• The unappreciated virtues of a blue-collar practice
Sep 24 2021 - Simon Palmer And Dr Nauv Kashyap - Buyer: buying

Over the years, Practice Sale Search has noticed a distinct difference in the levels of interest that buyers have in different socio-economic areas.

If there were two dental practices for sale with identical figures - one in a blue-collar area and another in a white-collar area - there would be more buyers interested in the practice in the higher socio-economic area.

Why is this? 

If the revenue and profit figures of the practice are the same, why do dentists care?

There are many (often ill-founded) reasons that buyers give for this difference in preference. Let's look at these reasons one by one and give the counter argument:

1. Lower socio-economic areas will equal lower fees charged per procedure which means that you need to do greater volume to reach the same place financially.

Dental fees are generally set by the competition present in the area, not the socio-economic status. We've seen practices in lower S-E areas with no competition charging close to $400 for a check-up, clean and X-rays. Conversely, there are practices in higher S-E areas with significant competition, charging $99 for the same treatment.   

2. Lower socio-economic areas equal a lower chance of treatment plan acceptance.

There are three arguments against this statement:

  1. There is generally a greater need for more comprehensive treatment plans in lower socio-economic areas, giving dentists greater opportunity for work.
  2. The main deciding factor for patients to take up a treatment plan is the communication skills of the clinician that presents the treatment plan, rather than the socio economics of the area. 
  3. Patients in lower socio-economic areas will often accept payment plans much more readily than those in higher S-E areas. Again, this will come down to the skill with which the payment plans are introduced and presented to the patient in the practice.

3. Discretionary spending on services in lower socio-economic areas is more vulnerable if there is economic downturn.

While this may make sense at first glance, anecdotally, what actually happens during an economic downturn seems to be somewhat different.

One of the authors of this article (Dr Nauv Kashyap) has noted that his practices in lower S-E areas experienced more stability and growth than those in higher S-E areas in the face of the GFC and during periods of maximum uncertainty regarding the economic impacts of COVID. Anecdotally, we have heard this counterintuitive consumer behaviour repeated in practices across the country.

Why is this?

There are several possible explanations for this consumer behaviour:

  • Spending habits in higher S-E areas scare easier because people who live there often have larger amounts of debt (residential prices in their areas being much higher, cars, other investments) and are thus more fearful about economic downturn, thereby curbing their spending more readily when times look tough.
  • The government has dental programs for the most vulnerable in the form of CBDS, Vet affairs and hospital vouchers, which practices in lower S-E areas are the beneficiaries of. These are unaffected by economic downturn and act as a reliable backstop during periods of economic hardship

 

4. Owning a practice in a lower socio-economic area means that most dentists will want to live further away from where they practice. Living further away from a practice means:

  1. more time commuting and 
  2. less community engagement, as the practice owner does not live in, or form part of, the practice's community, and this will limit their success. 
  • Where dentists want to live often has more to do with their ethnic background, proximity to the beach/lifestyle, family and schools than socioeconomics. Sometimes these do coincide with higher socio-economic areas, but certainly not always.
  • EVEN IF the owner doesn't want to live in the area, the practice's community engagement does not need to be limited to where the principal lives. Community engagement with the practice, rather than the practice owner, should be the goal. The practice can have community ties through where its staff lives and through its engagement with the community, by sponsoring sporting teams, volunteering the dentist's time to speak about oral health at the local school, etc. 

Conclusion

There are many reasons given by buyers for why practices for sale in lower S-E areas experience lower demand, but these reasons are usually ill founded. Buyers willing to look deeper at the underlying virtues of these practices will find businesses that are stable and under-appreciated and are thus less contested when they come on the market. This, in turn, should mean that a buyer willing to look past the common objections above have an easier pathway to successful ownership.

For more articles about buying a dental practice, click here:

- What buyers miss

- PSS on Dental Head Start 

- Should you buy or set up from scratch?

- A buyer's guide to site inspections

- Kissing frogs