Strengths
Dental practices are able to produce substantial income in any economic climate. This is simply due to the fact that people are going to require ongoing dental care and specialized dental surgeries even during times of recession. In most instances, many individuals are able to receive their dental care through private insurance reimbursement. Additionally, unlike medical procedures – dental procedures are typically far more affordable to the general public. As there are far fewer people that are covered under dental insurance, most dental practices make these treatments more affordable. Over the past 10 years, a trend within the industry is to provide specialty financing programs for people that need dental care including cosmetically focused dental implants.
As it relates to sourcing the capital necessary to establish a dental practice, most financial institutions are willing to provide nearly all the funding necessary to establish a new practice or to acquire a practice and that is in operation. It should be noted that many dentists, upon their graduation from dental school, will work with an established practice with the intent to acquire the firm from its existing practitioner over a period of years. In the event that an acquisition is going to be completed, most financial institutions are willing to provide the full amount of the purchase price provided that the new practitioner makes an appropriate allocation for their working capital needs. Furthermore, most financial institutions love dental practices given their economic stability as well as the fact that the vast majority of the funding is typically used to acquire dental equipment, as well as general furniture, fixtures, and equipment for their offices.
As it relates to revenue generation, most dental practices produce $600,000 to $1 million per practicing dentist on site. This substantial revenue, on a per-practitioner basis, allows these businesses to remain highly profitable while servicing all of their underlying financial obligations at all times.
Weaknesses
One of the main challenges that any dental practice faces as they establish their operation is establishing a brand name within their respective market. In any major metropolitan area, there are always numerous established individual practices as well as group practices that maintain expansive marketing apparatuses to showcase their services to the public. As such, it is imperative that a newly established dental practice allocate a substantial portion of their starting budget toward launching a marketing plan that effectively positions them within their market. For many new dentists, they will often hire a qualified marketing and advertising firm to assist them in these matters as it can be very challenging to place advertisements among local periodicals while also engaging in expansive online focused marketing campaigns.
One of the other challenges that are faced by dental practices is that they typically have high operating costs related to payroll. This is especially true if the practice is going to maintain a full-time practice manager, dental hygienists, as well as staff dentists that can render services. To reduce these expenditures, many dentists will perform a number of the procedures on their own before hiring support staff to help them so they can focus on higher dollar value procedures such as root canals, tooth extractions, as well as cosmetic dentistry.
Opportunities
The ability for a dental practice to expand is substantial. For most dental practices, organic growth typically occurs through ongoing reinvestment of after tax profit into expanded marketing campaigns including through the use of targeted social media. One of the fastest ways for a dental practice to expand their year-on-year income is to contract or directly hire specialty dentists such as periodontists, orthodontists, oral surgeons, as well as individuals that specialize in dental anesthesia in order to render their services on site alongside the owning practitioner. This allows for rapid revenue expansion at a minimal risk profile.
Another way dental practices are able to expand their operations is through acquisition. As noted above, most financial institutions are willing to provide substantial support in regard to the acquisition of dental practices that are currently in operation. Given this fact, a practitioner can easily acquire existing entities that can be integrated into their respective dental practice ecosystems. However, this can be challenging for a dentist as they are going to focus much more on managing a staff of dentists and supporting practitioners rather than directly rendering dental services themselves. This complexity can be ameliorated by having several practice managers that can work in tandem with each other among several locations.
Threats
The threats that most dental practices face are relatively modest. Although these businesses are relatively immune from negative changes in the economy, the demand for specialized cosmetic procedures may decline during very severe economic recessions. Given the substantial contribution margins that are generated from services rendered, even during times of economic recession these businesses are able to remain profitable given the substantial revenues that are produced on a per practitioner basis along with the significant income generated from each procedure. Inflation has a modest risk for these businesses for the same reasons listed above. The primary threat faced by dental practices is in regards to the ongoing competition that is faced in any given local or regional market.