Buying a practice with value is far more important than buying something cheap.

Buying a “Cheap” Practice

Many years ago, I received a phone call from a dentist looking to sell. He was an older gentlemen in his 70’s and believed the time to retire had arrived. He invited me out to his office. I made the treck to a small suburb just outside a major city. Upon arriving at the office, I found myself walking up what felt like 40 flights of stairs. As I entered the office, I noticed an elderly woman sitting behind a desk just below a ledge with two open operatories. Soon, the selling dentist walked feebly to greet me and invited me to join him and his wife for a discussion. The scenario in my mind could not have been any worse.

After a few minutes of reviewing financials and several practice analysis reports, I looked up and sadly told the dentist and his wife, “I cannot help you at this time”. The dentist was shocked and said “Don’t you make money by selling practices?” With less than 400 active patients, only two operatories, and no room for growth, the practice was in a state of decline and was not a practice with value. There was no way I could ethically and morally spin this opportunity as a good one to a potential buyer. I could tell the dentist was quite upset I had in essence called his baby ugly. I shook hands with the couple and walked down the 40 flights of stairs out to my car and made the 60 mile treck back home.

Several months later I received a call from a young dentist asking for my help as he was about to close the doors on his practice. He had recently purchased an office and realized that there were hardly any active patients and very little revenue was coming in with bills due. I asked the young man to describe his practice to me. He said he practiced in a two operatory office in a small town. “You park out front and walk up a long flight of stairs”. I told him I am very familiar with this practice and asked him, “What broker would sell this practice to you? And why would you buy such a poorly declining office?” His answer still lives with me today. He said, “It was cheap.”

This dentist spent hundreds of thousands of dollars on his education. The first practice purchase he makes out of dental school is the cheapest practice money can buy. He got exactly what he paid for. With the elderly dentist leaving, the new dentist had purchased a few hundred patients who had aged with the dentist. It was not a practice with value. There was no long term revenue stream. He was going broke.

Fortunately, I worked with this young man to purchase another office close by, a practice with value. I helped him restart his career in the right direction. He had to spend over $500,000 and asked the seller to stay on board for a year. His new practice had 5 operatories and over 2,500 active patients. Five years later he bought his second practice. Now, he owns four offices. This dentist was so close to disaster. He’s a wealthy man now because he learned to focus on active patients and pay a good price for them.

This young man no longer uses the word “cheap”. While he used to speak in terms of price, he now speaks in terms of value.