When a person is considering entering the market to buy a dental practice there is an urge to get out there and start looking at practices and talking to sellers. However there are a number of things you should do beforehand that will save you time in your search and negotiation and maximise your chances of success.
1. An assessment of self
By having a look at your abilities and limitations with respect to your production ability, clinical ability and business skills you should get a good framework for some of your practice selection criteria.
Assessment of Production Ability
If you are a dentist who generally produces $2,000 per day, it is a mistake of major proportion for you to be looking at practices where the dentist does $6,000 per day and think that you can do the same. You will almost certainly come up short.
Many dentists think that the practice makes the dentist. In fact it is almost always the opposite that occurs.
A dentist who regularly produces $6,000 per day can go into a practice that produces $2,000 per day, and will almost certainly produce...$6,000 per day. He has the clinical skills, the communication skills, the speed, and the relationship building skills that will enable him to do those figures. The figures don’t get produced by the practice -it’s by the dentist!
Assessment of clinical ability/preferences
Assess what type of dentistry you do and like to do. When you are selecting a practice to buy you need to match the service mix that you are comfortable with. If you aren’t comfortable with orthodontics, you want to steer clear of buying practices where a significant part of the production is made up of orthodontics work. Similarly with regard to implants or rehabilitation work. This may seem obvious, but it is surprising how often a practice is bought only for the principal to find out later that he can’t match the clinical ability of the dentist that came before him.
Assessment of leadership/management/business ability
Ownership of a practice, of course, means the potential for more income. However if you’ve never owned a business before, many new practice owners find that it isn’t as easy as it looks. As an employee dentist you go home after your last patient and don’t think about work again until your first patient the next day.
As an owner, this is no longer the situation. You may stop being a clinician when the last patient leaves for the day. But that’s when your responsibilities and obligations as a business owner, manager and leader of a team begin.
If you are going to successfully own a dental practice you need skills beyond that taught in dental school. There are plenty of courses offered on the business side of dental practices Look into going to courses on this.
2. Success criteria
Where do you want to live/work?
Talk to your spouse and work out where you are willing to live, and how long you will be willing to spend commuting to/from work before you even look for practices. There is no point in looking at practices that are situated in an area that makes it geographically impossible for you to work there in the long term.
Treatment rooms and equipment needed
Take stock of the number of treatment rooms, clinicians and equipment you will need to start work with, and what you will need to realise your vision of what you want to create in the next 5 years.
You can always compromise on what is there now if a practice has potential for expansion but there’s no point in buying a practice if it cannot ever be what you want it to be. It can often cost as much or more to move the practice as it does to buy the practice in the first place.
Pathways to and models of ownership
There are several pathways to and models of dental practice ownership to consider. Each has advantages and disadvantages depending upon your circumstances, and the circumstances of the selling practitioner..
- Buy in v buy out. Instead of buying outright there are some practices looking for an employee with view or to sell half of their practice.
- Seller stays on. If there is enough work, the seller is open to it and can adjust to being an employee there are advantages to having the seller stay on as an employee for a period of time to assist with the transition. If done correctly it minimises the usual attrition of patients that occurs with a long standing dentist exiting.
- Partnership/ associateship. If you have the right person in mind an associateship is a great way of increasing the (financial and skill) resources you have available to bring to a practice.
3. Get your advisers lined up and ready
Many dentists think they will talk to financing, a lawyer and an accountant after they find the practice. This could lead to time delays at a very sensitive and delicate juncture of the transaction. Once you have agreed on price and timetable for the transaction you want to complete the transaction as quickly as possible just in case the seller changes their circumstances or another buyer comes along with a better offer. The last thing you want to hear at this point is that your lawyer is away on holidays for 4 weeks or that you overestimated your ability to finance the deal.
Find Finance
Talk to a financial planner and/or a bank/source of finance and gather whatever documentation they will need from you.
There is no point in wasting your time and that of vendors, if you are not in the ballpark of price that you can afford. Have a chat with an experienced dental practice finance source, and save yourself a lot of stress and trouble when negotiations are reaching a final and delicate stage.
Find a lawyer and accountant
Get yourself a good lawyer and accountant with experience in the dental industry Before you find the practice. You will be able to find cheaper representation but they will be worth it in the long run.
Ask them what the correct ownership structure for your practice will be (That is, do you need to setup a company, a trust etc). there will be different tax and liaility implications of the different structures - it is important that you work out what the advantages and disadvantages of each structure are. Some accountants will advise you to set up more than one structure and to have the goodwill to be owned in one structure, and equipment in another.
When you’ve done all these things above, consider how much more confident will it make you when you enter negotiations with a prospective vendor. And how much more attractive you will look to that vendor when he is faced with a choice between you-organised and ready, and another prospective purchaser who hasn’t even started the process.
To read more articles about buyer preparation please click the following articles
To read more articles about buyer preparation please click the following articles