Buying or Selling a Practice? Factors to Consider

When buying or selling a practice, most listed practices have had a thorough review of past financial performance via The Evaluation. Although it may seem that you are ready to “make a deal,” there are certain factors you need to consider.

1. What is the number of active patients?2. What is the production of the Hygiene Department?3. What is the gross production of the participating dentist?4. How do the various services such as diagnostic and comprehensive restorative aesthetic components breakout?5. Have you conducted a review of the current expense profile?6. What are the hours of the current operation?

Additions to The Evaluation The main value of the goodwill portion of the acquisition is largely based on the “survivability of the patient component;” therefore, you need to question what is not readily apparent from The Evaluation documents. Here are a few tips to explore.

a) Analyze the distance patients travel to seek treatment at this facility.b) Ask yourself how committed patients may be personally to the incumbent practitioner. This varies within distinct practice types. Base your question on the following information:

• Location focused practice: This is the easiest transferable patient group to transition and yields the highest percentage of patients staying with the practice post sale.
• The team-oriented practice: The practice where patients interface successfully with the whole team who would presumably stay on because of shared relationships with team members and, therefore, have less of an impact on having the principal dentist about to leave.
• The extensive associate provider practice (assuming non-compete and non-solicitation documents are in place) does not present as great a challenge to introducing a new principal.
• The owner-focused practice: Such a practice often features high profile, highly skilled practitioners with great relationships and trust from loyal patients. The practitioner has attracted a large patient following from a significantly larger geographic area. They are happy to attend the facility as long as they see that particular individual. This population is at risk for significant attrition once the former principal leaves or retires.

Another guideline to observe is how well the prospective new purchaser fits the existing demographic and expectation of the current patient base; for example, a newly minted graduate might want to be cautious purchasing a highly sophisticated practice operated by a seasoned clinical leader as the driving force.These recommendations suggest that careful vetting of the evaluation information is needed to get underneath the raw data. Even though the statistics may satisfy a good accountant, it doesn’t tell the complete story. We often counsel our clients who are prospective purchasers to get involved with what we call Evaluating the Evaluation.

Considerations to Prepare a Practice for TransitionPackaging the most compelling facts at the time of evaluation and placing practices on the market requires prior planning (ideally three to four years in order to maximize the value). The three-year practice production history is often used as criteria of practice performance; consequently, most focus should be placed on the increase of the next three years of both gross and net revenues while the opportunity exists.

Getting patients ready for the dentists/owners eventual retirement also requires planning. Doctors should tell their patients truthfully that they would attempt to sell the practice to someone who would value the current treatment philosophy; therefore, they would endeavour to leave patients in ”good hands”. Practitioners should return the trust that long standing patients have placed in them and honestly try to live up to this statement. Preparing patients for the change in ownership provides added assurance to prospective purchasers that patients would stay; therefore, the practice should yield a higher goodwill assessment.

Assuming sufficient patient count to allow the incumbent to stay with the practice for an agreed upon period of time with the express purpose of introducing the purchaser and advocating for patients to remain is crucial.

Possibility to Enhance Financial PerformanceEffort to expand the in-house offerings of some procedures that would routinely have been referred previously now could possibly be (as it has in the last two years) part of the purview of a younger professional cohort. To do this, the owner might introduce part-time specialists or a general practitioner with a particular interest in these areas. This could not only result in increased revenue over the remaining active ownership years but also could appeal to a contemporary group of potential purchasers from a professional satisfaction standpoint. With this in place, staffs need the training to indicate to patients that the office is now able to offer the possibility of treating their friends or family whereas previously they may have thought the office was too busy to accommodate their referrals.

In this vein, engaging a part-time associate to allow the offering of weekend and evening appointments makes the practice more accessible, thereby increasing the patient load. Another part of the long-term preparation is checking the optimal use of signage to increase patient flow. If the idea of getting practice-management assistance to enhance the financial return were a consideration, this would be an ideal time.

Initially, new owners should avoid significant changes to the physical plant. The formerly satisfied current patients who were unaware of a need for change may resent such changes; however, added touches are small additions to the waiting area such as TV and coffee station often seen in contemporary start-ups produce an increased comfort level for the prospective purchaser.

It is apparent that Evaluating the Evaluation is an important factor for the vendor and the practice purchaser.