Great care should be taken when investigating the purchase of a dental practice. The most important steps in this process are the due diligence steps — the buyer should spend time looking for and understanding the positives within the practice. Opportunities and potential can enhance the value when those assets are understood and acted upon. But a potential buyer should also be on the lookout for red flags. While these flags may not necessarily be deal-breakers, a potential buyer should be able to identify them when they arise so that he or she can fully investigate them.
Here are five red flags to absolutely watch for:
- Pressure to close quickly — While no one wants the process to drag out, undue pressure to get a deal closed can be a red flag. What’s the hurry? Is there something the seller is trying to hide? Take your time in assessing the practice — you may own it for the next 30 years!
- The seller won’t share information with you — If the seller won’t share information, this is a problem. You need to know what you’re buying. Don’t go through the purchase blindly. Many times the seller is concerned about revealing confidential information. While that is a legitimate concern, you as the buyer shouldn’t care. You need to make a thorough assessment with as much relevant information as possible.
- Declining production — This can sometimes easily be explained, for instance, the seller cut back some hours or days. However, be sure to understand, especially if there is a year-over-year increase that has occurred.
- Poor patient retention/patient recall — In a general dental practice, poor patient retention and patient recall is usually not good. Dig further and look at patient records and charts. Why are patients not returning? Are they going elsewhere, and if so, why? Oftentimes, the staff will have a good feel for particular patients, so these can be good questions to ask them.
- High employee turnover — High employee turnover is generally not good for a practice, but it can occur for many different reasons. If employees at the practice you’re investigating don’t stay long, find out why. Are they paid below market? Does the seller have a poor management style? Does the office have an unfavorable culture/environment? Are there disagreements over treatment styles?
Knowing what red flags to watch for, and then being able to identify them is just part of the battle. Digging into them and understanding them is the other part. Be sure you do both in order to acquire a successful dental practice acquisition!
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Adam Decker, CPA, CVA, co-owner of Veros Dental, brings over 15 years of experience in dealing with practical issues business owners face. He truly enjoys working as a partner with the business owner and their practice in setting and achieving their personal and professional goals.
