Running a dental practice today looks very different from what it did 10 or even 5 years ago. lan from Dental Acquisitions has written a compelling piece for Australasian Dentistry that explores the evolving, and often overwhelming, role of the principal dentist. From clinical responsibilities and staffing challenges to marketing, compliance, and rising overheads, it’s a candid look at what it takes to run a modern dental practice.
Whether you’re navigating it yourself or planning your future beyond the chair, this is an article worth your time.
With over 15 years of experience in dental practice sales, I have witnessed a significant evolution in the role of a principal dentist. When Dental Acquisitions first began, we were predominantly selling practices owned by baby boomer dentists who had typically purchased their practice shortly after graduation and were now ready for retirement.
Today, the landscape has changed dramatically. Although the dental sector has demonstrated extraordinary resilience amid challenges such as the COVID-19 pandemic and persistent staff shortages, the demands placed on practice owners have increased exponentially. The role of a principal dentist is now one of the most multifaceted and challenging in small business. Human resources, infection control, marketing, payroll tax implications-the list goes on…
The evolving economic landscape
While dentistry has historically been regarded as a resilient profession, today’s economic environment adds a new layer of complexity. Inflation is exerting pressure on every aspect of business operations. Employee wages have risen substantially, but so too have costs across the board- insurance, digital marketing, accounting services, IT support, lab fees, and dental supplies, just to name a few. At Dental Acquisitions, we conduct valuations weekly, and it’s increasingly clear that many principals find it difficult to fully pass these costs onto patients. Practices reliant on preferred provider schemes face an even greater challenge, with contractual fee caps limiting revenue growth.
It is now estimated that principals are working three times more after business hours than they were just 15 years ago.
“Just because you’re busy doesn’t mean you’re making money.”
In today’s environment, principals must have a sharp eye on their financials. Completing higher education courses isn’t just about clinical excellence; it’s about ensuring your billings approach $1 million annually to justify the pressures and risks of practice ownership. Associates often cover their wages and contribute minimally to overheads. If an associate bills $500,000 annually, the practice would yield a mere 10% net profit from their efforts. Perhaps even less. The burden of profitability overwhelmingly falls on the principal. To remain viable, the business must target at least a 20% net profit margin. There’s little sense in taking on all the additional responsibilities, stresses, and risks of ownership without an appropriate financial reward.
Today’s principal must be a true jack-of-all-trades-combining clinical excellence with managerial acumen. Human resources management demands emotional intelligence, operational leadership requires strategic foresight and staying competitive means constantly expanding service offerings to keep as much treatment ‘in-house’ as possible. Adding to this complexity are digital marketing demands, compliance obligations, ongoing education commitments and, for many, family responsibilities.
A deep dive into valuation trends
Over the past two years, our valuation team has reviewed over 100 dental practices. Alarmingly, many were not in optimal financial health for a premium sale price, largely due to unchecked operational cost increases. This finding runs contrary to the traditionally stable and profitable reputation dental practices have enjoyed with banks and investors.
For many principals, the discovery that their most valuable asset is now worth considerably less than it was even a few years ago can be gut-wrenching. Often, they are unaware of the decline until they request a formal valuation. While a quick sale can provide an exit, it usually comes with a compromised price. The smarter course of action is proactive, strategic financial planning. By strengthening the financial fundamentals of your practice now, you can ensure a far more lucrative and satisfying exit in the future.
Principal’s must undertake a forensic review of their financials and benchmark them against previous years. Critical questions to ask include:
What percentage of revenue is con- sumed by wages, and is it sustainable?
How effective and profitable is your marketing spend?
Are your associates generating sufficient revenue to justify their commissions?
Have your fees evolved in line with your rising costs?
If your revenue has remained static while expenses have surged, your profitability could have eroded by as much as 50%. In many cases, principals are working harder than ever-yet earning significantly less.
The silver lining: A red-hot market
Despite these pressures, the market remains incredibly robust. Whether you are targeting private buyers, private equity groups, health funds, or international investors, buyer demand is fierce. On average, Dental Acquisitions’ listings receive four offers and reach a signed Heads of Agreement within just six weeks. This strong buyer competition can translate into favourable sale terms for sellers who prepare properly.
Own your financial destiny
Even if you are not planning to sell in the immediate future, a thorough review of your profit and loss statements is critical. Engage with seasoned professionals-whether Dental Acquisitions, your accountant, or another trusted advisor- to ensure your practice remains financially healthy and ready for any opportunity.
Busy does not always mean profitable. Whether your exit is short-term or a longer-term goal, understanding your numbers and strategically managing your business are essential steps toward realising the maximum value from your lifelong dedication to dentistry.
Dental Acquisitions has helped countless principals successfully navigate this complex environment and achieve outstanding results. You can contact Ian Donnelley and the team at Dental Acquisitions by visiting dentalacquisitions.com.au or calling 1300 232 217.
