Why can’t you pull the trigger on that dental practice purchase?

There is a lot of valuable information a potential buyer can learn before buying an existing practice to make sure it's the right practice to purchase.

Oct 2nd, 2014
Sold Dental Practice

It was the practice she wanted in the location she desired. The equipment was in good shape, and production seemed healthy. But Dr. Paula (not her real name) could not bring herself to pull the trigger. She was uneasy, but she didn’t know why. The selling doctor was very good, and he had an excellent reputation. The practice broker was widely respected. Still, Dr. Paula was anxious. She was worried that she was missing something.

Dr. Paula’s situation is not uncommon. Many doctors throw caution to the wind and purchase the first practice that “feels right.” However, there are many more in this post-recession world who are dragging their feet. They find themselves in a perpetual “paralysis of analysis.”

While sellers have brokers advocating for them, buyers often feel they’re at a disadvantage when purchasing practices. They worry they don’t have enough data and become skeptical of the seller’s claims. They often don’t have anyone they can turn to, someone to comb through the numbers and details that go beyond the value of the equipment and the overall production – those key systems that will make or break the incoming doctor’s success.

Buyers need reassurance that this investment is a wise one. Purchasing a practice is likely the most important and expensive investment that a dentist will make. It’s not surprising that most want to make the decision based on clear and comprehensive data and information that can be found in a practice evaluation, which is not to be confused with a practice valuation.

For less than the fee most dentists charge for a couple of crowns, a practice evaluation provides purchasing doctors with a wealth of objective information about the health of the practice they’re considering. Think of it like a home inspection. If you’re purchasing a home, you make a small investment in a home inspection. The inspector examines key functions in the home. With their report you find out whether minor issues could become major concerns, and if there are any major issues.

Similarly, practice buyers who can access objective information about the practice can more accurately assess the total health of the practice and the potential return on investment. For example, they may learn of weaknesses in the current business operations, which if addressed can open the door for additional revenues. They can gather critical information about the experience and professional capacity of the team they’re inheriting.

How robust is treatment acceptance? Does the selling doctor have several openings in the schedule, or does he or she have very few openings. What does either scenario mean to the purchasing doctor? What is the active patient base? Many brokers consider the active patient base to be patients who have been in the practice within the past two years. However, we find that a 12-month window is far more accurate. If a patient hasn’t been into the practice for two consecutive recalls, they can’t be counted as an active patient. Buyers need to know how many patients are past due in the previous 12 months, and how many are scheduled in the upcoming 12 months.

Moreover, purchasing doctors need to understand the demographics of the surrounding community. The neighborhood may have been teaming with young families 10 years ago, but now is host to an older population. That older population may be better educated and have more disposable income, but they might not be the demographic the purchasing doctor hopes to cultivate.

Doctors purchasing a practice often have little ability to assess the seller’s marketing. The practice may have a website, but is that website effective? Additionally, buyers need information about insurance plans the practice accepts, and what percentage of the practice income is from those plans.

In most cases, the practice evaluation bridges the gap between a possible sale that can’t seem to get traction, and a successful sale that both buyer and seller feel confident about. Typically, once a prospective buyer has the complete picture of a practice and their questions addressed, they’re eager to proceed.

Before you commit to the biggest investment of your life, consider a Dental Practice Acquisition Evaluation.

Sally McKenzie is CEO of McKenzie Management, a nationwide dental management, practice development, and educational consulting firm. Working on-site with dentists since 1980, McKenzie Management provides knowledge, guidance, and personalized solutions that have propelled thousands of general and specialty practices to realize their potential. She can be reached at 877-777-6151 or sallymck@mckenziemgmt.com.

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