Buyer Articles

Happy New Year!  Is this the year you finally take the plunge and buy your own practice?  Or are you content with being an associate working for someone else?  Here are a few reasons why 2019 should be the year you become a practice owner:

1. Interest rates are starting to move up. The past few years have rewarded buyers with interest rates in the 4% to 5% range and some with as low as 3.75%.  Interest rates moving up means you may have higher payments on your practice loan.
2. Bank financing is readily available.  If you think you cannot get financed because of high student loan debt, personal debt, bad credit, etc., then think again.  Banks view your diploma and the accompanying school debt as a positive thing.  It’s an asset that can be used to generate a good income.  Call us and we can hook you up with a bank to discuss your situation.
3. Jump in, the water is warm.  Studies have shown that those who are successful in both business and in their personal lives take calculated risks.  Owning a practice is a well-calculated risk with the failure rate on practice ownership less than .25%.  Yet, many doctors continue to be an associate as they deem practice ownership to be a risk.
4. Pay off debt and retire sooner.  By purchasing a practice this year versus several years down the road, you can pay off your debt sooner, put more money in your pocket and retire sooner.  I know of several examples of doctors who bought a practice two years out of school and five years later had their practice completely paid off and are putting that money towards retirement.  Plus, practice owners make an average of 25% more per year than typical dentists who are associate employees in someone else’s practice.
5. Become independent.  Owning your own practice allows you to do the procedures you want to do and refer out those you do not want to do.  It also allows you to choose your staff, even choose your patients.  You get to work when you want to work and go on vacation when you want to go on vacation.  It is all up to you as you are the boss!

Whether you decide to purchase a practice in 2019 or continue to work as an associate, Omni Practice Group would like to wish you a Happy and Prosperous New Year!

 

1. Are you comfortable with your clinical skills?   If you have been out of veterinary school 3 to 5 years, you should have a feel for where you are with your skills.  A lot depends on the clinic(s) or hospital(s) you’ve been working.  Some may limit what you’re doing and others just may not be busy.  If you’re in a location that’s given you a variety and volume of experience, you should be getting a good amount of experience.
2. Have you seen a good practice in operation?  Sure, you’ve been working in one or more clinics, but are they well-run?  Or, if they’re not, you know the difference?  If you are in a well-run practice, you should be observing how the doctor and/or office manager treat the staff.  Whether a veterinary assistant, office manager, or veterinary technician, they should all be treated well.  How about the patients and clients?   They should be given good, Nordstrom-like treatment.  They pay your rent and you want them coming back.
3. Do you know how to read financial statements?  Most veterinarians in the early stages of their career don’t know what a financial statement is, let alone, how to read one.  There are online courses such as accounting for non-accountants and other courses on financial statements and bookkeeping that can fairly quickly teach you what the financial statements are and how to read them.  Understanding them is imperative in running any business.
4. Now that you know how to read a financial statement, do you know what the numbers should be?  What percentage of collections should your payroll numbers be?  What about rent, etc.? If you don’t know, there are resources online.  Watch all of the White-Board Wednesday online videos from Joel Parker, DVM.  They are great at teaching you numbers as well as other aspects.
5. Practice Management – Learn as much as you can with the free stuff online.  From the White-Board Wednesday videos to other online courses, you can learn a lot for no cost to minimal cost.  This will quickly help you grasp the key concepts of managing a practice.

These are just a few things you can do to prepare you to own a practice. And remember, practice owners typically make 20% to 25% more than an associate veterinarian.  In addition, the equity you build in a practice is a great source of retirement.  So, congratulations on completing another year as a Veterinarian and cheers to a New Year which may bring you Happiness, Joy, and Practice Ownership.

When you buy a house, there are certain key things you check to make sure it’s a good, solid house.  Those include the condition of the roof, foundation, electrical, plumbing, etc. Well just like buying a house, there are key things to look for when buying a practice.  Here are a few I suggest you look at to make sure you are getting a good practice:

1. Cash Flow – This is how much cash the practice is producing before paying the doctors salary to pay the debt service.  You can look at the tax return and do some simple calculations by adding back the non-operational expenses (think travel, food, etc.,) and doctor’s salary to the net income. This is a critical piece of the decision.
2. Trended Gross Production – Are the numbers going down year over year, or are they going up?  If they’re going up, that’s great – the practice is growing.  If they’re going down, that means either the doctor is getting near retirement and not doing as much work, or there’s a problem.
3. Active Patients – This can be defined as patients that have been in the office the past 12 months, 18 months, or 24 months. No matter what, you should calculate out how many patients have come in the last 12 months.  If it’s a paper practice, you can count the charts to get the number. If it’s a paperless practice, look at the production by procedure and look at the hygiene appointments to get the number.
4. Staff Salaries – Staff salaries should not be higher than 25%, including the payroll taxes and benefits.  If it’s not, don’t panic.  If you see that production can be quickly lifted, that will help get the salaries into a better perspective.   Or, if it’s already producing at a high number, you may have to look at adjusting salaries.  Do some more research here.   I’ve seen a staff member that can do the job of two people and is worth her/his weight in gold.
5. Production by Procedure Report – Make sure you can do all of the procedures the current doctor is doing.  If there are some that you cannot do, can you take a course and quickly learn that procedure, or will it require a longer length of time? Or, if you don’t want to do that procedure, what will be the impact on the numbers?  You can also bring someone in to perform that procedure, for example, if it’s an orthodontist, you can have an orthodontist come in a couple of days per month to perform ortho treatment.
6. The Lease – How much time is left on the lease?  What is the annual lease?  Did they sign the lease at the height of the market and leases in the area are now 20% lower?  Is there a tear down clause in the lease where the landlord can tear down the building with a 12-month notice?  Note, these are not that uncommon in areas that are growing or regentrifying.  Just know that they are in the lease and know what the likelihood of the building being torn down is.  Look at comparable leases in the area and see where they are in terms of price.
7. Treatment Planned – When doing a chart audit, look at treatment planned.  Is it all done, or is there a decent supply of work to keep the production going?  Some doctors will try to do all of the work on their patients before selling so they can get all of the money.   Others will leave treatment for the buyer to help them out.  Just be sure to know how aggressive the selling doctor was with their patients.
8. Insurances Accepted – Understand for which insurances the seller is a preferred provider.  Also, are there plans that they are a provider, but the insurance company is not offering them to new providers?  This is the case with the Delta Premier Plan. All Delta Premier patients are put on the normal Delta PPO when you come on as a new provider.  The result is a 10% to 20% reduction in fee reimbursement.
9. Is the doctor going to stay and work, or are they going to give you the key and run?  If you have enough experience, in running a practice, you may be okay with the seller getting out of there quick.  If it’s a larger practice with some unique procedures, you may want the doctor to stick around and show you the ropes before they going on a six-month safari to Africa, or elsewhere.
10. Is the staff sticking around, or are they retiring as well? If the doctor is in his 70’s and he/she has an assistant and a front desk person in their 70’s, there’s a high likelihood that they may be retiring as well.  It’s not the end of the world, just know what you’re getting yourself into.

These are just a few things to know and understand before you buy a practice.  Just as in a house where a roof, foundation, plumbing, and electrical can all be fixed, so can production, staff salaries, rent, procedures, etc., in a practice.  You just need to know what you’re getting yourself into.

Best of luck looking for a practice! Our Buyer’s program can always help you to make sure you don’t step into something you’re not expecting. For more information, give us a call at (877) 866-6053 or email info@omni-pg.com.

Do you know everything you need to know when you’re looking at buying a practice?  There are so many different things that require expertise to evaluate a practice.  There over 70 things you need to do in order to get the practice ready to close so you can start practicing.  There are an overwhelming amount of decisions to make during the process of buying and setting up a practice.  It can take over one hundred hours to complete everything necessary to get the job done.  Going it alone without any experience can lead to disaster.

Evaluating a practice involves understanding what you’re looking for.  You need to make sure you can do the procedures the current owner is performing.  You also need to look for opportunities to add procedures in order to grow the practice.  Understanding the reports is also important.  If a practice has 50% of its production from the hygienist, is that normal?  Is it because the hygienist is great?  Is it a good thing or a bad thing?   Why are there very few fillings being done and a lot of crowns?  The same for implants.  Why are there no SRP’s being done?  How about the lease?   What do you look for when you are reviewing the lease?

Then there are the financial statements – tax returns, balance sheets, and profit and loss statements.  What do all the numbers mean?  Staff salaries are 25% of revenues, is this too high?  The rent is 20% of revenues and the owner owns the building.  What does this mean?  What’s the depreciation schedule used for?  Do I care?  Why are there travel charges, automobile expense, and clothing charged to the practice?  What are add-backs?  How was the practice price determined?   Who did the valuation, how was it done and is it right?

If there was an associate dentist who worked in the practice and left two months ago, should I ask to see an associate agreement to make sure there is a non-compete provision?  What do I do if there was not an associate agreement?  What do I do if the lease has a teardown clause?  What is a teardown clause?  The seller claims there are 3,000 patients in the practice collecting $525,000 per year.  Does that seem right?  How do you perform due diligence and what do you look for?  What’s a chart audit?

How do you evaluate the staff?  How do you credential for insurance?  Can you continue the seller’s retirement or health plans?  How do I set up a corporation?  What type of corporation should I set up?  What types of business licenses do I need?   How do I get the x-ray heads certified?

The list of questions goes on and on.  The point is if you have never purchased a practice before, or even if you have, there is so much that you don’t know what you don’t know.  Throughout the last 20+ years that we have been assisting in practice transitions, we have developed an expertise in knowing what a good practice looks like and what skeletons in the closet look like.   We also have developed our own 72 point checklist of items to ensure your transition as a buyer into the practice is successful and it goes smooth. We are experts in transitions and have answers to the above questions and more.  Don’t go it alone and hope you get it right.  We can assist -you as a buyer in evaluating the practice and getting it closed.  Whether you are buying a practice from us, from another broker, or directly from the owner dentist, we can help you.   Call us to learn more about our Practice Buyer’s Program – (877) 866-6053

Given it’s almost Halloween, I thought we would cover a scary topic when purchasing a practice – Skeletons in the Closet.  If you have purchased a practice, or are about to purchase a practice, the skeletons in the closet are those unknown things that can come back and BITE YOU! after you have taken ownership and moved in.

The first one to look out for is staff embezzlement.  You can tell if there is embezzlement by comparing the tax return numbers to the production/collection reports — and if you want to go further, you can look at bank statements.  If the collections reports say there’s $700,000 in annual collections and there’s only $650,000 showing on the tax return, where did the other $50,000 go?  Staff’s pocket?

The second skeleton could be that the Doctor is under investigation and you don’t know it.  I’ve had a couple of practices where the doctors said they wanted to sell their practice to retire.  As I was listing the practice and doing some research, I found out that the doctors were under investigation for insurance fraud.  I have also had other listings where I discovered the dentist’s performance was being reviewed by the Dental Board.  You can typically find this information on the State Dental Board’s website.

There can be terrifying things with leases as well.  Is there a “tear-down” clause in the lease?  These clauses allow the landlord to give you notice and a certain period of time to move your practice.  That can be frightening, especially if you are thinking about selling and the landlord does decide to tear the building down and not renew your lease.  The value of your practice would go down to nearly nothing.

You will also want to know if any associates have left the practice in the last year.  If they have, was there a non-compete clause?  If there was not, are they opening a practice down the street and going to try and take patients or staff?   Ask the seller if they have associate contracts to review.

Is the selling dentist a bit aggressive with their treatment plan?   Is all the dentistry that has been treatment planned completed already by the seller?  This leaves you with nothing to work on except hygiene exams, which is not going to pay the bills.  Do chart reviews, social media reviews, and other research to figure out how aggressive the seller was in the practice.
 
These are just a few of the scary things you can look out for when getting ready to purchase a practice.  Its buyer beware, so be sure and do your due diligence when buying a practice.  Contact us for buyer’s representation so we can ensure you have someone helping you on your side.