As valuation and transition consultants, we have the duty to analyze a practice for sale or purchase with great scrutiny. When performing a practice valuation study, we analyze the last three years of a practice’s financial performance and operational performance for each practice. This provides us not only the revenue and expenses, but the patient flow, the conversion ratios from new patient exams to starts, the fee structure, the marketing plan, etc. More importantly, when visiting each practice, we observe the physical facility, fixed assets in service, staff, location within the practice’s drawing area, competitors’ location(s), and so on. We also perform a detailed demographic analysis of the patient drawing area. Needless to say, we end up with a great deal of data on each practice; having the opportunity to see practices in every geographic region of the country.
Taken together, we see practices that are declining at various rates, practices that are maintaining a relatively flat “status quo” with regards to growth, and practices that are growing at various rates. We see these practices in all areas of the country, in all environments, generally battling a similar competitive and economic environment. However, there are situations that cause a practice not to grow.
There are many contributing reasons as to why a practice cannot grow: competitive environment, demographic environment, geographic limitations, and so on; however, our observation of the number one reason practices cannot grow is because they do not currently operate with efficient systems. Systems are perhaps the key foundation to growth and without them, a practice in chaos will experience greater chaos as it makes decisions and tries to grow, ultimately imploding under the weight of poor systems. Some examples are:
• If patients are not seated on time, adding growth to a practice will only exacerbate the problem.
• If cases are not finishing on time, growth presents real problems as chairs fill up with unhappy zero contract balance patients.
• If the highest level of customer service cannot be currently offered, then providing the same average, predictable, run-of-the-mill, mediocre service inhibits growth.
• If the staff is turning over at an accelerated rate, and there is gossip, backstabbing, and an ununified team that is just getting by, growth is not in a practice’s future.
• If there is poor direction and leadership from the owner, counting on the staff to pick up the leadership role and grow the practice is likely not going to occur.