Seeing the Jungle through the Trees
All practices have something wrong with them. Some have more problems than others. The key to analyzing and acquiring a practice is having a vision and being able to know how to overcome and fix the problems.
Case Study #1 – A practice has historically produced $800,000 but is now down to $400,000 with no new patients coming in the door. Turn and run, or look into it further? If you looked further you would find that the doctor has had a health problem. He’s turning away 10 to 15 new patients per month while he’s getting treatment. He has been doing primarily hygiene appointments and x-rays for the past two years. By the way, he is booked out 3 months in hygiene and has over 1,200 active patients. The purchase price is $300,000. A buyer with vision purchases the practice and in his first year, he collected $900,000.
Case Study #2 – A practice in a nice neighborhood has been in existence for 45 years. The doctor is 67 years old and as it often is with older doctor practices, the collections have gone from $1.2 million down to $500,000. As it also is with these practices, he still has one full time and one part-time hygienist, two front desk, and two assistants. His overhead is 75% and he’s taking home $100,000 per year. The equipment is old and the practice hasn’t been updated since Jimmy Carter was President. It’s a dog of a practice. We sold the practice to a buyer for $350,000 who bought it primarily for the good location. The lease was up for renewal, so we assisted the buyer in getting money from the landlord to buy new flooring and repaint the interior. He re-upholstered the old Adec chairs. He offered one of the front desk employees a small severance package to leave the practice. He had the entire staff working the phones and sending letters to patients to get the hygiene columns filled. Within two years he was collecting over $1 million.
Case Study $3 – A practice is collecting $350,000 in a downtown metropolitan area. The doctor is earning around $40,000. There is a hygienist, assistant, and front desk staff. The practice formerly produced $800,000. The doctor is doing a lot of “watches” and not much treatment. The price is $275,000. Bank XXX tells the first buyer they will not loan on the practice because there is no cash flow. The first buyer walks away. Buyer two comes along and likes the practice. She’s also told by a different bank that the practice will not cash flow. We explain the opportunities in the practice to the buyer and how it doesn’t cash flow based on prior years’ collections. However, we are certain the practice will grow a minimum of 10% in the first year and more likely 20%. We suggest to the buyer that they let us help them find a lender who will lend on the practice based on future, projected collections. We speak with a couple of banks and find one who sees the vision of the practice with a young buyer who is ambitious and wants to grow her own practice. The bank agrees to loan on the practice. The doctor does $50,000 her first month in the practice and grew the practice 30% in the first year.
These are all true examples of transactions where doctors were able to see the forest through the trees. They had a vision and confidence in their ability to grow a practice. Not all practices are like these, but if you can see that the practice has a good foundation, or a good location, or good “bones”, you can pick up a practice where you’re not spending $1 million to get a practice that may not grow, but rather spending a lesser amount for a practice that will grow. We are happy to help identify these opportunities or point you to the right resources who can help you out in your quest to be a practice owner.