Buyer Articles

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.

By Rod Johnston, MBA, CMA 
 Here are 10 of the most frequently asked questions we get when buyers come to us looking for a practice to purchase:
Q-1:  When should I buy a Dental Practice?
A-1:  Most buyers are out of school at least two years.  This allows the dentist to increase his hand speed and allows them to be an associate in a practice or two where they can see how a practice is run.  Many banks also require that the dentist is out of school a couple of years before they will give them a practice loan.
Q-2:  Where do I look for practices for sale?
A-2:  Get on the email distribution of all the brokers in the area you are looking to acquire a practice.  Be sure you are a member of your state Dental Association so you can see their classified ads.  Some dentists sell their practices without a broker, so they will advertise in the association’s classified ads.
Q-3:  When do I form my “team” and who should be on my team?
A-3:  You can form your team early on in the process.  You don’t have to formally engage them with an engagement letter, but at least speak with them on the phone and be comfortable with knowing who they are.  Get references for who does a good job.  Your team should consist of a dental accountant, dental attorney, dental banker, dental consultant and/or dental broker.   Note that I specified “Dental” before each team member.  Having someone who specializes in dental is critical.  I’ve seen more money wasted because someone used their neighbor who is a divorce attorney as their practice acquisition attorney.  They soon regret this after they’ve spent $30,000 in legal bills.
Q-4:  What do I look for in a practice?
A-4:  Look for a practice within a 20-to-30 minute commute of your home.  Everyone is different as far as what the practice looks like, or what procedures are done in the practice.  But, in general, look for a practice that you can purchase and be comfortable doing the procedures the current doctor performs.   If there are some procedures you do not do that the seller performs in the practice, know that you can learn to do those procedures, often very quickly.  Keep in mind that there is no such thing as a perfect practice and things can be fixed.  Overpaid staff or too many staff can be fixed.  Old chairs can be replaced or recovered.  Green shag carpet can be easily replaced.  High rent can be renegotiated on occasion. 
Q-5:  I like the practice I’m looking at, now what?
A-5:  Have your broker or consultant write up a Letter of Intent.   This is a non-binding offer to purchase the practice.   There are contingencies in place that allow you to get out of the transaction should you decide at some point to not move forward. 
Q-6:  How much should I pay for a practice?
A-6:  Cash flow is king in analyzing a practice.  Would you pay 110% of collections for a practice that would earn you $500,000 per year in income?  (Hint: Yes)  In the current market, practices are selling for between 70% and 85% of last year’s collections.  They can go higher and they can go lower.  Again, the big factor is cash flow.  If the practice has good margins and good cash flow, it will sell for a higher percentage of cash flow.  Lower margins mean the practice sells for a lower percentage of collections.
Q-7:  What are the costs involved with purchasing a practice?
A-7:  Brokers typically do not charge a fee to the buyer.  Attorney fees can range from $5,000 to $10,000 for a simple, straightforward transaction.  There may be an escrow agent involved and their fee is usually $1,000 to $2,000.  You will pay sales tax on the equipment portion of the purchase price.  You will split the cost of sending letters to the seller’s existing patients with the seller.  Then, any upgrades to equipment, décor, etc.
Q-8:  What is Goodwill?
A-8:  No, it’s not just a place where you donate used household items.  Goodwill in a practice is all of the intangibles of the practice.   It’s the practice and doctor’s reputation, the location of the practice, the culture, the environment of the practice, all those things that bring patients to the office to have their dentistry done there.
Q-9:  What is a typical Covenant Not to Compete?
A-9:  A typical Covenant Not to Compete is for 5 years and 10 miles.  This means the selling doctor cannot treat patients for 5 years within a 10-mile radius of the practice they are selling.  The 10 miles is measured as a crow flies.  The Covenant can be more and can be less.  It is sometimes negotiated and more densely populated areas could be less and less densely populated areas could be more.
Q-10:  I currently work 6 blocks as an associate dentist with a 10-mile covenant not to compete from the practice I want to purchase.  Are the non-competes binding?
A-10:  Yes, Covenant Not To Competes are binding, especially if it’s 6 blocks away.  If it’s 9.8 miles from your current practice, you might be able to talk to your employer and get them to release you from the non-compete.  But, other than that, they are binding.
These are just a few questions we often get from buyers.  Hope this helps educate you a little bit more in your quest in purchasing a practice.

If you have been out of veterinary school for a few years, you may be contemplating owning your first practice.  But, for one reason or another, you have not taken that first step.  Maybe it’s the fear of not knowing the process of what you need to do to buy or build a practice.  Or, it could be you are afraid you may not have what it takes to be a practice owner.  Or, possibly, you believe the corporate veterinary practices are taking over the veterinary ownership world and you’re afraid of competing against them.  We are here to help educate you and calm your fears away.

Owning a practice should be on nearly every veterinarian’s list of things to accomplish.  Pride of ownership, directing your own clinic or hospital, and treating those types of animals you want to treat are just a few reasons why you should want to be an owner.  In addition, veterinary practice owners typically make 22% more in annual salaries than an average associate veterinarian.  On top of that, the equity you build in your practice will contribute towards your retirement nest egg.

The process of owning a veterinary practice can be simple if done right.  Simple, but it does require work.  Having a good team on your side keeps the workload down and alleviates road bumps.  One of the first decisions is should you buy an existing or build a new practice?  That decision comes down to whether you want to buy an existing practice with potentially good cash flow, but also potential problems?  Is there a practice available to your liking and in the area you want to practice?  Do you want something that truly has your stamp on it that you have built from the ground up?  A self-evaluation and talking about it with a few experts will enlighten you into knowing which route is best for you.

The other question is whether or not you have what it takes to be a practice owner?  The simple answer is “yes, you do”.  Even if you don’t want to manage staff, do bookkeeping, or handle other management tasks, you can still outsource all of that and enjoy being a practice owner.  Proper guidance and education are key if you have not ever done any of those things before.  A consultant, accountant, broker, and others can help guide you in practice ownership.

Corporate practice owners are here to stay.  I would not be afraid of a corporate practice as a competitor.  You can open a clinic across the street and out personalize their services.  Some corporates are just in it for the money.  Not all of them mind you, but quite a few of them.  They don’t provide the personal touch and sense of community that you can in your practice.  Many also have an associate turnstile where they change associate veterinarians every six to twelve months.   I don’t know about you, but if I’m taking my beloved dog Fi-Fi, who is a part of my family, I’m going to get to know my vet and make sure Fi-Fi sees that same vet every time.  I don’t want someone whom I’ve never met and don’t know anything about them.  I think the majority of the pet-owning public feels the same way.

Fears are a product of the unknown.  You fear there’s a monster under your bed because you cannot see under the bed in the dark and you don’t know what’s under there.  You fear broccoli as a kid because you don’t know what it’s going to taste like.  Fear of practice ownership is similar.  If you educate yourself, you can squash those fears.

To help facilitate this, we are offering a seminar called “Build or Buy – Your Pathway to Practice Ownership”. This seminar will help you begin the process of educating you on what you need to do to be a practice owner.  There will be experts from various fields of buying or building a practice.  You’ll learn everything from finding the right practice or location to analyzing the value of a practice.  You will receive continuing education credits while you learn about the process of owning a practice.  It will be an evening full of information with dinner provided as well. For dates, locations, and registration information, visit our calendar.