By Ross Martin, Management Consultant at Hive Business
How consciously or unconsciously are you deploying your assets? If your dental practice is worth say £1m then, as a shareholder, you are effectively choosing to buy it again every day, because you could be doing other things with that money and you are choosing not to.
So every day that your capital remains deployed in the business is a reconfirmation that you have chosen this asset as the best opportunity for your capital to generate a return. Yet if you were looking at it on purely financial grounds then you might notice there are hidden costs to practice ownership that you would be less tolerant of were you borrowing £1m to buy it today.
The loan repayments of £6k a month would no doubt sharpen the mind, giving you a new perspective on your ‘investment’, but I’ve noticed that without something sobering like that to bring urgency practice owners usually don’t like to think too hard about the opportunity costs of leaving their wealth tied up in an underperforming business.
If I were looking to buy a £1m practice I’d immediately put the building blocks in place for a high performing business: I’d want to have a plan to grow it, make it more profitable, recruit new staff and create a more enjoyable place to work. If you’re not planning and preparing to do that, are you prepared to let your £1m generate a poor return, with all the hassle of running a business that comes with it?
The average profitability we see among practice owners is quite low, between 3% and 5% when all the subsidisations are stripped out. We see outliers with double digits too, and some minus ones. It goes to show how easily practice owners can take their eyes off the prize, and I think this happens more in dentistry than in other industries because dentists get distracted by being paid (quite well) as clinicians.
I suppose the question you should be asking is why do I own a dental practice at all? Why not get paid as a clinician and have £1m in your pocket too? Practice ownership is a mountain of work and stress, which is worthwhile if you have a game plan for growth and exit. But if the profitability of your practice is low and your investment is making a meagre return, what is the point? Wouldn’t life be nicer without the stress?
I wonder if there’s a tendency among dentists to view practice ownership as an end in itself rather than a means to an end which, for me, would be building long term wealth. As a dental practice owner I would perceive every day without a growth and exit plan as an unacceptable and needless cost that was undermining my wealth strategy. As soon as I committed my money to a dental practice I’d be urgently trying to make it more profitable, otherwise I wouldn’t be able to justify the investment.
If your wealth strategy is mostly about avoidance — avoiding the thought of what else you could be doing with the money you are paying to borrow, or the thought of not borrowing the money in the first place — then you’re deploying your assets and living your life unconsciously. Is that really OK with you?
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