An Interview with: Dan Croft

Dan Croft, head of the Healthcare Practice Solution group for TD Bank, specializes in commercial lending for dental practices. To understand his audience on a deeper level, he used a survey and polled dental professionals at the Greater New York Dental Meeting held in New York, NY, Nov. 28-29, 2016, and at the Yankee Dental Conference held in Boston, MA, Jan. 26-27, 2017. The survey focused on how dental professionals feel about both the current status and future of the dental industry. The 290 responses that he received gave him insight into what is really happening in this evolving field.

Inside Dentistry: What did you hope to accomplish with this survey?

Dan Croft: We wanted to get a pulse for what was happening. We work with a lot of dentists, but we always want to make sure we are meeting their financing needs, understanding trends in the industry, and providing the right products and solutions in 2017 and beyond.

ID: What was your overall impression of the economic state of the dental profession?

DC: It mirrored my expectations on major topics. More than two-thirds of the respondents were optimistic about growing their practice revenues over the next couple years, and that is really in line with most of the macroeconomic and demographic indicators. It also reinforces the greater growth expectations since the recovery from the economic downturn in 2008. Additionally, we are seeing a huge upsurge in people expanding their practice, relocating their practice, re-equipping their practice, etc. The fact that 42% of the respondents cited buying or leasing new equipment or new technology as the highest priority area for investment definitely met with what we are seeing. Along with that, the investment in equipment and technology is really important to enhance the customer experience via better diagnosis, more treatment options, same-day dentistry, expanded practice efficiency, etc. We have seen that not only in the survey but in conversations with our customers across the country. Also, 27% of the dentists cited marketing and advertising as ways to try to grow their active patient base. The increased levels of investment in marketing and advertising will allow a lot of these privately owned practices to better compete in markets with larger corporate and group dental practices, which is another trend we have observed.

ID: The survey indicated that approximately 29% of dentists were planning on buying, selling, or merging practices in the next 2-3 years. Did that number surprise you or is it along the lines of what you expected and have observed in comparable industries?

DC: That was one of the biggest surprises. Statistically 42% of dentists over age 55 will be retiring in the next 10 years or so. Practice acquisitions are up 10% year over year, so we are seeing a surge in activity, and that goes back to the economics. A lot of dentists who wanted to sell their practices around 2008 but postponed that due to 401k and investment issues. Now practices have recovered and retirement funds have recovered. Corporate dentistry buying more practices also encourages to sell practices. There is a good market, and companies such as TD Bank can help young dentists buy their first practice.

ID: You mentioned that almost half of dentists surveyed plan to invest soon in new equipment and technology. What do those people need to know before making those large capital purchases?

DC: People need to understand that purchasing technology does not magically lead to success. You need to look at your practice and evaluate the opportunities for efficiencies and productivity. Technology can help smaller practices compete with large ones by utilizing same-day dentistry, the ability to enhance the customer experience, or perhaps an in-house laboratory to save money on laboratory bills. Technology is a great opportunity, but people need to understand the dynamics of their practice, the demographics of the area and the competition, and make sure it is the right investment. Our customers have had some tremendous results, but we need to look at each one individually. Technology and equipment is certainly a solution, but it needs to be in the right situation with the right dentist or dentists who know how to utilize it and maximize the positives of utilizing the next generation of equipment and technology in the dental industry.

ID: The two biggest challenges, according to the survey, were overhead costs and staffing costs. Those are not unique to this profession. What sort of industry-specific solutions have you observed for these issues?

DC: You need to look at two issues with overhead: fixed overhead and variable overhead. Fixed expenses include rent, taxes, and supplies. Purchasing commercial real estate requires a down payment, but it saves money on a monthly basis after that and also accrues equity. There are some advantages to buying supplies online or agreeing to a deal with a supplier. Another challenge, especially for older practices with veteran staff, is paying salary increases year over year. In that situation, the best solution is to expand your practice by marketing, advertising, investing in technology and equipment, increasing your online presence, etc. Trying to bring in the best people and retain them also is very important. There are not a lot of shortcuts, but there are efficiency and productivity models.

ID: More than 60% of respondents said they plan to sell their practice when they retire, but approximately 15% said they are unsure or plan to close their practice. How would you advise those 15%?

DC: The challenge is in rural areas. In metropolitan areas, the supply and demand are abundant. There are a lot of dental schools and a lot of people who want to live and work in those areas. In lucrative areas with favorable demographics, practices sell at premiums. There can be bidding wars. In rural areas, there are less people looking to purchase practices, but sometimes those are the best opportunities because they are large practices with less competition. They are often more profitable and the cost of living is a lot cheaper, so there are some incredible opportunities to develop a very successful practice and potentially make more money. Planning well in advance. The No. 1 mistake people make is allowing their practice to decline at the end; they work fewer days, refer out more procedures, market less, etc. They get half the money they could have when they sell it. If you want to sell your practice, in certain areas of the country you need to plan several years in advance. Bringing in an associate or merging with another practice can be useful tactics. If you cannot sell your practice, at least you can sell your patient records; that is better than just closing your doors and selling your equipment.

ID: So you think there is a lot of money being left on the table?

DC: Absolutely. We see, more often than not, someone who has been practicing and then they slow down. When someone comes in to appraise or purchase your practice, they look at the last 3 years. If your practice earned $1 million, then $900,000, and now it is on a pace for $800,000, the appraiser, the bank, and the CPA will focus on the past 12 months. Banks lend to cash flow, not production. When a practice’s revenue drops by 10% or 20%, that affects the purchase price by at least that. Many dentists lament that they did not plan further ahead. When you have a declining practice and the bank cannot be sure where the bottom is, that does not allow us to finance 100% of the practice’s value. It is important to think about what drives value in the dental practice and what it takes to sell the practice for the top price. Production is important, but profitability drives cash flow, which drives practice value and sales price, and for a financing company, that is important.

ID: Another survey question addresses methods for increasing income. When you look at the various strategies, do you think most dentists are utilizing them most effectively, or is there a lot to be desired?

DC: It is probably the 80/20 rule; 80% of dentists probably have great strategies, whether marketing, equipment, new facilities, better office design, etc. Unfortunately 20% of dentists choose a course and do not think it through. They spend too much on investments and do not get the ROI, or they spend a lot on a marketing plan that is not well-conceived. They might bring in a lot of new patients, but they have not fixed the underlying issues with their practice, so people come and they leave. That is something we see a lot. You need to understand why if you practice is not growing or is losing patients. Figure out if you need more staff training or a different model. Patient surveys can be helpful for self-examination. Based upon that feedback, you can look to improve your practice and determine the best investments.

ID: Were there any other takeaways you would like to point out from the survey?

DC: When you look through a lot of the answers, such as the optimism, the expected growth, the investment in the practice, one of the major trends I see in dentistry is the impact of the millennial generation on dentistry—not only dentists but patients. Meeting their expectations for technology, immediate access, efficiencies, customer service, etc, is important. Younger dentists buying their first practice or making investments are are exciting trends that will benefit the patient experience and help them better compete with the DSOs and some of the larger practices. Millennial dentists are ambitious, confident, and willing to take risks, which more often than not will pay off in the long run.