Buyer Articles

When you get a copy of the lease, you or your advisor should contact the landlord or property manager.  Be sure the seller has informed the landlord that they are selling the practice first.  If there is a short time left on the lease, the landlord may be willing to do an extension on the lease.  You can put conditions on the extension that can include getting a tenant improvement credit to cover new paint, carpet, etc., free rent for a few months, lower rent, etc.,  I’ve even had a situation where the landlord loaned money to the tenant to completely remodel the practice.

Remember that everything is negotiable.  Don’t automatically assume the lease is set and you cannot change anything.  At the same time, know how to negotiate.  If you go for a home run right off the bat, you may turn off the landlord and they won’t be willing to negotiate.  If you’re working with a broker, it’s best to let them handle the negotiating.  They’re the experts and can save you thousands if done right.

There are a few things you should be wary of when buying a practice.  These are not necessarily deal breakers, but things to bring up and analyze with your team when you are buying a practice.

1. ALL THE TREATMENT IS DONE – You can run an unscheduled or untreated treatment plan report that should give you an idea of treatment on the books.  You can also look at the number of true active patients and compare that to the annual collections to see if there is potential treatment.   If annual collections are $500,000 and there are 1,500 active patients, there’s a good chance there’s work to be done.  If annual collections are $500,000 and there are 400 active patients, start asking questions.
2. OVERPAID STAFF – Annual staff salaries typically run around 20 to 25% of the annual collections.  When you get up to the 35 to 40% area, you are in for some bad news for the staff.  An older practice with long-tenured staff may have dental assistants who get annual salary increases and now their making $30/hr.  The same with hygienists.  Or, they are receiving an incredible benefits package of health insurance, retirement plan, gym memberships etc.,  This can be cured, but if you plan on keeping the staff, be prepared for a discussion on reducing benefits and/or pay.
3. OUT OF CONTROL COLLECTIONS – You can typically tell how good of a job the front desk is doing by looking at the accounts receivable balances.  The total amount should not be above 125% of your monthly collections (adjusted for insurance discounts).  The insurance aging report should be pretty clean with only small dollar amounts in any of the aging buckets.  If the aging balance is too high, or the insurance aging is high, you will either need to retrain the front desk or hire a replacement in the future.
4. SECRETIVE SELLER – If you are asking for reports or questions from the seller and they are giving you run around answers, you may want to think about moving on.  If the tax returns do not match to the annual collections reports, something funny is going on.  You should expect straight and quick answers, unless the seller is away on vacation or overly busy.
5. EQUIPMENT NOT WORKING – I am surprised how buyers don’t have someone go through and make sure all of the equipment isn’t working.  You would hate to go in on your first day and have equipment not functioning.  The equipment supply companies will typically come out at no charge and go through your equipment to make sure it’s working.  If it looks old and in disrepair, it will give you a good peace of mind to have it checked out.

All of these red flags can be fixed, so they are not deal breakers.  But, if you do run across any of these red flags, be sure to have your team of experts, CPA, consultant, equipment rep, etc., dig a little deeper and make sure you are getting what you think you are getting.

Guest post by Tommy Leigh, Vegas One Realty

Shopping around for comps before buying a dental practice may seem like a given for some. To find the best staff with the best service and the best customers, it’s going to take some time and effort to figure out which one fits a buyer’s objective. But just like so many things in life, the answer isn’t always tied up in a simple solution. It may take a little more foresight and a different kind of planning to achieve the best possible outcome.

Every Practice Is Different 
No matter how similar a practice may look on paper, the reality can be extremely different than it seems. Beneath what appears to be great promises might in fact be such concerns as a high turnover rate or an overall sense of dissatisfaction from both staff and customers alike. Just because a practice is only a few miles away from another and they both look somewhat similar at a glance doesn’t necessarily mean they should be priced similarly. The basics are just that: Basic — and looking at surface-level attributes can only take one so far.

Some Things Can Change
Excluding practices for certain reasons based on an ‘ideal’ model is one way to miss an excellent opportunity. A dental practice with an old-fashioned website or a less-than-optimal layout shouldn’t necessarily be a deal-breaker. A few bad reviews on the structure of appointments does not represent an inherent systemic issue with the practice. Dental practices are often happy to work with potential buyers to ensure they can get their practice up to speed. They may be willing to upgrade their outfit with a few extra perks while taking the time to get their staff up to speed. It may only be a few simple tweaks that need to happen before the deal becomes that much sweeter for the buyer.

Take a Deeper Dive 
What may be more prudent is to take a deeper dive into the specifics of client retention rates, prices, and profitability. To really understand a practice, leaders have to perform a deep dive into the numbers behind the practice. While location and presentation are certainly draws, figures such as cash flow will give buyers a better idea of what a practice is worth. Each one of those figures tells a small story that all adds up to the actual worth of a practice. As with so many decisions, the real devil is in the details so it all starts with taking a hard look at a singular practice. From the state of the technology of the practice to the quality of the furniture in the waiting room, this is the time to discover what makes each practice different from its direct competitors.
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Getting ready to buy a dental practice will be a time-consuming process no matter what approach a decision-maker takes, but there are ways to cut down on the amount of back and forth. Rather than starting with an overwhelming amount of potential candidates and then taking the time to painstakingly cross them off a larger list, it may make more sense to look at one promising practice in order to determine the real worth underneath. Make sure to keep an open mind about the ideal features of an ideal practice — they may not always be as obvious as they seem.

Tommy Leigh is the Broker/Owner at Vegas One Realty. Tommy’s team takes great pride in its ability to put clients first and provide the highest level of honesty and expertise in everything they do.

1. Have good clinical skills.  Be sure you have the clinical skills to produce the same or more production than the average veterinarian.  In other words, don’t buy a practice right out of veterinary school when it takes you four hours to do spay or neuter a dog.   It can take up to 5 years to learn the clinical and management skills to run a practice.
2. Buy existing or Startup new.  Decide if you want to start up a new practice, or buy an existing practice.  We recommend start by looking for an existing practice in the area you’d like to practice.  If after a period of time you cannot find a practice and the numbers make sense in your location of choice, analyze doing a startup.  Cash flow is king in veterinary practice financing and in paying your student loans, so look for an existing practice first and then look at doing a startup.
3. Veterinary Professional Team.  Get professional help from professionals that specialize in the veterinary field.  This includes your attorney, CPA, Banker and Broker.  Just like you don’t want your plumber doing your colonoscopy, you don’t want a bankruptcy attorney helping you with your veterinary practice purchase and sale agreement.
4. Educate yourself on buying a practice.  Know how to read a financial statement, practice management reports, lease terms, etc.,  There is a lot of information online, in the Veterinary Forums and other areas where you can get this for free.  Your professionals that you will be working with can also help educate you.
5. Find your practice.  Use the brokers in the area as well as state and local association contacts to find a practice of your choice.
6. Stop looking for the Unicorn!  Neither a unicorn nor a perfect practice exists.  Don’t cross a practice off a list because the carpet is green and you wanted brown.  Or, everything else in the practice looks good, but the staff is overpaid.  You can’t glue a pointy horn on a horse and call it a unicorn.  But, you can change the carpet, paint the walls, reduce staff pay, add endo to the practice, etc.  You will be in the practice for a long time, so don’t poo-poo the practice because of a change that the practice can handle.
7. Gather practice documents.  At a minimum, you want the following:
   1. 3 years tax returns
   2. 3 years profit and loss statement
   3. 3 years production by procedures and production by provider report
   4. Copy of the current lease and any amendments
   5. Practice statistics report showing patient demographics and other information
   6. Aging balance
   7. List of Staff salaries and benefits
   8. Any associate agreements
   9. List of any vendor contracts
   10. List of equipment
   11. Fee Schedule
8. Consider your offer.  So you like most everything about the practice and you want to make an offer.  You can work with your professional veterinary broker, or consultant and put together an offer.  You’ll want to analyze the purchase price.  If you’ve educated yourself, you can do this on your own.  If not, you can use a veterinary professional broker, CPA or consultant to help you put the offer together.  The offer is in the form of a Letter of Intent.
9. Get a Loan.  Banks love veterinarians.  The failure rate is less than .0125%.  Being a successful veterinarian is like finding a coffee shop in Seattle.  It’s pretty hard to miss.  Ask your broker, attorney, consultant, etc., for a referral to a lender.   Use someone reputable who does veterinary practice financing.  Do not use Suzie Q or Jonny Public the local commercial banker.  She will treat it like any other commercial transaction and try to run it through the SBA ending poorly with high fees.
10. Completing Due Diligence.  After you have agreed to a purchase price and both parties have signed a letter of intent, you will want to schedule due diligence in the office.  Prepare ahead of time for due diligence.  Know which reports you want to run and what the plan is for the due diligence.  You’ll want to truly see what the active patient count is.  You will want to review charts.  You will want to take a closer look at the equipment.  I would also suggest seeing if the seller is available for lunch, or to at least come into the office after due diligence.  This will help you get all of your questions answered by the doctor himself/herself.
11. Preparing to Transition.  The real work begins here as far as the transition goes.  There are somewhere between 50 to 70 items to get done prior to the closing of the sale.   We have a checklist if you’d like to see it.  This includes everything from setting up a legal entity to getting insurance credentials to ordering a credit card terminal.
12. Staff.  All through the process, the staff is hopefully unaware there is a sale going on.  The meetings and due diligence have happened in the dark of night, or on weekends all while wearing camouflage.   Kidding about the camouflage.  The reason the staff is not informed of the sale is there is a potential they may leave.  Part of the goodwill of the practice is staff.  If they all leave, there may be a potential loss of goodwill.  We recommend the seller tell the staff when there is a 99% certainty the transaction will go through to closing.  Sometimes that may mean a month before closing and other times it may mean the day of closing.  Every transaction, every staff, and every veterinarian is different.  It’s a gut feeling we get from experience.  Consult with your professional.
13. Closing the Sale.  Awe, the day is finally here.  It’s similar to any major purchase such as a house.  Some transactions require an escrow company or attorney to handle the closing.  Others can be done by a broker.  You will sign the purchase and sale agreement, bill of sale, closing certificate, loan documents and other agreements.  It’s a pretty painless process.
14. Notifying Patients.  As with staff, patients are not notified until the contracts are signed and the money is in the bank.  We don’t notify patients as they may leave the practice just as staff may leave.  There is a patient letter that is worked and agreed on between the seller and buyer.  The cost is typically split 50/50 between the buyer and seller.
15. Post Sale.  If the practice is running well, do not make any major changes for 6 to 12 months.  The more changes make the staff and patients uncomfortable.  Go in keeping things business as usual.  Of course, if there is an ugly orange shag carpet with teal painted walls, by all means, bring the décor up to date.  Also, if the practice is on a downward trend, you may need to make major changes including letting a staff member or two go, adding procedures, etc.  You need to make sure it will be successful and again, your veterinary professional advisors can help you.

Following these steps will make your acquisition of a practice a smooth process and not be a pain in the end (get it?).  Because you want to step into your new practice with a smile on your face on your first day and not looking like you just had a colonoscopy.