According to Live Oak Bank, “60% of dentists in the first five years of practice seek to establish their own offices.” To do so, they need access to capital—i.e., how difficult or easy it is to acquire money or resources for a business. Most individuals require access to capital when launching or expanding a business. While there is a wide range of funding sources available to companies, getting approved for a loan is challenging, especially since proof of concept, a solid business plan, and collateral are required. Therefore, many business owners must offer their homes, real estate, or personal wealth to receive capital.
In the case of entrepreneurial dentists and dental support organizations (DSOs), there are many elements to understand when needing access to capital. Here’s what entrepreneurial dentists and DSOs need to know.
As with any medical profession, the dental industry is constantly evolving. New technologies, continuing education, and groundbreaking research prepare us for the future by ensuring that we are continually growing. As for entrepreneurial dentistry, this term is used to describe individuals whose mission it is to highlight, connect, and maximize the careers and businesses of those in dentistry. In other words, dental entrepreneurs are driving the forward movement in the dental industry.
Elliot Zibel, cofounder and chief executive officer at Select Dental Management, shares this about dental entrepreneurs: “It is incredibly complicated to run a dental practice. The dentists are the primary source of revenue. So, it’s very challenging to be a dentist and an owner. The risk all of these individuals are taking and the commitment they have to their patients and staff need to be commended.”
A certain degree of risk is healthy when well calculated and well executed in business. This is to say that intelligent risk is almost always necessary and encouraged for growth and development. After all, you don’t innovate and elevate by maintaining the same principles and practices. Entrepreneurial dentistry follows this idea and is commendable, for these are the forward-thinking leaders in this industry.
How does this relate to access to capital? First, it is often the entrepreneurial-minded professionals who require said capital. Second, it is essential to remember that loan officers consider the level of risk in the businesses when determining eligibility for funds. Dental offices and DSOs must be forward-thinking and have a solid business plan that spans the next five years, at a minimum. DSOs have an edge here, as their business model often includes experienced business executives who are highly capable in this realm of growth and expansion. In the industry, this is known as “The Executive Edge.” In contrast, independent entrepreneurial dentists must rely upon themselves to grow the business and keep the current client base happy.
Let’s dive into this in further detail via growth strategy.
With every thriving business, there exists a well-thought-out growth strategy. This includes a combination of both acquisition-driven and organic growth. While it’s common for individuals and companies to focus on the former, the latter is critical for success. Organic growth allows business owners to maintain the principle share and decision-making capabilities over their investors. In contrast, a merger or acquisition dilutes said shares or strips away control entirely. Organic growth is slow, as customer acquisition and expansion rely on natural progression through the sales and marketing funnel. According to Investopedia, “A combination of both organic and inorganic growth is ideal for a company, as it diversifies the revenue base without relying solely on current operations to grow market share.”
Zibel shares this: “The way we think about it is there are two drivers to growing a practice: active patients and level of care. At the end of the day, we measure success by retention—for patients, staff, and the dentist. It’s important that our businesses are cash-flow generative. It’s all about the patient, but we must also be efficient and cash-flow positive in order to improve technology and advance patient-care over time.”
By maintaining a well-thought-out, diverse strategy, we avoid the issue of putting all our eggs in one basket and dropping the basket. In other words, we ensure success by having multiple avenues of revenue and customer acquisition and keeping the majority share of the company with the original proprietors.
Another essential element in growth strategy is having the right team. After all, it’s people that ultimately drive customer acquisition and retention.
Staffing Issues from the Pandemic
Human capital is essential to growth strategy and long-term business success. This includes intangible assets, such as an employee’s skills and experience. This is also considered their economic value. People are the most crucial part of any successful business, and this is reflected in a business’s ability to acquire new customers and sustain growth. Unfortunately, the COVID-19 pandemic has dramatically impacted staffing, retention, and schooling for future dental professionals.
“It’s much easier to retain your people than find new people,” shares Zibel. “What do people want? Simple. They want to feel valued, like they’re improving patient lives, and progressing professionally and financially. [As leaders,] we also need to step back and make sure that people are valued, like what they do, and align with the company culture and values.”
He makes an excellent point. The company needs to benefit from the employee, but employees also need to benefit. If it’s not a good fit, you are doing a disservice to that individual by keeping them in a position where they don’t particularly enjoy their daily tasks and responsibilities. Eventually, they will plateau, as growth is dependent on an individual’s willingness to learn. You also don’t bring out the best in people when you aren’t a good fit for their lives and personalities, which hurts your business and public appearance if that employee is rude or uninterested.
As for how to overcome staffing issues from the pandemic, while it may seem most manageable to take who you can get, selective hiring is genuinely the only option. Consider this: You hire an individual who isn’t actually interested in the position at hand; they just need the money. Odds are that you won’t be able to train that employee to your standards, and they’ll actually end up costing you more than if you were just patient enough to find the right person in the first place.
Selective hiring allows you to take control of the situation. While your team might feel the effects and drain of being understaffed for some time, they will appreciate the new hire that brings positive energy, enthusiasm, and passion for growing in the position all the more when you find them.
For more tips on hiring, see our blog on Postpandemic Challenges and Solutions in Dentistry.
When analyzing a company’s financials, consider this: “You’d rather own 25 percent of something precious versus 100 percent of something unsuccessful,” shares Zibel. If you’re struggling as an entrepreneurial dentist and business owner, it may be time to do a deep analysis of your finances and bring in outside help. DSOs are just one excellent option for expanding your practice and getting back into the green. If considering a loan as another option, you need to understand that the amount of leverage determines the cost of capital.
“At the end of the day, the lenders are taking a bet on you in many ways. Can you scale? What is your track record? Can you put out projections and meet them? It’s all about trust. Underpromising and overdelivering are key,” shares Zibel. Lenders are risk-averse people. They want to loan money to promising companies and create mutually beneficial relationships with individuals poised to be highly profitable. So, when applying for a loan, you must give these investors conviction, a clear understanding of your business, and a picture of how you’ve been and will continue to be successful. Essentially, you’re inspiring confidence in them for your business and you.
On the other hand, your lender needs to be a good fit for you. “What you need is a partner who aligns and supports your vision, and can help you get there,” Zibel explains. “The most important thing to ask yourself is ‘Do I have lenders that are willing to support growth, investments, and infrastructure?’ There’s a lot more than the cost of capital: It’s the relationship and the structure.”
To better understand lenders, it’s a good idea to ask them about their previous partners, challenges, and solutions. Clear examples of past success stories will allow you to determine if this lender is legitimate, is knowledgeable, and believes in your company. Understanding the lender’s typical process and track record is key to understanding them.
Access to capital is an essential component of any business’s growth and development. Without capital, you can’t invest in your employees, facilities, technology, and education. By focusing on these components, you will prepare yourself for any future challenges, especially in our postpandemic world.