma: Going from DDS to CEO
Your practice grew because of your success as a clinician. But now you have to transition from being a full-time dentist to being a business leader. It’s a challenge with a lot of moving parts. How will you build the growth strategy? Will you be dropping one clinical day a week per quarter? Two? How much will you pay an associate who’s picking up those days? How much income do you need to maintain your current lifestyle?
Robust EBITDA will help you determine the answer to these questions. It will set the pace. Help you manage expectations.
#2 Attracting and Retaining Associates: Does the Next Generation Want You?
This is the #1 problem of scaling a group practice. But how does healthy EBITDA help with finding people? Because numbers tell a big story. Strong earnings and a solid financial foundation create a holistic picture of a practice: its priorities, its culture, the quality of life it affords, the opportunities available to a new associate for income, equity, and the development of clinical skills.
Members of the next generation want more than a job. They want a life. Healthy EBITDA tells them they can find it with you.
#3 Securing a Committed Lender: the Long Game
The more impressive your earnings, the longer a lending institution will be likely to commit to working with you. Debt funds are expensive, and a long-term relationship will be more cost-effective, for both the borrower and the lender. A long-term relationship will also help you create your vision, not just get from acquisition to acquisition.
#4 How to Grow: Buy or Build?
Will you expand your footprint through acquisition or do you have in mind building from the ground up? There are advantages and drawbacks to each. What can swing the vote in either direction? Yep, you got it, EBITDA.
Back to EBITDA 101
How is EBITDA created and maintained? By generating more cash flow, and generating it faster than the competition. Managing cash flow effectively means minimizing accounts receivables and powering speed to cash: turning a dollar of revenue into a dollar of profit in the practice’s bank account.
Okay, how does that happen?
It takes two to EBITDA:
Manifesting EBITDA requires powerful revenue cycle management (RCM) systems and processes, working at peak efficiency and coordinating seamlessly to minimize accounts receivables and produce an accurate and comprehensive picture of a practice’s financial health at any point in time.
Maximizing the EBITDA potential of a practice requires deep dental industry experience and the knowledge base of seasoned strategists with deep dental industry experience and a passion for helping entrepreneurs to succeed.
Putting Medusind RCM Solutions and Polaris Healthcare Partners together fulfills both parts of the equation.