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This is part three of my five part blog on “What’s most
important to YOU when looking to purchase a practice ? In case you missed part
I, 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 to 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.
This blog, part III will address the people issues related to a practice you
want to purchase, not only the staff of the practice, the patient base as well.
In part I we addressed the insurers and ppos that these
patients may be covered by and how that impacts revenue, however, what about
the who, what, where, and how many in terms of the patient base. Lets drill
down into these issues and why it may be important for a prospective buyer to
consider the details about the patient base.
One statistic that many people feel is important when
looking at a practice is what the new patient (NP) count is. Instead, sometimes its
actually more important to know what the NP count can be. The problem is
with some practices the seller has already slowed down and reduced their work
schedule and even their production pace. This means they likely won’t be
aggressively looking for NPs and really don’t have the need for them. Therefore
the NP count that the seller has may seem terribly low, too low to even
consider the practice. What you should be considering if these are the facts is
what the NP count can be and do to get an idea of this you’ll need to do some
form of demographic analysis of the area. This can be way more enlightening and
important in certain situations than what the NP count was.
Another issue involving the patient base is the “active”
patient count and there’s a lot of importance placed on it, rightly so.
However, there’s really no set definition of an “active” patient that the
dental industry can agree on and many times the seller and their selling
advisor will exaggerate what the “active” patient count is. When
assessing a practice here’s my suggestion on determining what the “active” patient count is, JUST for
purchasing a practice. Look at the hygiene schedule ! To me, an “active”
patient is one that comes in regularly for their hygiene recall appointments.
So take a look at the past six or twelve months and count the number of unique
patients that have come in for their recall appointments and identify any that
are first timers. The rest are likely your “active” patients. That
doesn’t mean there aren’t many more patients of the practice, those that still
view the practice as their dental home, however, these patients only come in
when they have an issue or need something, I don’t consider them an “active”
patient….they’re just a patient of the practice. The other benefit of
identifying the “active” patients is to understand the size of the patient base
which becomes important as it impacts the buyers ability to thrive within the
practice after the purchase.
You should also look at other demographic aspects of the
patient base- A. Where are they coming from (zip code analysis), B. What are
their ages (an age analysis), C. Their social economic background , D. Ethnicity,
and E. Education and income analysis. A and B can be assessed thru the practice
management software whereas C, D and E will likely come from a demographic
analysis of the area.
Of course there’s other “people” related to the purchase of
the practice, there’s the seller, their advisors and the staff. We’ll address
the advisors in a later blog so we’ll end this blog on the team of the
practice, the seller and their staff.
With respect to the seller, you should learn as much about
them as possible. Why are they selling, what kind of personality do they have,
what is their practice philosophy and does it match yours, after the sale what
are their plans, so they need to continue to work – do you want then to
continue to work, are your personalities similar and lastly, how did they
approach treatment planning and how does that compare to your approach. This
becomes very important as you begin to meet the patients. If you have a very
passive seller who took a “wait and see” approach to treatment planning you
might offend a lot of patients if you’re completely opposite and try to push a
lot of treatment immediately onto the patient. If your personalities are vastly
different you may also find it difficult working with the staff as they’ve
become use to working for the seller.
Speaking of the staff, while we addressed their wages and
expenses in part II of this blog series lets talk about some of the other staff
issues you need to know about.
You want to learn as much as you can about each staff member
as well. Who are they, how long have they worked at the practice, how many
hours they work, what’s their pay rate, what benefits to they receive, etc. You
also need to know if they’re related to the seller or have any other type of
relationship with them. Generally you want to provide them a ninety day
probationary period after settlement to see if they’ll be able to work with
you. While it’s generally advisable not to make any drastic changes to the
staff after you settle, if you find you have a very toxic person that’s one of
the exceptions to the rule….you have to let them go.
The people surrounding a transition can go a long way to
make or break a practice so you need to make sure you have an understanding of
the people that can impact the practice and the people you will impact when you
take over the practice. Part IV will cover the facilities aspect of the
practice purchase transaction, not only the physical space, but where it is and
the demographics of the area.