This is part four of my five part blog on “What’s most important to YOU when looking to purchase a practice ? In case you missed part I-III, there’s a great thread on www.dentaltown.com asking this question and it got a lot of great feedback from people with different perspectives. As a reminder, I won’t be telling what SHOULD be important to you, that’s for each doctor do decide and prioritize for themselves. I’m just giving you some food for thought as you contemplate purchasing a practice.
Part I and II revolved around the revenue and expense portion
of the practices cash flow and assessing the asking price and practice performance
while part III addressed the people issues related to a practice purchase.
In part IV we’ll address the location and facilities aspect
of a practice you’re looking to purchase.
Likely the most important part of the “location and
facilities” aspect of the purchase is the demographics of the area followed by
the actual location of the space. So what does that mean ?
When we talk about the demographics of the area of the
practice we’re wondering if the area is a good area to maintain a dental
practice. What’s the competition like ? Is it saturated with other dentists ? Is
it a growing area for the foreseeable future ? Or is it a declining area where
people (potential patients) are leaving & moving away ? What about the
patient demographics ? Is it mainly white or blue collar ? What about the
average annual household income ? What about the age demographics ? Is it
primarily a retirement type community ? Or an area with younger families ? Is
it an area you’re going to live in ? Do you want to practice in the same area
you live in ? These are some of the demographics questions you need to learn
about when you’re looking at a practice purchase and there are companies that
specialize in compiling demographic reports for prospective buyers.
Then we move to the specific location of the practice. Is it
right on the street, maybe a main street with a ton of vehicle traffic ? Or
maybe in or next to a popular strip mall or shopping center with a ton of foot
traffic ? Or, is it “off” the road, maybe tucked back behind several buildings
with no vehicle or foot traffic visibility ? Is it in a medical\dental complex
with other medical\dental professionals ? These are issues that will likely
determine how accessible you are or how easy you are to find. Signage also
comes into play here. The actual space itself may not be as visible as you’d
like, however, maybe you have great signage that fronts a heavily traveled road
OR maybe you’re on a heavily travelled road among a lot of other businesses but
due to signage restrictions the space isn’t easily identifiable as a dental
office ? These are issues that a prospective buyer needs to consider when they
are looking at a practice and during the office visit.
What about the specific space? Has it been kept in great
condition or is it run down? Is it an
older building that may require a lot of repairs and maintenance or a newer
building that may not be high maintenance? How’s the square footage ? Does it
fit your needs ? If not, will the space allow for expansion if the practice
grows ? Do you see yourself in this space for at least 15+ years ?
You also need to know if the space is leased or owned. If
the space is leased you’ll want to get a copy of the lease agreement and have
your attorney and\or lease negotiator review it to see if it’ll be a roadblock
to buying the practice. If it’s owned by the seller you’ll want to know if the
real estate is for sale & if not, when would it be available. If it is
owned by the seller and they’re not ready to sell you’ll need to address the
lease issues as well AND make sure you’re fully protected under the lease since
the landlord is also the owner of the dental practice. The last thing you want
are lease default provisions that make it easy for the landlord to throw you
out and regain the dental practice. If the space is for sale you’ll have to
decide IF you want to buy it at the same time as you buy the practice. If not,
you’ll want provisions in the agreements that give you certain rights so you
can own the property if & when you want.
Now we move inside the space. We talked about the “building”
but what about what’s inside? How many operatories are there? Are there enough
? How’s the actual space, is it large enough? What about the layout ? Does it
have\allow good patient flow throughout the space? How’s the technology? Is it
current or outdated? What about the dental equipment? Is it brand new, almost
new, mostly old, or so old it needs immediate replacement? What about the
furniture and décor? Is it “fresh” or is it from the 1970s with old, dark wood
paneling?
You may need more than one office visit to know all you need
to know about the space as one of those office visits will likely be to do a
chart review\audit which can take some time. One thing we recommend is when you
do visit the office and if you do visit it more than once, you should take to
opportunity to video tape\record your office tour and replay it several times
to make sure you know all there is to know about the space, furniture,
equipment and décor.
Lastly, you’ll want to understand the office hours that are
currently in use and whether or not you can increase office hours based upon
the community. For example, if you’re in the middle of a city where most of the
“population” is there only from 9-5, Monday thru Fridays, then expanding into
evening or weekend hours may not be beneficial. However, if you’re in a more
rural area, maybe around schools, early morning, evening and weekend hours may
be more valuable to you than the middle of the day hours. You’ll have to decide
what you want now and in the future.
Many prospective buyers initially overlook the importance of
the space, location and area and start out focusing on the financials of the
practice. Instead, it may make sense to understand the area first, then when
you’ve identified practices for sale in the area, do a drive by of the specific
location and get some firsthand knowledge of where it is and what it looks like
form the outside. If that all checks out then it may make sense to gather
specific practice information to continue your pursuit of possible ownership.
Part V of this series, the last part will focus on some of
the other issues that prospective buyers may find important about buying a
dental practice.
Send your questions to tlott@dentalcpas.com
For more information on our services, please feel free to contact one of the members of the Dental CPA team by calling or emailing info@dentalcpas.com.
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