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10 Things I Wish Someone Had Told Me About Buying a Dental Practice Posted by Tyson Downs on 4/15/15 7:27 AM Buying a dental practice is a huge undertaking but one that can pay off tremendously. There are many factors to consider, and you need to make sure you make the right choices before deciding to take over a practice and during the transition.
We recently talked to several dentists who have purchased dental practices and asked them the things they wish someone had told them about buying a practice. In this article I’ll share with you dentists’ first-hand experiences and advice about buying a dental practice so you can learn from their mistakes and successes.
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1. Get a real picture of the practice’s health. One thing dentists told me they wish they had known about buying a dental practice is the need for an in-depth assessment of the practice in question.
Eli Thornock, DDS, of Sound Smiles Dental in Bainbridge Island, WA, shared with me his experience:
In recently buying a practice, I felt like I could have been more diligent [in regard to researching the dental practice]. To get an idea of the health of the practice, a potential buyer needs to look at the patient charts, usually one as an audit, or random sampling of charts, to get an idea of demographics of patients, time in the practice, how regularly they are seen, etc.
According to Dr. Thornock, some other things you want to look at include: Whether patients pay with insurance, cash, etc. What procedures are being done in the practice, and which ones are generating the most money Financial data such as revenue, production/collection, overhead, and expenditures Any areas that need improvement New patient numbers Says Dr. Thornock:
You won’t fully know what you have bought until you get the practice, but getting as good of a true picture beforehand will allow you to plan accordingly, with less surprise in the future.
2. Consider cash flow above all else. Cash flow is one of the most crucial factors to consider when buying a dental practice. According to Daniel R. Whittaker, DMD, of Whittaker Family Dental in Bryan, OH, cash flow is the most important thing to consider when purchasing an existing dental practice.
Dr. Whittaker has the following to say regarding cash flow:
A $2 million dental practice with one dentist is a big practice. A $2 million Medicaid practice is just a lot of work. The dentist in the second scenario would likely bring home $200,000. The one in the first could take home over $1 million. If you have a practice with great cash flow, you don't need to haggle over small differences in the price. If the seller wants $650,000 for a $1 million practice but you only want to pay $600,000, you'll create animosity between you and the seller when you actually need that dentist to help you retain patients. If the cash flow is good, suck it up and pay more.
To determine the cash flow of a practice, you’ll need to pay close attention to financial data and information such as how customers are paying and which procedures are bringing in the most revenue (and if you’ll be able to continue offering these procedures).
3. Do your homework on the selling dentist. Another necessary step when buying a practice is to find out as much as you can about the dentist you’re inheriting the practice from. After all, in addition to his practice and patients, you will also probably inherit some of his problems.
Based on his experience buying a dental practice, Craig Barney, DMD, of Kennewick Dental in Kennewick, WA, recommends asking the following questions regarding the previous dentist: Why is the selling dentist leaving? (If it's for any reason other than retirement, you need to dig deeper.) If you determine that the selling dentist is wanting out because of profitability or demographic problems, what will you do differently? What is the selling doctor’s treatment philosophy? Is the selling dentist aggressive or conservative in treatment planning Does he/she do orthodontics, and if so, are you prepared to take over the ortho cases?
4. Consider the area you will be serving. When buying a dental practice, you have to consider not just the practice itself, but also the area that the practice is located in. The main reason for this is that the number of competing dentists in the area (in proportion to the population) can make or break your dental practice.
Dr. Craig Barney of Kennewick Dental says the following regarding dental practice location:
Is the community in which you are considering buying a practice a popular one with professionals like yourself? If so, plan on spending more on advertising and being included in several PPO networks. If you can find a underserved community, your practice will be more profitable from the start.
Dr. Thornock of Sound Smiles Dental also advises you get to know the area and the dental market/competition when buying a new practice:
You will likely live in the area for a long time, so get to know it. Also, learn about how the market is dental-wise, whether it is saturated, under-served, what the demographics are, etc.
Similarly, Dr. Adrian Vande Merwe, DDS PC, who has a cosmetic and family dentistry practice in Bountiful, Utah, tells us the following:
It's true that you can be successful anywhere. But it's much more difficult if you choose an area with too many dentists or where insurance companies are too powerful.
When marketing your new practice, consider dental SEO and even pay-per-click ads to attract new patients in a saturated market. You might also consider dental logo design and/or dental website design to rebrand the dental practice and let the community know about the change in ownership.
5. Don’t believe everything the selling dentist (or their practice broker) tells you. When acquiring a dental practice, you will be of course receive information about the practice from the selling party. However, you shouldn’t accept everything dentist or practice broker tells you at face value. Dr. Thornock explains how he learned this lesson the hard way:
A practice broker may hand you a portfolio with facts and figures about the practice, which may or may
not be very deceiving. From my own experience, I was led to believe things that weren’t necessarily true. For example, I thought the business was doing fine as a fee-for-service practice, when in reality, it was not going to survive without a change in the insurances that were accepted at the practice.
Additionally, cosmetic dentist Dr. Russell W. Roderick, DMD, FAGD, of Aesthetic Family Dentistry in Phoenix, AZ, recommends the following:
Ask for the past two years P&Ls to look closely at current overhead and potential to improve net revenue. Clearly define what an active patient is, to them and you. I define it as a patient who actually has an appointment with the office; many define it as having an appointment within the past 18-24 months (most of those patients are not returning). Look at actual charts – if the broker or doctor is unwilling to do this upon signing a nondisclosure, then there may be something to hide and/or the numbers may not be true.
6. Hire a competent accountant and attorney. Something else dentists wish they had known before buying a practice is the importance of hiring an accountant and attorney — this helps ensure you’re getting a fair deal. Says Dr. Barney:
If a selling dentist is using a practice broker, the advice of a competent accountant and attorney is essential. If financial negotiation is not your strong suit, set a goal price for the practice with your accountant and hand over price negotiation to your attorney. It's in the best interest of both you and the selling doctor to do the transition without the practice broker when possible.
Dr. Whittaker of Whittaker Family Dental offers up the following advice on making sure you hire a competent accountant.
Most accountants don't take the time to actually figure out what your financial situation really is. They take the bills you send in and pay them. They act like very well paid bookkeepers who refuse to leave their office. Find someone better. Find someone who is actively engaged in making you fiscally sound.
Additionally, Dr. Adrian Vande Merwe warns, in regards to the financial management of your practice:
Having "friends" who sell you insurance is not the same as having a financial adviser. You need a feeonly adviser, not one whose motivation is complicated with commissions.
7. Get informed about taxes and lending. Do you understand the nature of business debt service? Where should you be looking for lending? You will want to talk to your accountant about these important financial implications of acquiring an existing dental practice. Dr. Craig Barney advises the following regarding taxes:
While interest on your practice note is tax deductible, your principle reduction is considered income. This skews your income in favor of the IRS and you need to come up with as many tax saving strategies as possible. Take that into consideration when calculating the post debt service profitably of a practice.
Dr. Barney also shares the following information he learned about lending when he bought a dental practice:
Big national banks tend to be easier to get lending INITIALLY, but harder to work with over the long haul. Find a mid-sized regional bank with some experience in working with dentists. Move all personal and business accounts and loans under one roof and you'll find that lending and banking become much easier.
In regards to debt, Dr. Adrian Vande Merwe has the following to say:
Student loans will be gone someday – you won't even remember when you paid them off. Practice debt is more complicated. Many skilled salesmen will try to get you in more debt. On the other hand, it may be better to make other investments than to have your largest investment be your paid-off practice.
8. Know the transition plan. There are many ways to transition the sale of a dental practice; the transition period may last anywhere from days to even years. Too short of a transition period may result in lost patients and other problems, but if you take too long, the seller may reconsider their plans to sell. Here’s what Dr. Thornock has to say about the transition period when acquiring a dental practice:
Ideally, I would have preferred a short transition period, from 6-12 months, long enough for the patients to get to know me, short enough for all the transaction details to be figured out from the start. Any transition plan can probably work, but get the details finalized and written down from the very start. If the seller doesn’t know, or can’t tell the buyer, then they probably need to get more serious about selling. This may also factor into the selling price. For example, my sale was of the handoff type, with no overlapping period. I lost maybe 20% of the patients, simply because they didn’t know me. I should have paid less than I did, because of this.
9. Don’t be afraid to let people go. “Hiring the right people and managing employees will be your biggest challenge,” says Dr. Adrian Vande Merwe. You may want to initially hire some of the staff from the practice you’re purchasing, and you may want to bring in some of your existing staff or hire new people. But in order to address redundancies and make sure everyone in your office works well together, you might have to let some people go. Dr. Loren Anderson, DDS, of Anderson Dental in Kennewick, WA, says the following about putting together a team at your new office:
Take time to hire the right people. I had to learn this the hard way. If the person isn ’t a good fit, let them go, and let them go early. No use dragging through a bad employee hoping it will improve. It’s hard to fire an employee, but if they’re not a good fit, they’re not a good fit.
Dr. Whittaker has a similar philosophy:
Fire bad employees. If an employee fails to measure up, don't keep them. It's bad for morale.
On the flip side, employees might choose to leave if you offer them fewer perks than their previous employers. So, it’s important to obtain and consider this information before you purchase a practice. Dr. Roderick of Aesthetic Family Dentistry says,
Know exactly what wages and benefits are being provided the staff; they will not stay if the new doctor plans on reducing these.
10. Go slow, and enjoy what you do.
The final piece of advice from dentists who have bought a practice is to take your time. You won’t be able to fix all the problems with the practice overnight, so don’t worry about buying a fully functioning practice right off the bat. It takes time to build something just the way you want it. Dr. Samuel Kwon of SK Family Dental has the following to say about taking it slow:
Slow and steady wins the race. While you may want to grow your practice as fast as possible, it's important to do everything in order. Your practice is a long-term play, so take things slow, and make sure you do things properly. If that means studying things out a bit more than normal, then do it, making a mistake when establishing your dental practice could cause consequences for years down the road.
Dr. Anderson of Anderson Dental adds this bit of advice:
If a certain procedure or style bothers you or stresses you out, don ’t do it. Find your niche and refer what you don’t like to do out to a specialist. Life ’s too short to spend your days doing something you don’t like working with people you can ’t stand.
When you take the time to make the right choices with your practice, dentistry will be more enjoyable. Chad Barney, DMD, who has a dental practice in Lewiston, ID, has the following philosophies on how to have fun as a dentist.
1. Dentistry is more fun when you are a good leader. 2. Dentistry is more fun when you hire the right people and let the others go. 3. Dentistry is more fun if you keep learning and trying new procedures. 4. Dentistry is more fun if you have a positive attitude. 5. Dentistry is more fun if you develop good relationships with your patients.
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Topics: General Business