Dr. Rodney L. Cobb owns two dental offices and has a private practice with 5,000 patients. Still young enough to have most of his earning years ahead of him, Cobb, 39, should be on the cusp of a long and profitable career.
But when the graduate of Dorsey High School, Morehouse College and Meharry School of Dentistry contacted The Times last year requesting a Small Business Make-Over, his profit was down 20% and his dream of opening a dental office in Culver City did not look feasible.
His offices in Compton and South-Central Los Angeles are in high-crime, low-income neighborhoods, and 35% of his patients qualify for government-supported MediCal, which covers basic dental procedures but does not pay for more lucrative cosmetic dentistry.
“My patients are low- to moderate-income and I don’t have a large number of cash patients. Working with this population, it takes more ingenuity to generate the money necessary to pay my employees,” Cobb said. “But I am in business to help the community and I’ll do everything in my power to provide the best dental work and services I can.”
In came Dennis Morrison, a former business analyst for USC’s Business Expansion Network and current coordinator of the Small Business Development Center at El Camino College. At the request of The Times, Morrison looked over Cobb’s financial data and met with him at his South-Central office.
He’s ‘Ready, Willing and Able’
“I was very impressed with Dr. Cobb. He’s hungry to make money, he’s an entrepreneur who’s ready, willing and able to do what it takes to succeed. He knows what he does--dentistry--very well. He’s got a very good personality that should draw in clients and he’s got a lot of energy,” Morrison said. “But he needs to learn more about the business of running a business.”
During a series of meetings with Cobb, Morrison concluded that in order to improve his profitability, Cobb needs to reduce his overhead and adopt a marketing plan.
Three problem areas are hampering Cobb’s cash flow. The first was an unsuccessful expansion attempt that cost Cobb a lot of money a few years ago. The second is the amount of capital that he has tied up in the expensive equipment he must lease to run his practice. The third is his location, in offices that often are vandalized, where street people frequent his parking lots and Cobb comes to work in the mornings to find broken glass and fresh graffiti.
“If the patients don’t feel comfortable with the environment, they won’t come back,” Morrison said.
Attracting middle-class patients whose insurance will pay for elective procedures will be difficult for Cobb in his current locations, Morrison said. And his goal to expand to Culver City is not financially feasible at this time.
But Morrison urged Cobb to have patience and work toward his goals. A good place to start is to make his practice more professional by writing up an operations and policies manual and employee guidelines and upgrading his financial record keeping. “He needs to purchase and use accounting software for sure,” Morrison said.
He also recommended that Cobb hire a certified public accountant to take over his accounts and do regular financial statements, something Cobb does not get from the outside bookkeeper who balances his accounts and handles his billing.
“At his level of service, he needs a CPA to go beyond just preparing his tax returns,” Morrison said. “He needs someone familiar with his practice who can give him good business advice regularly. He can get that from a CPA or from his local SBDC, where he can get free business counseling.”
A CPA, or a counselor at the SBDC, could do a liquidity ratio analysis that would give Cobb a static portrait of his company’s financial health from month to month and help him make crucial decisions about the future of his practice. Better yet, a professional could teach Cobb how to do the relatively simple analyses himself, so that he could understand firsthand what shape his practice is in from month to month.
The two most common liquidity ratios are the current ratio and the acid-test (or quick) ratio, Morrison explained. The current ratio equals current assets divided by current liabilities. The current ratio roughly indicates the margin of safety available to a firm to meet its short-term liabilities. While the ratio can vary depending on the industry and business type, a ratio of 2-to-1 or better is considered good.
Getting Better Handle on Financial Picture
By eliminating the less-liquid inventory category and concentrating on assets more easily converted into cash, the acid-test (or quick) ratio determines whether a firm could meet its creditor obligations if sales were to drop catastrophically. The acid-test ratio equals current assets minus inventories, divided by current liabilities. Any time this ratio is as much as 1-to-1, the business is said to be “liquid.” The larger the ratio, the greater the company’s liquidity, Morrison said.
Cobb agreed with Morrison’s assessments about his administrative needs but reminded the consultant that his first problem was mediocre cash flow and lack of funding.
“A lot of my financial problems stem from lack of access to a bank loan,” Cobb said. “I need some green!”
Morrison told Cobb that to get a loan, he will need to get a better handle on his company’s financial picture. Cobb is still paying off his dental school loans and is not likely to get a bank loan because of his high debt-to-worth ratio, but he owns a home that Morrison suggested he could use to get a home equity loan.
“He should look for a comfortable interest rate so that he can pay off some personal debt and have about $80,000 to use for expanding his practice,” Morrison said, recommending that Cobb use a loan broker to help him shop for the lowest interest rate possible.
A Barter Exchange Could Cut Expenses
Morrison also suggested Cobb join a barter exchange. “I like the ones that are very strong and publicly traded, like the ITEX Barter Exchange, based in Portland, Ore.,” Morrison said. He contacted the ITEX agent and found that the exchange has a pharmaceutical company among its membership.
“Dr. Cobb is paying about $1,500 a month for supplies now. If he pays $595 for a lifetime ITEX membership, he can get some of his dental supplies using ‘trade dollars’ that will obligate him to provide services to other members of the barter group,” Morrison said.
That way, Cobb can save cash and probably spend 60% to 70% less on his monthly supplies.
Another avenue Morrison recommended Cobb explore is the empowerment zone. Cobb’s practice is located in the federally designated zone and Cobb might qualify for tax credits. He also may benefit from programs such as the Department of Water and Power’s discount program for enterprise zone businesses, which could save him up to 25% on his utility bills.
When it was time to talk about marketing, Morrison suggested that instead of an expensive ad campaign, Cobb use a “guerrilla marketing strategy” to increase his patient load without spending a lot of money.
Cobb could hire local residents to pass out coupons and fliers to potential patients. He also could participate in community health fairs and health-awareness events, Morrison said.
For the long term, Morrison recommended that Cobb take a course in small-business management, such as USC’s Fast-Trak program, which would walk him through the development of a business plan.
Eventually, Morrison said, Cobb should plan to either relocate his practice or open a third office in a more middle-class neighborhood. When he is at that point, he ought to consider an office near two busy streets and a bus stop, preferably in a one-story building, Morrison said.
But he cautioned the dentist to plan--and plan thoroughly--before attempting an expansion. Cobb agreed, saying he learned his lesson about unplanned expansion the last time around. “I’m going to first organize my office, then put myself into a better financial situation where I’m not totally dependent on month-to-month income, and get some new equipment in my Compton office.
“I also want to make my offices more user-friendly, so that when the patients see the buildings, they feel like they’re in West L.A. I’m going to work with the building owners to try to get someone professional and reliable outside every day to clean up the trash and the transients and the broken glass.”
Morrison said Cobb’s practice has a lot of promise, especially because of the dentist’s willing attitude: “He’s very receptive to new ideas and eager to learn.”
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This Week’s Company Make-Over
* Name: Cobb Dental Group
* Type of business: Dental practice
* Owner: Dr. Rodney L. Cobb
* Annual revenue: $210,000
* Based: 555 W. Compton Blvd., No. 103, Compton; second office: 600 W. Manchester Ave., Suite 1, Los Angeles
* Date company began operations: 1992
* Number of employees: 6 full-timers
* How company is financed: Personal funds
* Status: Private
Main Business Problem
Lack of cash flow, unable to expand because of underfinancing.
Supplement patient load with more HMO and private insurance patients, beef up marketing, obtain financing to consolidate debt and open a new office in a higher-income area.
* Take out a home equity loan to consolidate debt.
* Join a barter exchange to save cash on dental supplies.
* Investigate potential enterprise zone benefits and DWP’s utility discount program for businesses.
* Hire a certified public accountant to do regular financial assessments and give business advice.
* Utilize “guerrilla marketing” tactics to increase intake of patients.
* Participate in community health fairs, giving out free examinations and literature on his practice.
* Take course in small-business management, such as USC’s Fast-Trak entrepreneurial training program, and develop a business plan that would serve as a road map for running the dental practice.
* Ensure that appointments are kept by confirming with patients the day before. Once patients are in the office, plan to do all the necessary dental work that day.
Meet the Consultant
Dennis Morrison is the business coordinator of the Small Business Development Center at El Camino College. A former business analyst with USC’s Business Expansion Network, Morrison has taught international business, international trade finance, marketing and financial management for more than 10 years. He is a former regional manager of Utah-based Altres Financial, an accounts receivable financing firm. Morrison holds a master’s degree from Syracuse University in New York and a doctorate from the University of La Verne, with a specialty in financial risk management. Morrison previously owned and operated a Los Angeles convenience store.