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The knowledge and skills you bring to the table as a dentist are formidable and admirable, developed over years of education and as a working dentist. But if you are thinking of buying your own dental practice, those same skills are not necessarily applicable to your future role as an entrepreneur and a business owner.
The knowledge and skills you bring to the table as a dentist are formidable and admirable, developed over years of education and as a working dentist. But if you are thinking of buying your own dental practice, those same skills are not necessarily applicable to your future role as an entrepreneur and a business owner. Buying a dental practice is likely to be one of the most critical financial and career decisions you’ll ever make. In this two-part series, we’ll look at eight crucial factors that can and should be primary considerations as you look to acquire a practice.
1. Do your research. And then dig a little deeper.
This seems like it would go without saying, but one of the key laments of new practice owners is that they didn’t fully understand the nature of the practice before making the leap. Find out what the patient demographics and local trends are. What is the competition like in the area? What’s the revenue base of the practice? The state of the current equipment? The trend in patient numbers? What procedures are currently available, and will you add to those or subtract? These are just some of the considerations you’ll want to examine in this first step in the process.
If the selling dentist isn’t retiring, why is he or she departing? Is she opening up a new practice across the street? Is he leaving the area because it isn’t as profitable as it could be?
2. Analyze the books.
You may need some help with this step from an accountant or an attorney, because you’re going to have to do a deep dive into the current books of the practice. Pay close attention to financial data, including how customers pay for your services, and whether there is a heavy Medicaid base, which could impact your potential profitability. Your cash flow model should include projections 5 to 10 years into the future. It should consider growth rates, variable and fixed operating expenses, the debt service needed to finance the purchase of the practice, and the compensation you will need to support your personal financial needs.
3. Take some geography lessons.
When thinking of buying a practice, don’t just look at your immediate street-front or building. Consider the whole area, including the proximity and financial health of the competition. Will this area be pleasant for you and your family to live near? Is the community established, steady, in decline, or on the rise? If other local businesses are performing poorly, or if a new high-speed rail line to the nearest commuting location is nearing completion, those factors can have a major impact on a business. Non-financial factors may play as big a part in this consideration as the potential profitability of your practice.
4. Don’t take the seller’s information at face value.
If you’re working with the selling dentist directly or with a practice broker (which is much more common), don’t just take the information given to you at face value. As with all goods and services, a seller is likely to exaggerate positive points and downplay potentially negative aspects. Make sure how the selling practice defines “active patients” is clear, and make sure the financials make sense, including the number of insured patients, the trend in new patients, and the fee schedule. Is the current practice over- or under-staffed? Do the open office days and hours worked correlate closely to what you’re looking for?
In Part 2, we’ll look at the value of working with a professional, taxes and lending, a transition plan to your ownership, and some preliminary thoughts about managing the new practice.