What’s Most Important To You When Looking To Purchase A Practice ? Part III

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.

 Written by Tim Lott, CPA, CVA

Send your questions to tlott@dentalcpas.com

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When Should Dental Associate Give Notice to Employer when Buying a Practice?

I have an associate position that I can leave around November. I’m looking around for a practice to purchase and wanted to get an approximate timeline on how long it takes from start to finish for a practice purchase, or any tips on making transition from associate to owner (in regards to when to tell employer, when I should make an offer, if I find a great office to purchase-being that I can leave in November).

 Thank you in advance.

1. The search can take anywhere from 1 month to 3 years.
2. Now, when you've found ONE practice you'd like to focus on, the process should take no more than 90 days from the day you inquire to settlement. Obviously there are exceptions.
3. Timing on employer notice? That’s a delicate subject. There's the notice clause in your contract of course and you'll have to try and time that notice accordingly.

As you can imagine, if the process can take 90 days and you have to give 90 days notice, it won't be prudent to give notice the day you inquire about the practice since you have no idea how negotiations will go. So, there's no right or wrong answer; however, here's what I would advise (and have advised), once you're fairly certain that the deal will get done, that's when you give notice (don't tell the seller though then they'll know you HAVE to settle most likely and the leverage shifts to them in my opinion). Typically that's when the main points of the LOI have been agreed to and it goes to the attorneys for drafting and negotiating. At that point you likely have 15-30 days until settlement date. If that settlement date falls within the time period where you're still committed to your employer, even if you have a 90 day notice clause, sometimes the employer will want you gone as soon as they can find another associate so they may let you leave early. If they don't, ask them if you can mutually agree to leave early. If they won't, you can either push out the settlement date (which is probably the best strategy) and still get the documents signed with a prospective take over date, or, settle and take ownership now if the seller is willing to stay and work until you can leave your employer.

Good luck.

This first appeared on Dentaltown.

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