I started temping for a Dr. in Arizona who became ill (stroke w/paralysis). He was only supposed to be out for a few weeks, but he has become worse. He is close to retirement, has worked a busy practice for 30 years and has decided just to sell out. The office manager begged me to look into buying the practice and so the conversation began with the seller's broker.
Here are some of the details:
Production:
2006 - $950K
2007 - $1.2 Million
2008 - On pace to do $1.4 million
Overhead is around 65%
He has a large marketing budget
Collection rate is superior at 99%
Active Patients - 3500
Refers out all endo ($240K worth in 2007), most surgery and most pedo (pedo portion of the practice has increased tremendously from 2006 to 2008, but he doesn't do any of the restorative work. I certainly would). I would also do most of the endo and surgery.
Purchase Price is $770K
The seller wants a short transition period.
I have a unique opportunity because I am seeing all of this from the inside. We are on pace to do $125K (me and 2 hygienists) this month despite him being gone for the past month. I have had no problem working the busy schedule and I can even turn it up a notch (and plan to). The staff is begging me to stay on and buy the practice. All the patients have seemed very open to me being there.
The negatives that I see are the overhead and size of the practice (only 4 ops with 1000 sq feet). The staff is way overpaid. I would like to increase to 6 ops and I am told that the lease company will allow an increase on the build out.
Please, let me know what you think. Also, what are some of the things that I should ask the broker? I certainly feel as though the broker is one-sided. I don't have an attorney who knows about this stuff. Any help would be great!
You're right, it does sound like a great opportunity for you. It sounds as though you can maintain & even continue to grow the practice which is fantastic. Based on the revenue #'s you stated and your ability to produce some work that was being referred out the price seems reasonable. Even the negatives you mention appear to be things you can change\control over time.
How's the equipment\technology? Anything substantial you'll have to replace within the 1st 5 years?
What's the breakdown of the revenues from 2005, 2006, 2007 between doctor & hygiene? Based on the revenues you state I doubt 3,500 active patnts is accurate, although still a healthy # with those revenues.
Will the seller take back a note? If so, over how many years?
You mention OH figures so I assume you've analyzed their financials for the past 3 years, if not you should.
Get details about the space lease and begin looking at the details & options now.
As you continue to do your due diligence you'll have more questions to ask. Sounds like you're headed in the right direction.
It's usually a 3 to 1 ratio - you're a little less than that which could indicate underproducing of dentistry, which is good for the buyer IF they can pick it up with add'l hours, speed or procedures.
Doc's exams are usually NOT counted towards hyg prod, radiographs are IF they take them.
This post first appeared on DnetalTown.
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