In our experience, when a buyer understands the critical components of the dental practice they wish to purchase, making the right decision about the purchase becomes logical and less emotional. Even though the due diligence process can be daunting at times to a buyer, the payoff of asking the right questions for the new dentist is tremendous. The following are important steps for buyers to think about.
Understand the health of the practice.
To evaluate the health of a practice, ask yourself:
- Do the patients pay with cash, insurance, or Medicaid? If so, what is the mix? What are the write offs from discounted plans, if any?
- Which procedures happen in the practice, and which one are generating the most revenues?
- What is the new patient flow?
- How do the the active patient numbers look? 12 months and 18 months are effective counts for practice income potential and management figures.
- What are the demographics? Is it a growing area?
- Is there any competition? How many dentists are close by? Is a corporation moving in across the street?
- What is the practice potential? A $1,000,000 practice with only 1000 active patients in not a good purchase for a first time buyer. A new dentist would have to produce over $1000 per patient just to maintain the seller’s numbers. But a $1,000,000 practice with 3000 patients, that’s an average of $333 production per patient, which is more reasonable for a new owner.
Why is the dentist retiring? And what is their transition plan?
I meet with dentists every week and hear from potential sellers who have an injury, are tired, are preparing to move, or are ready to retire. All of these reasons are very common and make sense during the transition discussion. The steps for buyers include considering the transition between the seller and themselves.
A smart seller understands the need to transition the goodwill effectively to the buyer to insure a strong value for the practice. Most transitions, the goodwill transfer is effective and the new dentist is endorsed with the staff and the community. Does a seller have to stay long term to assist the new buyer? Of course not, but it’s the offer and plan to assist that closes the sale. A practice closing should only take place when the sale or purchase is win/win for both parties. A proper transition plan should have sufficient details and strategic planning regarding a timeline to avoid any unnecessary headaches and expenses.
Remember, there is no such thing as a perfect practice.
Perfection is very hard to duplicate for a new dentist. If you find a near-perfect practice, walk away from the sale. Great opportunities in dentistry are usually found with practices that are under-utilized in hygiene, under-serviced in restorative procedures, and under-equipped in the office.
Every practice has flaws, just make sure you know what they are before you make a decision. Take the proper steps for buyers to ensure you have all the information. The better the information you can gather, the more informed and logical your decision will be.