Next Level’s “BIG Guide” to Buying a Dental Practice
What to Look Out For When Buying a Dental Practice
How do you properly evaluate a dental practice that you want to purchase without having any past experience in ownership or acquisitions?
You want to be a practice owner and you’re looking to buy, so it’s more than likely you have so many questions bouncing around in your head.
Is this practice profitable? How do you make the transition process a smooth one? What makes a practice a good one to purchase? You’ve got the experience and background being a dentist, but stepping into a high stakes business transactions can probably feel like a fish out of water. If this sounds like your situation this blogpost is for you.
Next Level Consultants has helped many dentists through the process of buying a dental practice. When you work with a Buyer’s Representative, we provide a peace of mind when making those stressful and important decisions every step along the way. Nonetheless, this guide will also help as you look at and evaluate dental practices now or in the future. Don’t hesitate to get someone to represent you. Sometimes, you just need a professional who’s been through the process before. They will look out for your best interest in the deal. They typically seen hundreds of deals and know what to look out for along the way.
What to Look for When Buying a Dental Practice
You’re ready to start the process of acquiring a dental practice. But where do you begin? One of the first steps to consider is the practice’s finances. You’ll want to closely examine the practice’s financial position and details, such as cash flow. The last thing you want when buying a dental practice is to find yourself in the red. But how do you begin reviewing the financial side of an acquisition? Well, here’s where to start…
Review HISTORICAL Revenue and Profitability
Without revenue, there is no dental practice. This first step is critical to understanding where money is coming in from and how much profit you can expect to make. You can find the revenue and profitability information from several sources. For example, income statements (P&L) can give a big picture of what the practice is making. It includes data such as gross revenues and operating expenses. The income statements should track monthly, quarterly, or annual costs versus revenue to determine the overall profits.
The idea is to gauge the practice’s financial stability from years past two or three years to determine the sustainability and future. There’s no reason for you to take a big financial risk buying a dental practice if it isn’t profitable. When you partner with Next Level Consultants, there is less risk involved in the decision making process. As a Buyer’s Representative and dental consultant, we help you understand a dental practice’s expenses, pointing out what may or may not be considered necessary.
Keep a Close Eye on Expenses
Earlier, we mentioned looking at the financial statements when buying a dental practice. But what does this mean, exactly? Expenses can come in all shapes and sizes for nearly all businesses. This is also true for dental practices.
Some expenses to track closely include:
- Staff salaries and benefits
- Rent
- Lab
- Dental supplies
- Marketing
- And professional services
By looking at industry averages and understanding what a solid baseline is you can determine how the practice your looking at stacks up. Contact us at Next Level Consultants to get reports on industry averages of over 2,000 offices nationwide. This helps you see where a practice stands fiscally compared to the other offices in that region. But once you have your thumb on the pulse of a practice’s expenses, you will be ready for the next important component to evaluating a practice: the patient base.
Patient Base is the Lifeblood of a Dental Practice
Where would any dentist be without their patients? As you examine the dental practice you’re planning to acquire, consider the existing patient base. You’ll want to ask for an 18-month overview of the schedule and patient visits, including patients seen for any reason at all, as well as regular patients for hygiene appointments.
Keep in mind that the average hygienist sees 8 patients in an 8-hour day. Generally speaking there should be about 200 active patients with recall and hygiene appointments scheduled. These numbers matter greatly when it comes to paying full-time salaries for team members, as well as the profitability of your practice. So looking at the number of active patients and procedure counts is a good way to gauge to how many team members you can support in that office.
Consider Insurances (or Lack Thereof)
Patients may be the lifeblood of a dental business, but insurance plays a significant role in your revenue. After all, patient insurance and their relationship with their insurance provider impact your revenue and reimbursement rates. Practices with more insured patients might have more consistent and predictable revenue. This is because insurance providers cover many routine procedures on an ongoing basis. However, practices that are fee-for-service (FFS) have the ability to charge whatever they want for the procedures they are providing.
About 33.6% of the U.S. population does not have any dental benefits (according to the ADA in a 2016 study). Offices that use services like third-party financing see higher case acceptance rates among the non-insured patients. If a practice is offering services that insurance providers do not cover, it’s more than likely their case acceptance will be dependant upon demographics, credit scores, and third party finance options available to patients.
While there is a major upside to buying a FFS practice, the practice’s goodwill is put into question. If the patients of the practice do not have insurance coverage that is accepted at an office, what is keeping them loyal and coming back to a FFS practice? This should point should be clarified in detail before you purchase a FFS practice.
Staffing and Human Resources
The backbone of your office is undoubtedly your team. Managing a dependable and skilled staff can feel overwhelming on its own. When it comes to an acquisition, there is a very delicate line and process to becoming an employer rather than an employee.
Where do you begin when it comes to looking at the staffing and HR policies in place during this process? First, take a look at the current staff as well as their qualifications. You’ll also need to review the contractual obligations of the existing staff and try to retain key members if possible. Don’t be shy about asking for past performance evaluations.
Review the team’s salaries and benefits. When your goal is to build a staff that will stay with you for years, naturally they will want to feel appreciated and well compensated. There is a lot to consider when transitioning doctors with existing staff. It’s a delicate dance, and strong leadership skills must be presented early on. By working with a coach or consultant through this transition period, you can win over the patients and team members. If it becomes apparent that there are employees who cost more than they are worth, that is a conversation you can have once the new HR policies are in place. So, get a glimpse of existing HR handbooks and policies if possible.
Marketing and Reputation Utilizing a Demographics Study
While word of mouth and referral patients are worth gold, the reality is that you need to leverage other areas of marketing to survive or grow. This is the time to consider the practice’s marketing and reputation.
A review is necessary to discover what (if any) marketing strategies are needed or currently in place, internal or external. Dentists can use a variety of marketing practices, including social media, SEO (search engine optimization), and even mailers, to reach the community. Now is the time to determine what kind of marketing is currently being done. Find out the current marketing budget and calculate if the current spending level is enough or if more may need to be done. This will also allow you to evaluate if there are opportunities for growth post-close. Next Level Consultants work with demographics reports and can advise on marketing strategies if you decide work with a consultant as a new practice owner.
The Next Step, Buying a Dental Practice!
Is the practice you’re looking to buy the right fit for you? If you are still wondering what practice is the best dental practice to purchase, you can contact Michael Dinsio at Next Level Consultants. He is a Buyer’s Representative. Michael started out as a banker who helped hundreds of doctors get into ownership. Michael can use his experience in streamlining a Letter of Intent (LOI). He has first hand knowledge about what to look out for when purchasing a dental practice.
Knowing what questions to ask the seller or broker can be challenging, but you don’t have to go at it alone. By partnering with a Buyer’s Representative you have an advocate and counterpart through the process. When looking to purchase your next dental practice, why not trust a professional who have been through the process numerous times.
Becoming an owner is probably the single best thing you can do for your future as an aspiring dentist. By becoming a practice owner you achieve autonomy and independence. Your financial potential and worth increases exponentially. By owning you become more fulfilled by creating a business that has direct impact on a community. You are also building a legacy that can last for generations to come.