Top Ten Things To Know When Buying A Dental Practice
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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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 email@example.com.