Business Deal Red Flags for Dentists

WHO IS DANNY / STOCK.ADOBE.COM

Although a dentist’s immediate focus may be on perfecting restorations or remedying periodontal issues, none of these tasks would be possible without first having a business in which to do so. As much as many dentists may just want to focus on the dentistry, the business side of things is a predominant factor in practice success.

Running a successful business requires a combination of good customer service, smart decision-making, and savvy business acumen. This means structuring your business—and your investments—to meet practice requirements without wasting overhead on things you don’t need. In addition to a dentist’s responsibilities in the operatory, a Bankers Healthcare Group survey found that 76% of dentists—regardless of practice ownership status—play an active role in practice financial decisions.¹

Being involved with financial decisions means that learning how to make the right decisions is a key skill. But this can be a more onerous task than expected, particularly in today’s saturated markets for dental technology, products, and services. Which solution is the right one for your practice? Determining that can take some time, consideration, and support to avoid entering into a contract you can’t wait to get out of.

Have the Right People in Your Corner
Having the right support team is the first step in ensuring the business deals you enter into are ones that truly benefit your practice. This process begins the second that dentists leave school and decide where they’re going to practice. And, subsequently, this is also one of the first opportunities for things to go wrong and bad deals to be made, particularly if a new dentist is joining a practice as an associate.

“If you’re going to work for somebody, if you’re an associate, your contract is really important,” says Bruce Bryen, CPA, CVA, a dental practice valuation analyst at Baratz & Associates, PA. “Many contracts contain noncompete agreements. The noncompete has traditionally been a really important thing for the practice to have power over the associate.”

Although noncompete clauses are rarely legally enforced, Bryen says that doesn’t mean they should be ignored. According to the American Dental Association, potential associates should examine the prohibitions, including the geographic scope, duration, termination clauses, and ultimate potential liabilities if the noncompete is broken.² A too-stringent noncompete agreement can be the first bad deal a dentist makes.

This is where a support team comes in.

“The attorney is very important in the beginning,” Bryen says. “The lawyer will tell you whether or not you should do it and explain what’s reasonable and what you’ve got to look out for. This is incredibly important. You should also get the support of a financial advisor or a dental CPA [certified public account]. And be sure to find one who understands the ins and outs of the dental field [because] it is different from other industries.”

Bryen emphasizes that although up-front costs of retaining professional support sometimes deter dentists (particularly younger dentists who are deep in student-loan debt), investing in assistance early can have substantial financial benefits in the long run. Retaining the right people ensures that you’ll get the best contracts and enter into deals that will be beneficial—and not contain any surprises down the road. In 2019, 13% of practice owners reported being entirely hands-off in financial decision-making and instead relied on financial advisors, partners, or even office managers.¹

Bringing in experts makes sense. “When you buy a house, you hire somebody that’s going to tell you what’s wrong with it,” Bryen says. “It’s no different when entering into a contract or investing in a practice or upgrades; you’re paying someone to find the issues and explain them to you. They’re the ones who are going to help you stay out of trouble. To them, the issues will be obvious while they may not be to you. They can sort out all the potential problems that you might not even have considered.”

Kevin Walker, DDS, founder of Dental Debt Solutions LLC, a marketplace for student loan refinancing for dentists and dental specialists, agrees. He adds that it’s important to consider choosing an attorney familiar with dental contracts.

“Dentists can go wrong with business deals if they do not have the proper legal representation,” he says. “Do not choose legal representation based on who is the lowest price. Choose legal representation based on their experience specifically dealing with the business [or service] you are trying to buy.”

Effectively managing money is critical to practice profitability, and having experts who support you can be the difference between success or getting sucked into a deal you don’t need or can’t afford.

“When it comes to investing, I always suggest to [dentists that they interview] multiple professional money managers and select the one they feel most comfortable with,” Walker says. “Investing is complicated, and every individual has different future goals. After practicing dentistry for a year or two, find out if you want to be an owner or not. That will be very important information to talk about with your financial advisor so you can plan accordingly.”

Red Flags
Dentists are champions at detail-oriented tasks but sometimes have trouble seeing the bigger picture. After all, if you’re spending your day focused on the nuances of color matching and the practice seems to be running along smoothly, it can be hard to find time to take a closer look at the broader scope and identify areas for improvement. This makes dentists susceptible to too-good-to-be-true offers when it comes to upgrades such as practice-management systems or the latest technology.

“It’s important to remember that salespeople are cheerleaders,” Bryen says. “You may need new practice-management software, but they can make you think salt is pepper. And you don’t need all the bells and whistles; you need to identify what you actually need the software to do for you.”

This is where many dentists go wrong, Bryen explains. Practice owners need to establish what the shortcomings are of their current systems and choose a new one that can address those issues—without going over-the-top. In short, you really need to understand how your software is working for you and how a new system would benefit you before you can make a switch. This can be challenging in today’s market because the complexity and rapid advancements in software and technology often leave dentists without a clear view of what developments or features are critically valuable to their practice and which ones are extraneous. Often, according to a salesperson at least, all these features will be absolutely essential to your practice—but the shiny marketing brochures may be promoting features that aren’t necessary for you.

“You probably don’t need the practice-management software for everything the salespeople are telling you,” Bryen says. “You need it for specific things—for your appointments, your accounts receivable, insurance. Some of the bells and whistles are just packaging, but it can be easy to get distracted by them. And then you’re going to be paying for things you don’t need.”

It’s important to ask questions before entering into contracts with any vendor. How will the transfer of data be handled? What sort of fees will that incur? What sort of backups will a cloud-based vendor provide, and what happens if recovery is necessary? Ensuring that protections are structured into any initial agreement or contract can save a lot of conflict and money down the road, should one of these situations arise.

Dentists should be wary of contracts with vague terms or long-term commitments that don’t include outlined plans for updates or evolution. When it comes to the fast-moving world of technology, a company should have plans in place for upgrades or updates to the technology and the underlying infrastructure. Does the vendor have a documented track record of both maintenance and development? Are they up to date on the latest Health Insurance Portability and Accountability Act (HIPAA) and confidentiality requirements? If the company is stagnant without development plans, you’re going to get stuck in the mud for the duration of your contract along with them, potentially setting your practice back indefinitely in terms of expansion and productivity.

When it comes to information technology or software providers, contracts should clearly include what sort of customer support is provided, security, network monitoring, and threat protection. If a company doesn’t offer support in these areas, you’re setting yourself up to handle any potential problems solo—which can quickly spiral out of control if HIPAA violations come into play.

Understanding the intricacies of things like HIPAA protections and in general how your business functions can also help prevent falling into pitfalls such as investing in pricey consultants to come in and improve the practice. Although it’s never a bad idea to get outside help when needed (ie, having the right people in your corner), a lack of understanding about the issues that need to be addressed can result in big bills for simple solutions.

“I’m always amazed when I see practice-management people come into a practice,” Bryen says. “They’re there for a week, and it’s $50,000. And I think some of this happens because dentists don’t understand how their practice runs. Maybe some of these consultants have good names in the industry, and maybe they’ve been around a long time, so you feel good with that person. And that’s fine if it is what your practice needs. But oftentimes, this isn’t necessary if you take the time to understand your business.”

It’s also important to understand market values and how much a service or investment should cost. After all, if something seems too good to be true, it often is.

“Dentists should watch out for deals that have too high or a too low of a price,” Walker says. This is just good advice across the board, but it also comes into play when entering an agreement to purchase a practice. “For example, if a business has been listed for many months, there’s a reason why the business hasn’t sold yet, whether that be the price is too high or [some other reason].”

Perhaps most importantly, don’t enter into a deal that you don’t fully understand. Dentists should understand what they are getting for their money. Fees and pricing should be transparent and predictable with no hidden costs, expected support should be detailed, and opportunities for development or improvement down the road should be included. Dentists should consider scalability, reliability, and the vendor’s ability to actually fulfill its promises before diving into any major agreement. Do your research, shop around, and don’t be afraid to ask the vendor questions.

Invest Where It Counts
One way for dentists to figure out what investments and deals are worth the money is simple: Look at what other dentists are doing. Clinicians can learn a lot from each other, both clinically and on the business side.

“If you’ve gone to work for somebody before you open your own practice, you see what they have and what worked and what didn’t,” Bryen says. “If they’re [old-fashioned] and they don’t have anything state of the art, that’s a bad thing. And you’ll be able to see the shortcomings and make decisions in the future that can avoid those.”

Maybe these shortcomings are something they didn’t have but should or a technology that was superfluous. Either way, keeping an eye on what is happening in other practices can help a dentist make better decisions for their own.

Although determining what deals are worthwhile can be intricate, it isn’t all doom and gloom. Agreements that help improve your business, such as necessary technology improvements or cutting-edge technology that improves patient care, can be incredibly beneficial.

Knowing what is going on in the industry can also be helpful. Staying current on the most recent technology trends, emerging research and technology, and scientific advancements can help dentists make informed decisions regarding what investments they should make within their practice. With 20% of dentists reporting that they upgrade or purchase new equipment every year, staying abreast of the latest trends is critical in leading the pack and providing the highest level of patient care.¹

“You need to have some things that are state of the art to have a functioning business that attracts patients,” Bryen says. “Things as simple as [having] computers in the operatories and being able to schedule appointments chairside. These are great investments that improve patient care and streamline your business. You want to have as much modern equipment as you can because doing things manually—or not doing them at all—will hurt your practice. If it’s not up to date, it takes too long to get things done.”

In 2019, 32% of dentists reported taking out loans to finance equipment upgrades or practice expansion, and 50% said they had secured a loan to buy or open a practice.¹ Although taking out loans innately comes with risk, Walker and Bryen both contend that it’s a calculated risk—one that can create incredible returns, particularly when purchasing or opening a practice.

“Buy your own business!” Walker says. “This allows many advantages not just financially, but in lifestyle. It’s important to have a good work/life balance, and owning your own business allows you to do that. I always suggest thinking of the future and living below your means, but I think it’s important to treat yourself from time to time as you worked so hard to get where you are in life.”

And this balance is often worth the gamble.

“There’s always a risk when you’re borrowing money to invest in a practice or an upgrade,” Bryen says. “But the financials will tell you an awful lot, and if you go back and review them, you’ll get an idea of the bigger picture. And remember, when you’re looking at things surrounded by your advisors and it’s time to go to the bank to borrow the money, you’ll have so many people pointing out the different facets of the business deal that you should feel pretty confident about the whole thing.”

References

1. National survey from Bankers Healthcare Group examines dental practice investments. News release. Bankers Healthcare Group. May 15, 2019. Accessed May 10, 2023. https://www.multivu.com/players/English/8440255-bankers-healthcare-group-dental-practice-investment-survey/

2. Everything dentists should know about non-compete clauses and restrictive covenants. American Dental Association Accessed May 10, 2023. https://www.ada.org/en/resources/careers/employment-agreements-the-devils-in-the-details/non-compete-clauses-and-restrictive-covenants