How To Buy a Practice
By Megan Urban
Who can help me?
This is a very important decision and time for you and your family, so it’s critical to build your team of trusted advisors, such as dental specific broker (with a real estate license), lender, CPA, attorney. These professionals have done many unique transitions, and often with each other, so they work well together and know how to provide you with a successful transition. You can use your relative or friend in these professions, but they can’t know the things dental specific advisors know. It’s the same as when you refer out complete bony extractions or dentures, etc. Experience and knowledge in a select niche are worth its weight in gold.
Can I afford a practice and associated real estate?
Dental-specific lenders understand dentistry and understand that you may have student loan debt, potentially as high as $500,000. If the practice cash flows and provides you with the money to pay your practice and student debt, plus living expenses, you may be good to go. If you are thinking about a start-up, you will most likely need to work part-time somewhere else as you grow your new practice. Your trusted advisors can provide you with ideas to assist with your startup as well as potentially referring to a dental specific marketing company. So, the answer is, typically, yes, you can afford a practice and associated real estate.
Sometimes, depending on the seller and your finances, you may rent a few years. The things to consider here are that if you rent, you may still have the seller “visiting” when they want and still act as though it’s their building and try to deter you from making your own decisions. It’s hard to make changes and you will someday understand this! If you rent, you will want your attorney to ensure there are solid details surrounding future purchase.
Some dentists prefer to own their own real estate and that can be beneficial for those with property ownership goals. Leasing in a commercial space or strip mall can be worth the potentially high rent if you have the opportunity to gain increased collections.
What do I need to know when looking at potential practices?
Where do you want to live and work? Once you determine the general location, look for a practice with a good and visible location and parking.
Work with your broker or buyer-representative to assist you to review the formal valuation or the following statistics.
Last 3 years financials to see collections and expenses. Some expenses may be backed out that would not pertain to the new dentist, such as “large” continuing education, cars, 401K, and family members on the payroll that may not have an active/necessary function in the practice.
- Accounts receivable. You will want to know the total and how much is over 90 days old that may not be collectible unless the practice accepts 3-4 months of in-house payment. Even if you don’t purchase the AR, you will want to know if patients are accustomed to paying at the time of service so you can slowly make changes as necessary. Any credit balances can be determined and addressed before closing.
- Procedure frequency. Confirm the services currently being done and if you are comfortable performing and what procedures you can potentially add. Check periodontal treatments and number of recare compared to active patient count.
- Patient demographics. This report will show patient age, zip code, and insurance participation. If the patient age isn’t what you enjoy, determine how you might acquire those patients. If many of the patients come from a zip code far from the office, be aware you may lose some of those patients. You may want to add or reduce insurance participation, but make sure you have a solid plan for this.
I want multiple offices.
Having multiple offices can be profitable if done correctly. Ensure you have solid processes in place that can be replicated. Consider doing a demographic study to determine where you want your locations. If patients may be going to more than 1 location, ensure your dental software is capable of being accessed by all locations.
What do I need to know/do before starting my first day in my new practice?
Work with your CPA to set up your entity, accounting system, payroll, and tax payments. Plan to have a confident first conversation with your new team. They will be anxious about the transition so you will want to put your arms around them and help them understand you want to continue the quality care and any small changes will only be for the better for patients and team. Be prepared for difficult questions such as asking for a wage increase, change in schedule, or complaints about other team members. Guide the team on how you want them to discuss you to the patients and how your goal is to retain patients.
Become familiar with your dental software. Most dentists and teams do not maximize the reports and statistics available to you. Remember, your dental software and accounting system are the 2 biggest tools you have to run your practice.
PURCHASING A PRACTICE, with your team of trusted advisors, should be a pleasant process that leads to a profitable and enjoyable career! For more information on our buyer’s program or for a free consultation, please contact megan@omni-pg.com.
Five Ways to Quickly Increase your Practice Revenue
Whether your practice is collecting $100,000 per year or $10 million per year, you can always use a little more money. Whether putting it away for your retirement or paying for your kids’ college education, some extra dough always comes in handy. The best way to get more money in your practice is to grow your practice. But how do you do that? Here are a few suggestions:
- PPOs – Unless you’re a fee-for-service practice collecting $5 million per year without any PPOs, or you’re the only dentist within 30 miles of your office, you should consider taking PPOs. I know everyone wants to be a fee-for-service practice, but in this day in age, it’s quite difficult. Many large employers provide some form of dental insurance. Being a Preferred Provider for those insurance companies whom the employers subscribe to will give you another source of new patients.
- Additional Services – Do you refer out endo, ortho or oral surgery? If you add those services, you can get approximately a 5% increase in practice production. There are many courses available where you can learn and hone those skills. There have also been advances in endo equipment which makes it much easier to perform endo procedures. Placing implants is another procedure you can add to your repertoire. Go back and look at how many endo, ortho, oral surgery, and implant cases you referred out. Those procedures and the corresponding money from those procedures can be yours.
- Marketing – Having more new patients coming to your practice is a great way to increase your production. If you’re doing very little marketing, or not doing any, you should consider getting in the game. The type of marketing depends on the type of practice you have, where you’re located and what kind of patients you want in your practice. You can consult with a dental marketing expert to get a good idea on which type of marketing is best for you.
- Where’s the Hygiene? Your hygiene production as a percentage of overall production should be approximately 30%. That can vary by the type of practice. Emergency clinics or cosmetic practices, for example, will not have much hygiene. Most general practices should target 30% of total production as hygiene. You can increase your number by making appointments chairside, incenting your staff to fill the hygiene column and educating yourself with all the information on the internet on how to improve your hygiene numbers.
- Turn “No” to “Yes” – We’re talking case acceptance. Your case acceptance should be a fairly high number – 70% to 100% is a good range. If you’re below that, your treatment diagnosed is walking out the door. Build rapport with your patients so they trust you. Work with your team, assistants, hygienists and front desk, to improve case acceptance. Use the common phrase, “If you were one of my family members, I would suggest you get this procedure done.” There are several good sources out there on improving case acceptance – books, YouTube videos, consultants, etc.
There are even more ways to improve your bottom line to make your practice more profitable, but if you implement just one of the above 5 items, you can increase your production by 10% or more within a month. Best of luck in your practice. As always, we are here to provide free advice or consultation. Call us anytime – 877-866-6053.
Should I Sell My Real Estate?
One thing to consider when selling your practice regarding the real estate is do you want to be a landlord? We have years of experience being a landlord and there are pros and cons. The pros are that you retain the building and get a monthly rental payment. Hopefully, that rental payment covers the mortgage, taxes, maintenance, insurance, and any replacement of major capital items. That includes when the HVAC system or roof fail and they need replacing. The other pro may be an appreciation of the real estate. Currently, we are in a high real estate market. Real estate markets are cyclical. They go up and they go down. There is timing involved in a sale. You time it right and you can reap your rewards of all the years you have owned the building. Time it wrong, and you feel a little pain from not selling at the height of the market.
The cons are like the pros. Being a landlord requires you to be on call 24 hours per day and 7 days per week. If a heavy storm occurs and the snow collapses the roof, the wind blows a tree onto the building, or the parking lot floods into the building, guess who gets the phone call? That’s correct, you! We have been on the receiving end on calls that happen at 2:00 in the morning when the building started to flood.
Another con is when the lease is up and the tenant decides they want to own their own building. They didn’t tell you that they purchased the building next door and you now no longer have a tenant! The odds of getting another dentist to start up a practice in your building is very low. It will also be difficult to get another tenant quickly. There are three dental buildings within five miles of our office that have been vacant for several years due to this exact thing happening.
The third con is timing the market. We’re currently in an up-cycle market. With interest rates and building inventory low and demand high, building values and prices are on the high end. Holding onto the building so you can get some cash flow and then sell the building later could cause you to lose hundreds of thousands of dollars. Also, a building has more value to an owner/user than it does to an investor. That means when you sell your practice, a buyer may be willing to pay 100% of market value, or slightly higher than market value, in order to acquire the building. Whereas, an investor will try to negotiate and get the best possible price they can get.
In summary, owning your own building while you are in practice is the smart thing to do. You build equity, pay yourself rent and can do anything you want to the building. But after you sell your practice, it may be a different story. Consult with your transition broker, who should also have commercial real estate experience, and get sound advice to help you make the right decision.
How to Own Your Own Building
Today we address a question we hear frequently from dentists: If you are at a point in your career where you have paid off your school and initial practice loans, and are tired of paying your landlord’s mortgage payments for him or her, then now is one of the best times to purchase real estate as an owner-user.
As everyone knows, we are in the midst of a good economy. Commercial real estate interest rates are still very low compared to prior years. We are seeing interest rates in the 4.25% to 5.25% range. In year’s past, we typically see them at 5.5% to 7%. The low-interest rates often times make your potential mortgage note payment lower than what you’re currently paying for your lease. Also, the Small Business Administration (SBA) has loans where if you occupy more than 50% of the building, they have lower down payments and other requirements on the loans.
The real estate market is also at an interesting point in time. Baby boomer building owners (try saying that three times fast) are divesting their real estate portfolios in order to get their equity out to fund their retirement. This makes it an opportune time to acquire a building – the building where your practice is located or another one in your neighborhood. Or, possibly an investment property.
In times like these, there are winners and losers in the investment and real estate world. If you are sitting on real estate and need to move it, you are at quite an advantage. If you are in the market for buying real estate, however, now is also a golden opportunity. Dentists looking to purchase their own buildings have three options. One is to look for an existing building that can be converted over to dental use. The second option is to find vacant land on which a dental office can be built. The third option is to approach the landlord who owns the building you currently occupy and see if they would be willing to sell. There are advantages and disadvantage to each. Of course, if you are currently in a nice building, purchasing the building you are already in, makes the most sense. The main advantage of buying an existing building and converting it is time. It takes considerably less time to convert an existing building into a dental office than to start from the ground up. The largest disadvantage is the commitment to the basic structure of the building and the existing lot. The main advantage of starting from the ground up is that the building can be designed and built to exactly meet the dentist’s needs. The disadvantage is that it takes much more time to find the land, to have the building designed and permitted, and to construct the building.
As commercial real estate brokers, we can help you with the process of purchasing an existing building or land on which to build your ideal dental building. We can also assist in speaking with your current building owner to see if they would be willing to sell their building. The biggest mistake a dentist can make is to start the process with time running out on his/her lease. The process should be started at least 18 to 24 months before the end of your lease. It can take up to 6 months or more to find the ideal building or land and then an additional 1 to 2 years to convert an existing building or build from the ground up. It is also important to assemble a team that can support you throughout the entire process. We can act as a resource in helping you assemble your team. Your team should include people experienced in the dental field, who are familiar with the dentist’s wants and needs. Your team should include a general contractor, and may or may not include an architect, depending on the scale of the project. Your team should also include an attorney and a lender. The key to any successful venture is planning. Picking an experienced team of experts and working closely with them is critical to making a successful transition to owning your own office building.
If you think this might be the time for you to start looking for that ideal dental building, you can begin by calling the best dental real estate broker in the Northwest – Omni’s own, Steve Kikikis. Steve can sit down with you to start the process and lay out a plan for owning your own building. Steve can be reached at steve@omni-pg.com, or you can call him at 425-905-6920.