#1 Practice Profitability
The #1 aspect we want to know when evaluating an opportunity for a dentist is “How profitable is this practice?” Can you pay all the expenses, pay the loan debt service required to buy the practice, and have enough cash flow left over to support your family and lifestyle?
It is also important to know the length of transition time for the Seller post-sale. You will want to ask, “Is there enough revenue to support 2 dentists for an extended period of time?”
#2 Practice Financing
Currently, there are many financing options available for dentists. In today’s market, your choice of banks range from large, national banks who might offer you a more competitive rate to smaller, regional banks who might offer you more personal service. Your banking decision is primarily based on your comfort level and preference as the market continues to be competitive. Currently, banks rates for practice acquisitions range anywhere between 4.0% to 6.0% depending on the loan term.
#3 Area Competition
In the past several years, the Dallas-Fort Worth dental market has grown substantially with dentists relocating to the area from out-of-state. With that migration, many areas in North Texas feature a great number of new start-up dental practices and second generation offices, in addition to established dental practices. It is important to consider not only the volume of dental practices in your immediate area, but also the type of practice. Are you catering to the same clientele as your area competition? How can your practice differentiate itself? Are there growing residential areas to market to?
#4 Office Lease
If you are getting a loan from a bank for the practice purchase, almost all banks will require an office lease to cover the term of the loan or at least a lease option that covers the loan term. In conjunction with the practice profitability, you will want to assess whether the lease terms are acceptable and whether that office space can support you for the foreseeable future.
#5 Practice Compatibility
When assessing a practice, determine if the practice is compatible with you. Is the practice aggressive with treatment planning? Is there still work to be done on the patients? Has the active patient list been verified? What is the profile of the patient base? Does the procedure mix and does this match my skills? What is the mix of payment sources (PPO vs. Fee For Service)? What services is the practice not offering that I might introduce? Meet with the Seller to get a feel for your compatibility with his/her personality and you will likely get an answer to many of these questions.
#6 Build A Support Team
Purchasing a dental practice is a significant financial decision that can greatly impact the success of your dental career. In order to evaluate the investment and its impact on your future, it is important to surround yourself with people who are familiar with dental transactions. Hiring a good CPA or accountant with a background in dental transactions can be critical to help you evaluate your business decision. You will also want to have an attorney who is experienced in the inner-workings of a dental transition to view the contract for you. Dental brokers or consultants are also a great resource, who can provide you an independent valuation or assistance in the negotiation process.
#7 Selecting an Entity
If you have identified a practice to purchase, one of the first decisions is whether or not you will operate the practice through an entity or as a sole proprietor. CPAs and attorneys can help you with the process and complete the necessary paperwork with the Texas Secretary of State.
#8 Staff Buy-In
At Lewis Health Profession Services, we believe the staff is a critical component to the success of a transition. Is the staff aware of the pending sale? When there is long-tenured staff who are willing to assist in a transition, the likely success of that transition multiplies greatly. In many cases, patients are as loyal to the staff members as they are to the dentist. So it is very important for a buyer to assess compatibility with the staff and get their support, especially key members. LISTEN to the staff and let THEM lead YOU. As will be discussed more in #10, BE A SPONGE.
#9 Crawl Before You Walk
We frequently talk to young dentists with grand plans of dental domination. Although we admire their enthusiasm and vision, we try to quell their imagination by telling them to “Crawl Before You Walk.” It is important to understand the commitment and resources required to operating a successful dental practice in North Texas. It may take years or decades before you are a well-oiled machine ready to take on a second or third or fourth location. In order to avoid over-extending yourself financially or professionally, make sure you fully understand the pros and cons of owning multiple offices. Build your dream GRADUALLY and your plan has a greater chance of success.
Additionally, there are very few “perfect” practices on the market, if any. There is always something that isn’t ideal or will require some work. When buying a dental practice, know that there will be effort to suit the practice to your needs.
#10 BE A SPONGE
After buying your first (or second or third) dental practice, there is often a desire to make immediate changes. We encourage our buyers to “Be A Sponge” for the first 6 months of ownership. Make a commitment to learn the current systems in place and make notes on areas of improvement. The staff is an excellent learning resource so USE THEM. It will be vital to your success. Obviously, there will be some adjustments in your management style vs. the Seller’s, but take the time to learn what has worked and what hasn’t worked. For the items that haven’t worked, phase in new systems gradually. Nothing will alienate a staff or patient base more than widespread change.
Lewis Health Profession Services, Inc.
We offer a range of consultative services for the health practitioner on a fee for service basis regarding; practice valuations, professional practice sales, buy/sell negotiations, transition structuring, and opportunity assessment. Having served approximately 2,000 clients, we have appraised more than 1,800 professional practices, served as expert witness in the valuation of same, and been involved with sales of over 1,000 dental practices. LHPS is proud to have served Dallas, Fort Worth and the surrounding areas in North Texas for over 30 years.
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