Buying a new dental practice is one of the biggest and most important decisions of your life.
These are changing times in the dental industry. Values are being challenged. Contracts are changing.
So it’s vital you ask all the right questions of the seller. Questions which help you gather further evidence to support, or indeed challenge, the sales value. Questions which make sure you buy the right practice, on the right terms.
So what are the right questions?
Practice accounts provide headline figures but you should look to ‘delve deeper’ and perform your own due diligence exercise to confirm:
• Whether the figures stack up against the purchase price
• Where there will be profit potential for you to tap into
What do the ratios show?
There are certain ratios that a dental accountant can check for you, including the turnover to materials and lab costs, and turnover to wages costs (employed team members).
These percentages reveal either a practice where costs and wage levels are managed well, or a practice where there is opportunity to tighten up costs and claw back more profit.
Where is the potential profit?
There are also numerous questions you can ask to reveal areas of potential profit.
Hygiene tends to be a significant area of potential in most practices.
Make sure you ask how many active patients the practice has (I class an active patient as one who has attended the practice in the last 18 months) and get a breakdown of the hygiene income. From these figures you can make an indicative calculation on how many active patients visit the hygienist, based on the number of available hygiene hours at the practice and the typical frequency of hygiene appointments.
A calculation of the ‘hygiene potential’ (potential additional hygiene income) based on this figure can be eye-opening!
Ask the seller for a current list of outstanding treatments to gauge the effectiveness of their treatment plan follow up system. And ask if any work is being referred out and at what level. You can then explore the business case for bringing this in-house.
Check whether the seller can also give you some Key Performance Indicators (KPIs) for the business. These figures suggest the day to day work being done to maximise the practice potential. There are a number of dental KPIs of course, but let’s look at a few basic numbers you must ask for:
• how many new patients have they generated in the last 12 months? Is this rate on the rise?
This will highlight what, if any, marketing is working for the practice and what marketing avenues are yet to be exhausted.
If there are specialists in the practice ask for details of the level of new patients received from other dentists.
• What are the exam and hygiene recall rates? Are these rates rising?
This shows you whether there is potential for enhancing recall systems to improve these numbers.
• What is the patient retention rate? How many patients have been lost over the last 12 months?
This will help you understand how good the patient experience is and how much you may need to do to improve it.
What internal marketing is being done?
Make sure you ask the seller the fundamental question: ‘do all your patients know about all your services?’ See what ‘internal’ marketing they have conducted to make this happen. Ask them what systems they employ to establish which patients could be interested in which services.
This is a measure of the remaining potential to ‘cross sell’ services to existing patients. A low cost area of growth for you to tap into.
Of course, a more straightforward way to generate additional profit is putting prices up! Ask the seller when they last did this and whether they have compared the prices charged with their competitors recently.
How are the clinicians paid?
The agreements with associates and hygienists should also be included in your due diligence.
Are these clinicians paid on an hourly rate or percentage split? If an hourly rate is in place, do they get paid for gaps in the diary?
You can then compare their approach to what is happening in the industry and any percentages paid to the ‘going rates’.
Yes, there really is a good deal to look at before you can be sure you are considering the right practice for you and the purchase price is reasonable…
So if you need help with this stuff, I urge you to get it and make sure you get one of the most important decisions of your life right.
What questions did you find revealing when buying your practice?
What are you experiencing as you buy a practice?
Do share your comments and experiences below.
Clear Vision offers a complimentary review service for dentists looking to purchase a practice. The Clear Vision team will review the practice accounts and deal information to uncover any ‘warning lights’ and suggest where further information and evidence is required from the seller. Read more about the service and why it is offered for free.
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