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Another Point of View

Originally posted 07/21/08

During the process of finding and purchasing a suitable practice, prospective buyers usually follow many different pathways, some of which are more useful than others, but all of which, in a buyer’s mind, lead to the “right” practice.  In this article, I hope to point out what I feel are the most important things to consider and, as a result, may lead to streamlining the process by focusing on the most important considerations.

First of all, you should determine the “type” of practice that you want (“private” or “clinic”).  This is not as easy as it seems, as is evidenced by the many calls that we get from prospective buyers who are looking for a “private” practice in a middle or middle/upper class area, but insist upon high visibility so as to attract walk-in patients.  The fact is that people living in those types of areas do not usually choose their dentist by “walking in” to an office just because they see a big sign - they will more likely ask neighbors, friends and relatives for a referral.  Nearly all walk-in patients fall into one of four categories: (1) DentiCal patients; (2) patients who were quoted a fee by their own dentist and want to see if you’ll do the procedure at a lower cost; (3) patients covered by insurance who want to see if you’ll waive their co-payment; and (4) emergencies - these are often people who do not visit a dentist on a regular basis, but only when something “hurts”.  The dental offices in these areas that have high visibility were likely opened from scratch by dentists who could not find existing ones of that type for sale in the area.  I’m willing to bet that even in those offices, good walk-in patients are rare, unless the office accepts DentiCal, and dentists wanting practices in that type of area usually want to avoid DentiCal.  Even HMO practices do not need high visibility - their patients choose their dentist from a list provided by the HMO.  “Walk-in type of practices are generally “clinics” and are found mostly in lower class areas, where many of the people choose their dentist by location, rather than by who the dentist is.

Secondly, you should research various areas before starting your search.  Some flexibility is fine, even desirable, but you don’t get any closer to your goal by saying that “any area is fine” and then rejecting practices because you don’t like the area in which that particular practice is located.

Thirdly, determine a range of gross collections that would be acceptable to you.  This will determine the price that you will pay.  Please note that I say “gross” and not “net”.  Most single dentist practices can net 35-45% of gross collections, depending upon the efficiency of the operation.  Practices with hygienists and/or associates will net less than that (the profit from hygiene is usually less than that from other dental procedures and an associate’s salary must be taken into consideration).  Tax returns are often not the best method of determining “true” net because a good accountant will try to make the taxable net as low as possible by using creative “write-offs”.  Stay away from using the seller’s net as a determining factor unless you really know how to “read” a tax return.  The only expense that cannot be controlled is rent.

Fourthly, determine which of the factors that are entering into your decision are most important and which are least.  The most important factor should be whether or not you feel that the particular practice is one in which you can utilize your strengths and minimize your weaknesses.  A buyer who does not communicate well should probably stay away from “private” type practices in which inter-personal relationships with patients are the key.  That type of buyer should lean toward the “clinic” style of operation.  Select a practice in which you feel that you can be most successful.  The seller’s success or lack thereof should only be a guide as to the potential of the practice.  If you follow these guidelines, you should be able to make a decision by the time you’ve seen 4 or 5 practices.  If you have been looking for a year and have seen a dozen practices without having found a suitable one, either you are being unrealistic as to what you might find or you are not using the process to get closer to your goal with each practice that you see.  Remember - no one has ever made a dime “looking” at practices.

Finally, when you have finally found the right practice, come to an agreement with the seller as to the purchase price and closing date and are in the process of investigating the financials, lease, agreement of sale, etc., don’t get bogged down with minutiae.  It is desirable to have professional help with many of these factors, but don’t let them create an adversarial relationship between you and the seller by “over-analysis” or unreasonable clauses in a contract of sale or lease.  In doing so, you are straying from the real reasons that attracted you to the practice in the first place and concentrating more on the “deal” as opposed to the “goal”.  If you come away from reading this article with the knowledge that it is your perception of your being successful in a given practice, as opposed to any of the other details of the transaction, that should drive your decision, then I have accomplished my goal.  Remember - a dental practice does not make a dentist successful - it is the owning dentist who is responsible for the success of the practice. Happy hunting!

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