Pathways to a Dental Practice Purchase – Proceed With Confidence!

0

Most practice sales are immediate sales. The owner transfers complete ownership to a purchaser and, after a short transition, leaves the practice. There is also a growing trend toward structured or delayed sales leading to complete or fractional ownership (partnership) after a period of association. Delayed sales add a layer of complexity, and accordingly, require a greater amount of preparation and exchange of information.

More than one prospective purchaser has entered a practice as an associate without a clear understanding of the terms of the future buy-out/buy-in. Unfortunately, negotiating purchase terms after the period of association often ends in failure. After investing significant time in the practice and likely signing a restrictive covenant not to compete, the associate’s future is suddenly in jeopardy. This can be avoided by sharing information early in the process.

Regardless of whether it is an immediate or a delayed sale, a prospective buyer should expect to be furnished with preliminary practice information including dental supplies company the applicable business points for the intended association, purchase, and partnership.

Practice Information

The preliminary information should include, but is not limited to, the following:

Practice appraisal. Regardless of whether you plan to purchase the practice immediately or in the future, the first step is to have a qualified party perform a practice appraisal.

Cash flow analysis. The practice must be able to generate enough cash flow after operating expenses to service the debt associated with financing the purchase and still provide a reasonable income. The projected income should be supported by historic practice numbers and not unrealistic future projections.

Fee evaluation. Determine whether the fees are in line for the area.

New patient numbers. An indicator of practice vitality.

Three years of practice financial records (tax returns and financial statements). This is essential to obtain an accurate picture of the practice’s financial performance, including overhead and profit.

Patient chart audit. Verify the number of active patients and the number of patients on recall. Charts should have complete treatment entries, current patient information, and easily discernible treatment plans.

Facility evaluation. Is the décor up-to-date? Is the dental equipment in good condition or in need of replacement?

Lease evaluation. Examine the lease terms compared to the surrounding market. A lender will require a lease for at least the length of the note if third party financing is involved.

Treatment mix. Does specialized treatment comprise a significant portion of the practice? Are you trained to provide this treatment?

Payer mix. Carefully evaluate all sources of income and any insurance plans in which the practice participates. Can these plans be transferred?

Recall. Ideally, 22 percent or more of the total production in a typical general practice is derived from hygiene production.

Compare major expenses to industry standards. The percentage of total practice income for major expenses (typical general practice): rent 6 to 6.5 percent, lab 8 to 10 percent, dental supplies 6 to 6.5 percent, office supplies 1.5 to 2 percent, and total staff expenses 30 percent or less.

Association Business Points

The following points should be addressed if considering an association:

Practice income. The practice should have the ability to provide an additional dentist’s income.

Facility. Be sure the practice facility is large enough to support an additional dentist.

Staff. Be sure you have the total support of the staff.

Business relationship. Define the relationship between the owner/seller and associate/purchaser. The association can be either an employer-employee relationship or an independent contractor relationship.

Termination. Delineate the termination policy. Specify the causes for involuntary termination and the notice period for voluntary termination.

Compensation. Compensation should be clearly defined. Compensation based on a formula is typically a percentage of production or collections that may include a draft against future earnings. Alternatively, compensation may be set up as a base payment plus incentive bonuses. Ask for an illustration of the calculation for compensation.

 

Leave a Reply

Your email address will not be published. Required fields are marked *