For most dentists, their practice plays two major parts of their finances:
- The largest cash producing asset they have
- One of the largest or if not the largest portion of the dental practice owners assets
If the two statements hold true for you then there are two actions that should be focused on:
- Ensuring the practice is running at its optimal profitability
- To do this we must know our goals and what we should be measuring
2. We should be focusing on increasing the value of our practice by focusing on EBITDA
- EBITDA (Earnings before Interest, Taxes, Depreciation, Amortization)
- The above should be calculated by a professional that understands the Dental Industry
What happens when the Dental Practice Owner Focuses on the two actions above:
- Your Dental Practice becomes a business that is not dependent on you, and it delivers after Doctor Compensation cashflow that exceeds your competition and allows you to reinvest in growth and other assets that create income for you without you personally doing the production
2. You Grow your EBITDA (Profit Margin) which each year increases your dental practice valuation
- This leads to the creation of wealth for the Dentist
Example:
While focusing on specific KPI’s the practice increased cashflow by $75,000 this year by working smarter not harder, and focusing on goals they set with their accounting team.
This in turn lead to increased profitability of $50,000 for the practice, which at a 4x multiple increased the value of the practice by $200,000.
The doctor increased cashflow by $75,000 which was invested in other assets, and increased the value of their business by $200,000 in a single year. This is true wealth creation.
Summary
Work with your Dental CPA firm to build a Blueprint of Wealth and Profitability for yourself.
At Virjee Consulting, we have rolled out our Dental Wealth and Profitability Blue Print where the clients are given personalized goals and reports to grow the value of their practice.
