Are you ready for your next practice?
If you’re thinking of buying another practice, here are some benchmarks to consider. Note: there may be special exceptions, but this will give you a more stress-free acquisition.
1. Your current practice should be producing between $80,000 and $100,000 per month.
2. Your hygiene program should have production at 25% to 30% of total collections (for general dental practices).
3. You should be getting a new patient flow of 20+ new patients per month.
4. You should have a stable staff with little to no turnover and a good working team.
5. Systems should be in place so your practice can run without you.
6. You have mastered dentistry where you can do most procedures and not refer much work out.
7. Your finances are in good order. You have paid your loans down and you have savings. (See Wikipedia for the definition of savings.)
8. Your spouse or significant other is okay with you opening another location. Realize that two locations = double the work, potential less spouse and family time.
9. You know how to read financial statements. With multiple locations, you now own a business and need to know how to run one.
10. Your bank, financial planner, accountant and other advisors are in agreement that it would be a good idea to start or buy another location.
By following these guidelines, you will save yourself, your family, bankers, attorneys, lawyers and others a lot of grief should you jump into another location too soon. We are always happy to help you assess your situation. Call us anytime, for any reason at no charge- (877) 866-6053.
Key Items Buyers Look For In A Practice
- Collections – Most buyers want a good base amount of collections. The average practice produces around $500,000 per year. If you’re below this amount, expect your practice to take longer to sell as there are few dentists who want a small practice that they can grow. Most want to buy it, move in and get cash flow from the very start.
- Cash Flow – Buyers want to be able to pay the debt service on the practice and also pay themselves a decent paycheck. If you have an average size practice, your overhead should be at or below the national average of 65%. This is after the “add-backs” that are done on your tax returns which “add-back” those expenses you are running through your practice which are really not operational to the practice.
- Hygiene Recall – A solid recall program should be in place. Approximately 30% of the collections in the practice should be from hygiene for a stable practice. A little less is okay, but the lower you get, the closer you are to running an emergency clinic than a stable dental practice. Not that there is anything wrong with that, you just reduce your pool of buyers if you have lower hygiene production. At the same time, if you have really high hygiene – 40% or higher, that either means your hygienists are awesome and so is your patient retention, or, you’re not doing much in the way of procedures and doing a lot of “watches”, fillings instead of crowns, etc.,
- Digital Technology – While this isn’t a must, most buyers want to see digital x-rays at a minimum. You can still sell your practice without digital x-rays, but expect the price to be slightly lower. Panoramic x-rays are great as the machines are less and less expensive. Digital charts are also nice to have.
- Decent Lease – With the commercial real estate market going crazy, you never know what you’re going to get. It’s good to have a lease term of at least 5 years out with a 3-year option on top. Problematic leases with tear down clauses, little parking, or those with short-term leases and the landlord not willing to extend the lease will cause a formidable problem in the sale of the practice.
- Updated equipment and décor – If you have older chairs, be sure and at least have the coverings in good shape. Older chairs are fine, but torn dental chair covers are not. Dental chair covers are inexpensive. Get new ones if yours are not in good shape. Old carpet, paint and outdated countertops are also a turn-off. A bit of new carpet, paint, and countertops go a long way in making a practice feel fresh and new for not very much money.
- Poor Bookkeeping and Accounting – Have I got stories in this area! However, I’ve been sworn to secrecy. If you’re running your Porsche lease, spouses’ dermatologist appointments, vacations to Italy, or doing anything remotely grey in the accounting world through your practice, STOP! We have had practices we could not sell due to too much funny business going on in the books. Bank credit departments look at the numbers and ask a lot of questions which leads to buyers getting very scared and running away. I’m sure if you have a good accountant, they are following generally accepted accounting principles for your practice and there will not be a problem.
These are just some of the hot items that can quickly turn off a buyer and will give you the best chance of selling your practice. Not being able to check off the box for each of these items does not mean you cannot sell your practice, it just means your buyer pool will be smaller and it will take longer to sell. If you’re two to three years away from selling you can use this as a guideline to prepare your practice to sell over the next couple of years.
Make 2018 Your Best Year Ever!
As we all close out on 2017 we reflect on the year’s accomplishments and successes. For Omni, we had a record year helping doctors buy existing practices finding new locations for their startup practices. This enabled us to give to various dental related charities and also towards our annual Thanksgiving Basket Brigade. We helped feed over 1,000 people at Thanksgiving time.
How about you? How did you do compared to your goals? Was one of your goals that you missed to own or startup a practice?
We can help you with accomplishing that goal in 2018. Here are some steps that will help you check this one off the list by the end of 2018:
- Decide if you want to do a startup practice or look for an existing practice. My advice is to first look to see if there is a practice available in the location you desire. If there is not and you have exhausted your research, consider a startup. Do demographic research to make sure there is room for another location. Contact us and we can help with your research.
- If you want to buy an existing practice, get the word out. Contact all of the brokers to make sure you are on their mailing list and let them know you are actively looking and want to buy a practice in 2018.
- Contact a bank that specializes in financing practices. If you need a list of a few, let us know and we can hook you up with a bank that will do a good job for you.
- Don’t be a tire kicker. The likelihood of finding a perfect practice located on the busiest corner property in a stand-alone building with a huge sign, hygiene at 30% of production or higher, annual collections over $1 million, staff that is paid below market wages, brand new equipment, fully digital with a cone beam and a CEREC, and a patient base that needs a ton of work with a price of 60% collections is zero. So, don’t waste your banker’s, spouse’s, consultant’s, broker’s or your own time by continually looking for the unicorn of a practice – it doesn’t exist. Instead, look for a practice that fits most of what you desire, but if it doesn’t have everything, you can put some work into it and make it a good practice.
- When you find a practice you like, don’t low-ball the offer. If you have looked at a few practices, you know what the price should be. Brokers should be pricing the practices they list at the market price. Yes, you can offer a little lower if you feel you need to negotiate the price. But, if a practice price is at $500,000 and it’s a good practice, don’t go offering $200,000 because you’re trying to get the best deal possible. The seller will be offended and tell the broker to not entertain anymore offers from you as a buyer.
- Buy the real estate if it’s available for sale. With interest rates where they are right now, it makes sense to lock in at a low rate versus paying rent with a 3% increase every year. Even if you pay slightly above market for the property, it can still make sense, as you own the building and you’re not throwing money down the toilet by paying rent.
- Once you have made the offer, continue to push towards the closing and do your work. Complete your due diligence in the practice. Hire a consultant to help you if needed. Continue to work with your bank to get them everything they need.
- Upon closing, keep the practice the way it’s been running if it’s being run well, and don’t make too many changes in the beginning. Let the patients see you a few times before you make drastic changes. If it’s a dog of a practice, yes, make changes; but if it’s doing well, why change what’s not broken?
- Work hard and be present. As soon as you can, quit your associate job and be in the office as much as you can. Chip in and help the staff if it’s slow. Call patients yourself to get them in the door. Do what you need to do in order to be successful.
All too often, we see doctors who want to be practice owners, but they just can’t seem to pull the trigger. They can find something wrong and a reason not to buy any practice that is shown to them. We want you to be immensely successful in your practice and are here to help you in any way we can.
We wish you a Happy New Year and cheers to much success in 2018!
Why Now is the Time to Buy a Practice
The same goes for buying a practice. The practice you buy does not have to be perfect and the last practice you buy. You buy a practice that fits your needs at your current time in your life. You put sweat equity and hard work into the practice to make it profitable. You do a bit of remodeling to make it fit your personality and style. You work in the practice building equity and you hone your skills as a practice owner and a business manager. In the end, timing is not as important as you think. I know many doctors who bought their first practice when interest rates were 15%. Also, keep in mind that practice owners earn 20% more than associates who are employees. (Read Rich Dad, Poor Dad if you want to understand why you should own and not be an employee).
The moral of the story is if you feel you might be ready but are not quite sure, you’re ready. Interest rates continue to be low. The economy is doing well. There are great resources that can help you own and run a practice. If you would like to discuss whether or not you are ready to own, feel free to reach out to any of us at Omni to discuss your individual situation. Send us an email or give us a call at 877-866-6053 today!
Practice Ownership is Declining
There is a steady decline of practice ownership, especially amongst male dentists. Approximately 80% of dentists currently own practices. Rising student debt, the emergence of corporate dentistry, shifting work-life balance preferences were just a few examples of why there is a decline in ownership. One of the big questions brought up is whether the trend is a big deal. It was pointed out that practice ownership is highly coveted and one of the reasons that dentists got into dentistry in the first place. All else being equal, owner dentists earn more than non-owner dentists. The question is, is practice ownership no longer as coveted as it used to be by younger, early career doctors?
The decline in practice ownership will continue for years to come. A comparison to the decline in ownership by physicians, which is now below 50%, was used as a comparison. Hospitals and groups have taken over the ownership of physician practices. The study states that physicians’ net hourly income is significantly higher than for dentists; Although, I would say that the annual income is higher for dentists, all things being equal. The author also claims that physicians are happier as a result of not being an owner of a practice. With reimbursements continuing to decline, dentists will be asked to do more with less. An emerging emphasis on quality and value will spur changes in dentistry.
If you have not read the article, I recommend you take a look. Email me at rod@omni-pg.com and I will send you a copy. You can also go to jada.ada.org and search for “Practice Ownership Is Declining.”