Buyer Articles

​

by Jim Vander Mey

Practice Transition Advisor

People love benchmarks.  They want to know how many glasses of water we should drink each day.  How much we should work out every week.  Or, how many miles per gallon our cars can achieve.   There are benchmarks to look at when you are buying a practice.  They may not necessarily be deal-breakers, but they help determine what you will need to do to right the ship if the benchmarks are a little out of whack.  Here are some of the benchmarks you should look at and calculate when buying a practice:

• Staff overhead as a percentage of collections – 20% to 25%.  If it’s higher, the practice is overpaying staff, underperforming collections, or too many staff.
• Facilities Expense – 7% to 9% of collections – Too high and the practice is either paying high rent, space is underutilized or production is too low.
• Supplies – 5% to 7% of collections – If this is too high, it could be that the practice is using high-end supplies, or the supplies inventory (or vendor) is not managed properly.
• Marketing expense – 3% to 5% depending on the growth stage.  A practice that is looking to grow will have a high percentage.  A static practice may not spend much on marketing at all.
• Collection Rate – Minimum of 98% for a well-run practice.  A low rate means the front desk is not keeping up or managing the accounts receivables very well.
• Total Overhead (all expenses less owner and associate pay) – Ideally should be less than 65%.

These are just a few benchmarks to analyze when looking at a practice.  Again, these are benchmarks and if the practice you are analyzing does not meet or exceed these benchmarks, it does not mean it’s a bad practice.  It simply means you have work to do in those specific areas.
Contact me if you would like more information – jim@omnipg-vet.com.

​

by Jim Vander Mey

Practice Transition Advisor

People love benchmarks.  They want to know how many glasses of water we should drink each day.  How much we should work out every week.  Or, how many miles per gallon our cars can achieve.   There are benchmarks to look at when you are buying a practice.  They may not necessarily be deal-breakers, but they help determine what you will need to do to right the ship if the benchmarks are a little out of whack.  Here are some of the benchmarks you should look at and calculate when buying a practice:

• Staff overhead as a percentage of collections – 20% to 25%.  If it’s higher, the practice is overpaying staff, underperforming collections, or too many staff.
• Facilities Expense – 7% to 9% of collections – Too high and the practice is either paying high rent, space is underutilized or production is too low.
• Supplies – 5% to 7% of collections – If this is too high, it could be that the practice is using high-end supplies, or the supplies inventory (or vendor) is not managed properly.
• Marketing expense – 3% to 5% depending on the growth stage.  A practice that is looking to grow will have a high percentage.  A static practice may not spend much on marketing at all.
• Collection Rate – Minimum of 98% for a well-run practice.  A low rate means the front desk is not keeping up or managing the accounts receivables very well.
• Total Overhead (all expenses less owner and associate pay) – Ideally should be less than 65%.

These are just a few benchmarks to analyze when looking at a practice.  Again, these are benchmarks and if the practice you are analyzing does not meet or exceed these benchmarks, it does not mean it’s a bad practice.  It simply means you have work to do in those specific areas.
Contact me if you would like more information – jim@omnipg-vet.com.

There are a number of things to look out for when buying a veterinary practice.  If you’re not careful, you could end up with a bag of tricks.  Here are some of the top pitfalls to avoid when buying a practice:

1. Not understanding the numbers. Be sure and know what normal veterinary expenses are and what may be extraneous.

2.  Assume the staff are all on board and will be staying with the practice. Know who the staff is and what their relationship is with the seller, and how good they are…

3.  Embezzlement – hire an accountant to look for any irregularities. Statistics show there are a high number of practices that are embezzled by their employees each year. Are courtesy credits high?  How about patient refunds?

4.  Does the procedures the selling doctor perform match the procedures that you do?   Make sure a large amount of the procedures you don’t do are not currently being performed by the seller.  You don’t want to have an immediate drop in production right from the start.

5. Understand the lease. How many years are there left on the lease? Are there more options to extend? Is there a loan form the landlord build into the lease? Which expenses are covered in the lease? Is it triple new or a gross lease?

These are only a few of the pitfalls to make sure you don’t get tricked. Spend as much time in due diligence as you need and bring on experts to help you along the journey.

-Jim Vander Mey, CPA. ABI

You have been out of dental school for over a year now, working as an associate, or a GPR assignment.  You’re getting antsy as the owner keeps giving you the new patient exams, fillings, and the mean, nasty patients they don’t want to see.  You’ve got the itch for a change, either to do a startup or buy your first dental practice.   But, how do you know you’re ready?  Here are a couple of questions to ask yourself:

1.  Are you confident in your clinical skills?
2.  Do you have savings to live on for 6 months, just in case of emergencies?
3.  You have a part-time associate position that will keep the bills paid.
4.  You have good chair-side skills and can get patients to accept treatment.
5.  You know, at least the elementary aspects of running a practice.

If you answer yes to these questions, you’re ready to buy your first practice.  You should start taking courses on practice management.  The county associations often have courses on various aspects of running a practice.  There are also Dentaltown podcasts, courses at your community college, etc., which will help you get ready.

So, if you’re on the sidelines, not sure if you’re ready to own your practice and can answer yes to these questions, jump on in, you’re ready.  Give us a call if you’re still not sure.

-Rod Johnston, MBA. CMA

1. Contact a bank that finances veterinary practice acquisitions and makes sure you can qualify for a good loan.  Banks can require decent credit scores, cash in the bank, that you are two years out of school, and show production from your current employer. Every situation is a little bit different.  Try to avoid SBA loans if you can, as they can be expensive with early payment penalties. However, if that is the only avenue to ownership, do not pass it up.
2. The next step is to understand a little bit about veterinary practice valuations.  You don’t want to go into a sale not knowing if the practice is worth the price listed or not.  If you are looking at a practice that a corporate entity is also looking at, the rule of thumb is that valuations are out the window.  Practices grossing 1 million or less could be worth between 65% and 75% of its’ last 12 months’ production.  Remember, that’s a rule of thumb – I’ve seen practices go for as high as 160% of production and as low as 30% of production.
3. Think about where you want to practice.  You’re probably going to be there a while, so you might as well like the area.   Research demographics – there are excellent demographic services that sell great Veterinary demographic information for about $500.  It will tell you where the best locations to practice are located.  Also, do not ignore the smaller, older, and not-state-of-the-art-equipped practices. These can be the best opportunities allowing a higher return on your investment.
4. Put together a good team.  Get referrals for a good veterinary broker, attorney, banker, and accountant.  They’ll help you analyze the veterinary practice, do the legal work, and help you find a practice.
5. Get an understanding of the true cash flow of the practice and if expenses are above industry averages. For example, is the staff expense greater than 25% of production? Is the reason because one employee is overpaid and will be retiring at the same time as the seller, or is there an over-staffing issue?  Be an informed buyer.
6. Be prepared for your due diligence.  You need to know what to look for when you do get to the point of buying a veterinary practice.  Does the practice have a website?  As the practice should be valued on current performance, not future potential, there could be real opportunities for immediate growth. Know how to spot these things.
7. Finally, spend some time with a veterinary broker before you go look at the practice.  Understand what the practice you are looking at is all about.  Does the broker think it’s honestly a good practice?  Why?  Does the explanation make sense?  Once you’re comfortable with the numbers, then go take a look at the practice.

By being an informed buyer, you will avoid a lot of headaches and potential problems down the road.  There are practices that are hidden gold mines and practices that you should not touch.  Being educated and knowing the difference is critical in your veterinary practice acquisition success.