RECESSION FEARS FOR ENDO PRACTICES
Notwithstanding government directives that are closing non-essential businesses in some areas, many companies are going to scale back, and the trade situation will be in flux. A lot of people are going to lose their jobs, or not be fully employed for some time. There is a very good chance that job, income and market uncertainty will put significant downward pressure on the economy. Even the stimulus packages, which can shore up the American economy temporarily, will not be enough to salvage the world economy on which we also depend.
And that adds up to a recession.
In dentistry, most care is diagnosed by a dental practitioner when the patient is in front of them with their mouth open. Often, the patient feels no noticeable symptoms. Endodontics is lucky in that regard because a sizeable portion of our patients have noticeable or urgent pain symptoms motivating them to seek treatment. So, we’re somewhat recession-proof (more than other doctors) but we’re not out of the woods.
When we get past the coronavirus mitigation measures, we may still be in a recession. The typical post-war recession has lasted between 11 and 18 months. So the next year might be a big challenge for everyone. For endodontists, the concern in a recession is not just the change in the consumer mindset of patients. It is also the change in the mindset of referring doctors.
As patients pull back from anything considered “discretionary” (like routine dental care when they have no self-identified symptoms of urgency), the schedules of referring doctors can open up. Their revenues start to fall, and then they start acting with scarcity: They start holding on to whatever treatment they can do themselves. So, not only are fewer patients coming into the GP practices to be diagnosed and referred, but those that are diagnosed are referred at lower rates.
The average dental practice experienced a 13% decrease in net income during the great recession of 2008/2009. The coronavirus recession may be different than that, but a well-prepared endodontic practice can comfortably weather a recession that lasts a year or two. What does “well-prepared” mean in this context? It is simply this: There is a vast difference between endodontic practices where the doctor is netting $200,000 per year, $500,000 per year and $800,000 per year (or more).
- A practice with $200,000 profits per year has very little room to navigate a long recession without the doctor having to make some very difficult choices about their personal spending. They are likely to be completely inflexible with respect to debt repayment, and even a $26,000 (13%) decrease in profits is going to hurt.
- A practice with $500,000 profits per year is going to have more flexibility. If they are smart, they have paid off their debt, which means even a $65,000 (13%) decrease in profits can be managed more easily. They may have to temporarily slow down how much money they are saving and maybe wait until next year for that luxury expedition to Antarctica, but their day-to-day life won’t feel too different than they are accustomed to.
- A practice with $800,000 profits (or more) per year has no reason to be in debt at all. This doctor has a very highly-funded lifestyle while simultaneously saving much more than they could ever possibly need in order to fund their retirement. A $104,000 decrease (13%) in profit sounds like a big hit, but in reality it likely to be only a bump on their estate planning road. Nothing else changes.
Since the previous recession or 2008/2009, the last 11 years have been a period of massive economic expansion and growth in the United States. There’s been an amazing window for practices to invest in growth and effectively “self-insure” financially for any contingency. Knowing that, if your practice wasn’t at the level you think it should be, then it’s time to do something different than you have been doing.
There are great successes in every market. The original iPhone was released on the eve of the great recession, and it created and dominated its market every year since then. Similarly, Amazon invested in itself and expanded while the dot-com bubble burst in 2000 and many of its competitors fell by the wayside.
Tension in the market forces creativity. It forces strategic planning that you should have been doing all along. It forces you to laser target growth rather than relying on a general rising tide to carry you along. These lessons will become more important to you as you plan your recovery. It’s never too late to make growth and economic flexibility a priority for your practice and life.