Buyer Articles

If you’re in it because you love being a veterinarian and love helping patients and not necessarily in it to make the big bucks, you can really practice almost anywhere. A lot of buyers seem to want the downtown metropolitan practice thinking it’s a great place to practice since there are so many potential patients and you can live the urban lifestyle.  We’ve helped doctors who absolutely wanted to be in a metropolitan area, even though the demographics made no sense whatsoever, who then started a practice and did quite well.  One doctor that we helped always dreamed of owning a practice in a particular city.  He went for it and is successful.  And we have seen others want a practice in a certain area, and although the numbers didn’t make sense, they did it anyway and were successful.

Some of you are buying a practice because you want to make a lot of money, in which case, further analysis and discussion is needed. The failure rate for veterinarians is somewhere around .015%.  If you’re buying an existing practice and the practice already has good cash flow that you’ve identified, you can purchase the practice and have success almost no matter where it is. If it’s a poor performing practice, you would need to examine if the poor performance is because of the location, the management, or something else.  If you want to buy an existing practice and are looking for an opportunity to grow and have lower overhead, I would suggest looking outside of the metropolitan areas.  Those areas have less competition, wages and rent are lower and it’s easier to grow those practices.  And if you are considering doing a startup practice, the same rules apply.  Look for a location with good demographics outside of metropolitan areas.  Of course, if you absolutely want to be in a metropolitan area, don’t be afraid to go for it.  Just look closely at the numbers and hire a good veterinarian practice or real estate broker to help you out. 

One of the advantages of working with Omni is we have both practice brokers and real estate brokers to help you traverse the ownership trail in any way we can.  Just give us a call at 877-866-6053 or email info@omnipg-vet.com and we’ll be happy to help get you started.

Cash is king is an old adage used to describe one of the keys to success in business as well as personal finances.  Cash is essentially physical money or liquidity you have available.  While cash may be king when it comes to having cash on hand, another vitally important ingredient to the success of a practice is Cash Flow.  Cash Flow is the amount of money you have available in a given time period after you have paid all of your expenses (payroll, lab, supplies, debt, etc.).

When analyzing a practice, how do you know how much true cash flow the practice has available? You cannot simply look at a practice’s tax return or a profit and loss statement and know how much cash flow the practice has.  There are a number of steps that someone evaluating a practice would take into consideration when determining the correct cash flow.  Those steps are as follows:

1. Start with the Net Income of the practice.  This is the total revenue or collections minus the total expenses.
2. Add back the owner’s salary and any taxes associated with the owner’s salary.
3. Go through the expenses and “add back” those items that are non-essential to the practice. These are expenses that are for extra-curricular or out of the ordinary expenses. These typically include travel, staff meetings, interest, depreciation, owner life insurance, etc.
4. Calculate what your debt service payments will be by using a mortgage amortization calculator.  You can use bankrate.com or another online calculator.  Use a conservative interest rate based on current market rates for practice loans and a 7-year term.  Subtract the debt service payments from the above 3 items.
5. The result will be the cash flow to the practice after debt service based on the current state of the practice. This will be how much is available to a potential buyer for his/her personal salary, upgrades, updates, etc.

If you need help analyzing the cash flow of a practice, or how you can improve a practice, you can call us anytime for a free consultation. We can be reached at (877) 866-6053 or email at info@omni-pg.com. ​

​Correction: In a previous version of this post, Net Income was incorrectly labeled Gross Income in the calculation of Cash Flow.  We apologize for the error and any confusion.

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.

1. 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.
2. 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.
3. 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.,
4. 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.
5. 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.
6. 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.
7. 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.

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:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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?
9. 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!