Here are a few things to keep in mind when you consider
the purchase of an existing dental practice:
1. An existing practice
offers instant cash flow.
Unlike a start-up practice, an established practice has
an existing patient base — and just as important, an existing cash flow. This
instantly allows the buyer (you) to support the practice debt load, including
your new loan payment, your salary and your personal expenses. Lenders usually
look for the dental composite kit and doctor’s
personal income to cash flow at a ratio of a 1.20%, which means the practice is
expected to generate a $1.20 in revenue — or collections — for every $1 spent
between the practice expenses and the doctor’s personal expenses.
2. You’ll need a network of trusted advisers.
Chances are you started associating soon after you
passed your boards. During this time, you likely started conversations with
industry experts about the possibility of acquiring a practice. You should not
acquire a dental burs online without the input of
one or more of these key advisers.
3. Consider the term of your practice loan
The term will range from five to 15 years. A longer
term is preferable to minimize both the impact on your cash flow and the risk
inherent in patient attrition during the first year of your practice. You
should plan on keeping your loan for a minimum of five years, so consider a
loan with flexible prepayment options. These vary from lender to lender, and
are less important in the earlier years of practice ownership. Prepaying your
loan or making additional principal payments may be possible as you grow your
practice and increase your cash flow.
4. Determining practice value.
Often there’s a difference between what a seller
believes their practice is worth and what the buyer feels it is worth. While
there are several methods used to value practices, the market value (what a
buyer is willing to pay) is the most common. Practices usually sell for 70 to
90% of last year’s revenue, while specialty practices may sell for less due to
possible volatility with the referral sources for the practice. As a
prospective buyer, put yourself in the seller’s seat for one moment, and
imagine that you have owned this practice for the past 20 to 30 years. It was
your livelihood and key connection to the community. You now have patients who
are the children or even grandchildren of your patients. There is a high
probability that the proceeds from the sale of your practice will be a
significant piece of your upcoming retirement. There will often be an emotional
value to the sale, regardless of the monetary value.
5. Take a slow approach to change.
This is especially important when the seller leaves
post-sale and does not stay on for the transition period. Take time to
understand existing systems and processes before you decide to make changes.
Your patients may go through some anxiety with losing their trusted dentist, so
it’s important to maintain familiar faces and practices in the office. A true
transition period — with both doctors working — can make or break a transition.
It’s beneficial to everyone involved and helps curtail any confusion you may
have about the environment and philosophy.
6. Do your own due diligence.
If there is a broker involved in selling the practice,
they will have done the proper due diligence to represent the seller. Take it
one step further: Hire a consultant who will spend time in the practice to analyse
the staff, the systems, and perform a complete chart audit/patient count.
Hiring consultants may be a great idea not only during the due diligence
period, but also during the post-sale transition. Consultants can advise you on
Hiring and firing, as well as how to customize, establish and maintain your
systems — without rocking the boat too much — are all their areas of expertise.
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