Dental Practice Purchase Question - Is the Practice Worth It?

I've been contemplating starting a brand-new practice from scratch or buying an existing practice. Here is a summary of the practice that is for sale:

What was your budget for a start-up?

-selling doctor is female and selling because she will be working for the state

why did she decide to become an employee?

-office is currently open 24 hours/wk (Mon-Wed) and has been for the past 5 years.

Sounds like it's been hobby, has it been? Is she married? Does her significant other work?

She only has 2 full hygiene days per week.

So that's approximately 400 "active" patients going through hygiene (16 x 25 weeks = 400) assuming the majority are seen twice each year. Is that the case? Is there any hygiene on the docs schedule?

-patient count is approximately 2000 patients (1500 were seen in 2007)

Is this a tourist location where patients are seen once for emergencies? Of the 1,500 patients supposedly seen in 2007, how was that determined? Are these 1,500 DIFFERENT patients or simply 1,500 "visits”?

-roughly 8-10 new patients/month (mainly internal marketing)

Again, sounds like a hobby, no interest in working more than 3 days per week, no desire to market and grow the practice?

-selling doctor refers all ortho and endo, and some dentures and some pedo

Do you perform any of these procedures? Any other procedures you do that she doesn't and vice versa?

-practice is 60% FFS and 40% PPO (only 2 PPO plan accepted - metlife and delta dental)

Decent mix.

-2008 gross through Oct (10 months) is $245,000 and net is $85,000
-2007 gross was $323,000 and net was $110,000
-2006 gross was $335,000 and net was $120,000

What's the breakdown between hygiene and dentistry? Hygiene should be around $80k based upon the 16 hours per week which puts her production at $240k for a total of $320k, is that about right?

The asking price is $285,000 and is negotiable. There seems to be a lot of potential to grow this office:

What’s the population to dentist ratio? Is the lease renewable? Have you had the lease looked at yet?

-accept more PPO plans-implement more external marketing (direct mailers, etc.)
-open more days and hours
-keep a lot of procedures that were referred out in house

Ok, you answered one question...

In addition to the potential, some red flags about the office I see are:

-why are there only 2 full hygiene days/ wk when the office has been established for 6 years with 2000 patients? Probably has poor recall and STM program.

This isn't necessarily a red flag, again, if the income wasn't "needed" by the doc who only wanted to work 24 hours per week, why would you want more patients you can handle?

-only 2 equipped OPS after 6 years!!!! WHY!!!

See above....hobby....heck, doctor only worked 1 chair 2 days per week...tells me a lot about her motivation, which is not intended to be negative, I’m just guessing her motivation for this specific practice wasn't the same as someone else’s.

What do you think???

See if you can answer the questions and tell me more.

How much do you think this office is worth?

Depends upon the buyer. If the byer was looking to start from scratch and looking to spend $250k for a 1,500 square ft space with 2 equipped ops and I compared this to spending $250k for the same space WITH an immediate patient base of $300k.....well, I’d be working TOMORROW instead of waiting 90-150 days for my space to be ready!

What price would you negotiate?

That’s for the buyer to decide.

Any suggestions??? Do you need any additional information???

Yep, dig a little more. I agree with you, sounds like it has potential though you need to find out more about the demographics and look into some of the issues I raised.

Don’t get hooked into the price versus revenue ratio in this case, it's irrelevant in this case. Think about what I said above:

1. how much would it cost you to build out 1,500 sqr ft ? $100k-$125k with landlord allowances?

2. how much would you spend to equip 2 rooms & have everything else they list? $100k ?That’s $200k to $225k right there. So lets discount it because it's 6 years old, $150k ? $125k?

Now the kicker:

3. how much would you be willing to pay for an immediate patient base of $300k ? $150k? $100k?

$285k doesn't look to bad to me compared to opening from scratch in 90-150 days for about the same cost and with NO patient guarantees!

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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Evaluate Three Dental Practices for Purchase Potential

Practice #1: Town of about 25,000
Asking price: $218,700
Practice Gross: $312,461
Hygiene: $56,300

Based on hygiene alone, typical doc production would be approximately $170k for gross of $226k, and doc refers out a lot. Will there be any real dentistry left for you to do?

Older dentist working 3.5 days a week/ Been at office for 10yrs- just wants to retire completely
5 hygiene days

Problem. Assume average hourly hygiene production is $100. $100 x 40 hours per week x 48 weeks is $192,000 in hygiene production, you say it's only $56k above and that number looks more realistic. It can’t be 5 days of hygiene. With $56k can’t be more than 1.5 days of hygiene.

Number of Active Patients (Seen in last 24months by this report): It list 3744 (I think this must be total pts), 1080 also listed (thinking active) (20 new per month)

If $56k is hygiene that's approximately 300 "active" patients at best, 1,080 MAY be patient visits for 1 year and are the different patients?

Dentist referring Pedo, Endo, Full dentures, 3rd Molar and difficult extractions18% Hygiene/ 5% Surgery/ 36% Restorative/ 41% Crown/Bridge

These numbers just aren't jiving, need to dig deeper.

Practice #2: Same town as #1
Asking price: $249,900
Practice Gross: $431,736
Hygiene: $120,886
Husband and Wife set up second office here (other office about 40minutes away) and now want out after 4 yrs
4 Dr days/ 4 hygiene days

Ok, these numbers look a little cleaner, still, if average hygiene production per hour is $100 I get approximate hygiene production of $150k. So either my average per hour is high for your area OR the hygiene days have some holes. Also, based on hygiene production, dentistry seems a little low.

Monthly Rent: $2500
4 operatories equipped
Practice was about 60% Medicaid- now trying to change to FFS and get rid of Medicaid
# of Pts seen in last 24 months: 3000 (28 new per month)

"Active" patients can't be much more than 600 plus or minus 100 or so.

Referring most endo, all ortho, impactions, implant placement
11% hygiene/ 12% Surgery/ 20% Pedo/ 19% Restorative/ 25% Crown Bridge/ 3% Perio/ 5% Endo/ 5% Denture

11% hygiene? That’s approximately $47,000 of the gross, 120k of 431k is 27%, which is more realistic. So some strange "facts" here as well, though closer to reality than the first practice.

Practice #3: Town of about 4000 (1 of 2 dentists there)
Asking Price: $367,000
Practice Gross: $539,600
Hygiene: $167,277
Older dentist retiring been at location over 30 yrs
4 Dr days (Older DMD working 3 days and associate 1 day)/ 5.5 hygiene days

Hmmm, my average hygiene production per hour of $100 must be high for your area, I get approximately $210k in hygiene for this one, still pretty close to $167k. Doc production also looks real low based on hygiene production, might be some nice untapped dentistry in this practice.

Monthly rent: $900/ Will sell building- price $125,000
4 Operatories
30% Cash/ 10% Medicaid/ 60% Insurance
# of Pts seen last 24 months: 1200 (20-30 new per month)

See, this makes sense. I’m guessing "active" is around 800 so 1,200 may very well be different patients seen as the others are listing patient visits which many are the same patients.

Referring some surgery and some endo
20% Hygiene/ 20% Oral Surgery/ 5% Pedo/ 35% Restorative/ 10% Crown Bridge/ 5% Denture

Makes me wonder if using 24 months of patients is too mislead potential buyers into thinking there's more patients there than there really are.Can’t assess asking price without knowing true profit, sorry.


Can you tell me what you think a decent practice numbers should run?

I’m not sure what you mean by "decent", can you narrow the question?

What should I be looking for in hygiene production: doctor production?

In an average general dentist practice, doctor production runs about 3 times hygiene production, OR doctor production is approximately 75% of gross production and hygiene is 25%, you might also here 2/3 doctor, 1/3 hygiene of gross production, the stats are close enough to be comparable.

Therefore, if you’re looking at a practice where confirmed hygiene is 15-20% and doctor production is 80-85% plus you have to find out why. Is the hygiene under producing, or doctor over producing? By the same token, if the hygiene is 40% plus and doctor is 60% less, chances are the doctor is under-producing which might make the practice under-valued, or said another way, a bargain.

On average, the typical 4-5 day per week "mature" practice will have approximately 1,000 patients which is approximately 4-5 days of hygiene per week. This should produce approximately $800k give or take of gross revenue each year, doctor doing $600k, hygiene doing $200k.

And what questions do you think I should be asking the broker?

That depends on what you find as you go through the due diligence process. That begins by gathering the pertinent information about the practice and analyzing it. Going through that initial process will generate many additional questions for the broker and each case generates the some of the same questions and many different questions. If you don't have a practice purchase checklist you can go to newdocs.com and find it in their download section for "new doctors" or email me and I can send it to you.


I do need to follow up with practice 1 to check on those hygiene numbers. It lists $56K in hygiene production but then the report I got says they have 5 hygiene days with 3 different hygienists working part time and the hygienist salaries add up to about $53K so something doesn't add up. Don't know if they are trying to cover up doctor's lack of production or if is a typo. Dentist has had the practice on the market for a while with no luck so maybe there's more to the story here.

Practice #1 has no computers/no digital so would need some working capital to make some upgrades.

See, it's this kind of info that might hint at a diamond in the rough. If hygiene wages were $53k and hygiene production usually averages about 3 times their compensation, then hygiene production is closer to $160k, which would put doctor production at approximately $160k as well, indicating a grossly under producing practice. If dentistry is usually a 3 to1 ratio of hygiene as well, doctor production should be closer to $450k for a practice grossing $600k and what's the asking price?

The only way you'll know for sure is to verify the production numbers than visit the office and pull 50-100 charts and see what's been going on with the treatment planning. It's very, very possible that the seller has been winding down without cutting back on the hygiene, hence the 50/50 split of production between doctor and hygiene when it should be 752/25.

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

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Contemplating PPO to Get New Dental Patients

SO, my new OM suggested signing up for a new insurance. I am worried about the office income and I am thinking about her proposal, especially with this economy. I can try it, I know that some PPOs are awful I belong to a few already, but a business decision needs to be made now. Based upon the office income needed, I’m coming up short by about 3 grand a week. I can’t really lower the overhead anymore unless I fire an employee!! I’m not going to do that!! And when things improve, I could drop the plans again, I would appreciate some feedback and opinions on this.

With a shortfall of $15k per month it's not an overhead issue, it's a revenue issue first and foremost. I don't disagree with shaving a few hundred dollars in overhead, however, I’d be focusing on what could generate a few thousand dollars first and after getting that in gear, taking the next step and evaluating the excess overhead IF there is any.

Sounds like you need patients in the door and in the chairs. The fact is much of your overhead is now fixed, meaning, other than lab and supplies, all of your expenses are likely to be the same whether you have 4 patients in a chair or 8 on a given day. What you need to do is get the additional 4 patients in the chair.

PPO's will help you get patients in the door and in the chair, maybe more quickly than any other option, with NO upfront costs. The "cost" will be paid on a per patient basis (reduced fee). That doesn't mean you have to stick with PPOs, you're using them to boost your patient count, it'll be up to you to keep the patients, even after you drop the PPOs.

Good luck.

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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Not Depositing dental Insurance Checks to Avoid Taxes

For the months of October, November and December I am planning not to deposit any cash and insurance checks (provided they are valid for 120 days) into my business accounts. This is to deplete the accounts so I can avoid taxes.

Does the term "constructive receipt" mean anything to you? The IRS says if you received it, whether you deposit it or not, it's income. Talk about a HUGE risk, audit wise.

Firstly, is it legal?

It’s legal not to deposit it, there's no law that says you must deposit it. Reporting it? See above in red.

Secondly, is it worth the trouble?

Absolutely not. It’s different if you're away the last week of December, office is closed, and you cancel your mail. When you receive your mail the first week of January you deposit the checks you received. Now, if you're going away for 3 months, closing the office for 3 months.....yea right!

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

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Dental Capitation Compensation Question

We do a doctor's salary pool that is based on collections. The only problem is if you post production and collections to a RDH. We split the week so we just split the hygiene collections 50/50. Remember the owner takes collections and then pays overhead, then pays himself. By the way I would gladly pay a "worker dentist employee' his production if I did all the treatment plans and financial arrangements. I have heard of this being done in various offices, with good success.

Not counting the cap checks is wrong in my opinion. I’d be looking to change that real quick.

I agree paying on production is a much easier task, however, with software systems today, why do folks seem to have problems tracking collections on specific production?

We get monthly reports from many of our practices showing gross production, adjustments and collections, by provider, including hygiene. Now, allocating the capitation checks in those few practices that still participate can be challenging I will admit.

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

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