Let's Buy a Dental Practice

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Hammer great info, keep it coming!

and...

Originally Posted by OceanDMD

Fixed salary, sh-itty hours, work the assoicate like a dog........good luck finding someone and keeping them. There are enough docs out there that dick their associates. You should lose this mentality before you start practicing.

+100

Perfectly said, I don't think I need to elaborate further.

Wow I had no idea that average number of active patients for a dental office was so high, in the multiple thousands?? Maybe it's different because I've had a surgery and other things going on with my mouth but it seems like my dentist and multiple hygienists know me. Hard to see how it could be like that for thousands of patients.

Also, I know this is probably really basic but if there is 65% overhead does that basically mean 65% of what the gross income is goes towards insurance, fees, paying the hygienists, etc.. and you get 35%? If not then how is it divided up?

Thanks

Originally Posted by OceanDMD

Fixed salary, sh-itty hours, work the assoicate like a dog........good luck finding someone and keeping them. There are enough docs out there that dick their associates. You should lose this mentality before you start practicing.

+1000

Summed up nicely

Excellent thread once again! My mind is salivating waiting for you to post the breakdowns and your reasoning. lol. My prediction:
#1- Sure Thing
#2- Shiny Trap
#3- Cadillac
#4- Goldmine

My guess is you picked #4. It is the most reasonably priced in accordance to the gross. The hygiene department is doing very well, and you, being a veteran, could certainly crank up the operative to increase the gross to well over a million. Only negative is that this practice is mostly insurance and other crap instead of cash. Not too sure what big a factor that is. Nevertheless, thanks for educating us. It is thoroughly appreciated. +1

Originally Posted by Blue Panther

Here's an idea:

Nice. But God, that was a awful movie.

Originally Posted by Oracle DMD

my predictions:

#1- sure thing
#2- shiney trap
#3- goldmine
#4- cadillac

Most of us would agree with the #1 & #2, yet I would switch the #3 and #4, since:

#4 - to me its numbers are superb - second to #2, meaning it provides the 2nd highest income before and after paying up the credit as well as other favourable financial idicators.
There is a crucial issue that differentiates these two offices: the numbers of #2 may be hard to keep up (thus shiney trap), while I don't believe there would be any decrease in pt volume of #4.
ergo: #4=goldmine


#3 - to me, an European, Cadillacs are associated with octagonarians and retirement more than luxury while this practice has:
-low gross per hour, so most prabably there's not much work going on right now, I guess the schedule has many empty spots.
-You might say "well, on the other hand gross/pt is suprisingly high", which I believe indicates that many patients have left the practice, and perhaps gone to other dentists (Though I'd like to know what's the definition of an active pt here).
ergo: #3=caddilac

once more:
#1- sure thing
#2- shiney trap
#3- cadillac
#4- goldmine

It's been a very nice exercise.

I don't know about #4 being the goldmine. 50% of the practice's production is on medicaid and HMO's, that is a huge chunk of the business.

I don't know what Hammer meant by Cadillac.

Number two could very well be a shiny trap because it may be difficult to maintain the production levels and quality of work of the previous owner if you don't know what you are doing.

I would buy #3 or #1. Need more info to decide

Can't wait to find out what you ended up getting

Early on in this thread it was said that it makes more sense to buy than to start a new practice. I was wondering if you think the same is true for an endodontist, since endo is quite a bit different than general dentistry. If finish endo school next June, and am torn between associate/buy in or start my own shop. Let me know what you think.

OK let me clarify what I meant by the names I gave:

The Sure Thing: This is a practice that is exactly what it seems to be. A solid patient base so you will be making money right off the back. The price is right and it doesn't need any fine tuning to keep it making the money that it is right now. There is good room for growth if you want to make it grow.

The Shiny Trap: This is a practice that looks really good until you start to look really close at it. You might think "well I'll buy it and change these things to make it better" but in reality once you are in it, you are "trapped" and have to keep it running the way that it already is. It looks really good but once in you can't get back out.

The Cadillac: Looks great, runs fast, is all flashy and high ballin' but if it really worth the money and can you maintain it? This is a somewhat more appealing and higher end version of the shiny trap.

The Gold Mine: Looks just like a hole in the ground but is actually filled with gold and treasure. Just takes a little digging to hit the motherlode

OK let's see what you all think now that I have clarified the terms.

BTW everyone who has posted has obviously put some good thought into this. You all are on the right track, asking the right questions and thinking through to the heart of the matter. Since I have only given you the most basic info on these practices it's not like there are any "right" answers especially since a which practice is right for you really depends on what it is that you want. Good job

Originally Posted by Hawk2thDoc

Early on in this thread it was said that it makes more sense to buy than to start a new practice. I was wondering if you think the same is true for an endodontist, since endo is quite a bit different than general dentistry. If finish endo school next June, and am torn between associate/buy in or start my own shop. Let me know what you think.

The only benefit to buying out an existing practice is all of the built in referrals. If you were to locate say where I am buying a practice you could set up your own shop and be high ballin' by the end of your first day.

If you are going into an area where there already are several endos you might be better off buying a pre-existing practice but with endos in such short demand if you can set up shop and have enough money to pay your bills for 6 months without any external income you will do fine. 6 months is about how long it will take you to start generating referrals and start seeing a steady patient flow. It might not take 6 months but it is better to err on the long side.

Also if you want some ideas on how to generate referrals quickly send me a PM

1. Sure Thing
2. Cadillac
3. Gold Mine
4. Shiny Trap

Originally Posted by The Hammer

The only benefit to buying out an existing practice is all of the built in referrals. If you were to locate say where I am buying a practice you could set up your own shop and be high ballin' by the end of your first day.

If you are going into an area where there already are several endos you might be better off buying a pre-existing practice but with endos in such short demand if you can set up shop and have enough money to pay your bills for 6 months without any external income you will do fine. 6 months is about how long it will take you to start generating referrals and start seeing a steady patient flow. It might not take 6 months but it is better to err on the long side.

Also if you want some ideas on how to generate referrals quickly send me a PM

The only problems I really see with starting up a dental practice from scratch are picking a location and the client base (how to obtain the referrals).

I'll be PMing you soon.

Originally Posted by 8 SNAKE

1. Sure Thing
2. Cadillac
3. Gold Mine
4. Shiny Trap

Well since Hammer defined his categories, this is the best I can come up with.

Can't wait to hear the results, so to speak, haha

Then here I stand corrected, a few assumptions needed to be made so it would all fit:
#1-sure thing
#2-Cadillac
#3-gold mine
#4-shiny

Still, from what I gather my faith in #3 remains weak.

Originally Posted by le14

The only problems I really see with starting up a dental practice from scratch are picking a location and the client base (how to obtain the referrals).

I'll be PMing you soon.

I was talking about an endo practice and not a general dentistry practice. Big difference between the two in whether it is better to buy an existing practice or to open your own. As I've said before if you are opening a general practice I would DEFINITELY BUY AN EXISTING ONE, with endo due to much much lower overhead and that your patients come to you by referral you could go either way

Originally Posted by The Hammer

Anytime this happened I went out and bought myself a "toy" to celebrate.

Ok, so since you said it, I have to ask...

Some dentists say all of their "toys" are in their office, but I know for some dentists, that is not always the case.

Hammer, this thread is like crack to an addict...I log on every day "jonesing" for more...keep it up doc!

Other than by reading this thread, how does a dental student acquire all the knowledge needed to make an educated decision on selecting a practice?

When I look at Hammer's list of possible practices to buy, I have no idea what to make of the numbers. checking the demographics of an area, city size, rural vs. suburban vs. big city, associate salary percentages, medicaid, HMO...the list never seems to end .

Where do you guys learn how to make something out of all that information? I'm feeling a little overwhelmed here.

Originally Posted by LNinlove

Ok, so since you said it, I have to ask...

Some dentists say all of their "toys" are in their office, but I know for some dentists, that is not always the case.

Hammer, this thread is like crack to an addict...I log on every day "jonesing" for more...keep it up doc!

Most of my toys were high end custom basses (I'm a bass player). A couple of other things I got when a big case paid in cash were:

1. A Benelli M4 12 gauge shotgun
2. A black 2007 Z06 Corvette
3. Took my staff, their spouses and families, my mom, my wife and a Pankey Clinical instructor (for CE of course) and his girlfriend for a week at the Poipu Bay Hilton on Kaui. Paid for everything including plane tickets.

Now that being said I was constantly reinvesting in my practice mostly with continuing ed for me and my staff or upgrading our computers and equipment. But you have to reward yourself or else it just becomes work.

I nominate The Hammer as the SDN moderator.

Originally Posted by Blue Panther

I nominate The Hammer as the SDN moderator.

I dunno, Oracle might punch me in the balls if I took his job

Originally Posted by The Hammer

I dunno, Oracle might punch me in the balls if I took his job

Ohh, low blow!

Nah, you won't get punched in the balls, but you'll have to do something else with them to get a Mod position.

OK its time to talk practices. So we'll start with practice 1


"The Sure Thing"

Practice 1:
Avg Gross: $583,000
Operative: $450,450
Hygiene: $132,550
Days: Mon-Fri 8-5
Active Pt: 3400 (80% insurance, 20% cash) general dentistry some endo, no ortho
Building: Rent with option to buy. Freestanding
Equipment: Purchased within the past 10 years. Computers w/EagleSoft, no digital x-ray
Price: $429,000 ($394,000 plus $5000 agent fee, $30,000 working capital)

Most of you pegged this one as "The Sure Thing" and you were right. This is an ideal situation to buy into. Mostly regular insurance, no reduced fee plans with the exception of Delta Dental, no medicaid and a fairly health hygiene recall. The practice has been there for decades so it is very well established, the equipment is not brand spanking new but nothing will need replacing for several years. And the price $394,000 is 67% of production which is OK. You could even haggle them down some. You have the option to buy the free standing building which is always a good thing, especially with an established practice.

Now lets look at numbers: The loan for this practice will be $429,000 at 7% for 7 years. So your note per month for the practice will be $6474.76. The practice on average makes $48,583. With a 65% overhead this leaves you with $ 17,004 to service your debt. After paying off your monthly practice note you have $10,529.24 for living expenses. But remember of your practice debt $30,000 is just cash for working capital. This is pretty doable and this is assuming that you will only produce the exact same amount for the next 7 years. Chances are as your skill level increases so will your production.

This is a good deal and is a lot like the first practice that I bought. When I bought my first practice in 1995 the yearly average was about $399,000. At the end of my seventh year there the yearly production was about $890,000. If I can do it you can do it too. If one of you were to ask my opinion on a practice like this I would personally drive you to the bank to get the financing going before someone else bought it out from under you. This practice was my first choice until I unearthed the practice that I am currently buying.

Originally Posted by The Hammer

This practice was my first choice until I unearthed the practice that I am currently buying.

The suspense! x_x

Still racking my brain to figure which is the goldmine... I was debating if #1 was the sure thing or the goldmine (if hygiene production was boosted)

I'm almost certain #2 must be the Cadillac with the high price and bells and whistles.

#4 looks like it could be the Shiny Trap, as it has much higher gross but again, has a much larger patient base and deals with HMOs, etc, so it requires more 'work' than say, to net a larger income with #3. Still, it does have 400k hygiene, so I'm not sure if they just aren't doing much operative work, or are being reimbursed/compensated very little for the amount of work done (no experience yet :P), especially considering the amount of standing patients.

#3 seems by process of elimination to be the goldmine, but I can't figure out why exactly heh.. The cash is very nice, and perhaps since it has a retiring dentist there may be non/underdiagnosed work to be done, along with dentures and larger restorations of the older patients? :P.. Also, if you did just want to work <5 days a week, you wouldn't be as hurt by the small patient base. Ah, and also you mentioned the dentist primarily did maintenance dentistry, so would that just include basic procedures? If so, then this could definitely be the goldmine for more complex implants, RCTs, etc. However, if the dentist was not recommending or treating these before, the patients may be less likely to accept higher-paying treatments from the new dentist.

Not fully sure between 3 and 4, but I am looking forward to your response Hammer

Originally Posted by The Hammer

OK its time to talk practices. So we'll start with practice 1


"The Sure Thing"

Practice 1:
Avg Gross: $583,000
Operative: $450,450
Hygiene: $132,550
Days: Mon-Fri 8-5
Active Pt: 3400 (80% insurance, 20% cash) general dentistry some endo, no ortho
Building: Rent with option to buy. Freestanding
Equipment: Purchased within the past 10 years. Computers w/EagleSoft, no digital x-ray
Price: $429,000 ($394,000 plus $5000 agent fee, $30,000 working capital)

Most of you pegged this one as "The Sure Thing" and you were right. This is an ideal situation to buy into. Mostly regular insurance, no reduced fee plans with the exception of Delta Dental, no medicaid and a fairly health hygiene recall. The practice has been there for decades so it is very well established, the equipment is not brand spanking new but nothing will need replacing for several years. And the price $394,000 is 67% of production which is OK. You could even haggle them down some. You have the option to buy the free standing building which is always a good thing, especially with an established practice.

Now lets look at numbers: The loan for this practice will be $429,000 at 7% for 7 years. So your note per month for the practice will be $ 5465. The practice on average makes $48,583. With a 65% overhead this leaves you with $ 9004 to service your debt. After paying off your monthly practice note you have $3539 for living expenses. But remember of your practice debt $30,000 is just cash for working capital. This is pretty doable and this is assuming that you will only produce the exact same amount for the next 7 years. Chances are as your skill level increases so will your production.

This is a good deal and is a lot like the first practice that I bought. When I bought my first practice in 1995 the yearly average was about $399,000. At the end of my seventh year there the yearly production was about $890,000. If I can do it you can do it too. If one of you were to ask my opinion on a practice like this I would personally drive you to the bank to get the financing going before someone else bought it out from under you. This practice was my first choice until I unearthed the practice that I am currently buying.

Could you explain this line please! Where did the 5 cents go?

Hammer am I missing something? The practice on average makes $48,583. With a 65% overhead this leaves you with $ 9004 to service your debt? 65% of 48583= 31578.95...This leaves 17004.05 before any debt or taxes. Are you including taxes? Is this why you only have 9004 to live off of?

So with $3539 left over, I can't pay my student loans and afford for my wife to stay home with my kids...

I understand this is assuming I don't grow the practice at all, but with this scenario I might be better off as an associate eh?

Also, at what point do we get taxed, and making this much, what is the tax rate?

Lastly, is 7 years a short, long or average amount of time for a practice loan?

Originally Posted by monreal

Could you explain this line please! Where did the 5 cents go?

I rounded up

"The Sure Thing"

doesnt sound like a "sure thing" coming right out of school, thats for sure. I guess if you can extend the loan for the practice with school debt... then you can do it.

But it is a sure thing from his perspective though. He doesnt have student loans to pay off, BUT he does have an ex wife.

Originally Posted by DrReese

Hammer am I missing something? The practice on average makes $48,583. With a 65% overhead this leaves you with $ 9004 to service your debt? 65% of 48583= 31578.95...This leaves 17004.05 before any debt or taxes. Are you including taxes? Is this why you only have 9004 to live off of?

No, I'm missing something, I was doing about 10 different things when I posted and my math sucks. I have corrected it. Thanks for pointing it out

Originally Posted by LNinlove

So with $3539 left over, I can't pay my student loans and afford for my wife to stay home with my kids...

I understand this is assuming I don't grow the practice at all, but with this scenario I might be better off as an associate eh?

Also, at what point do we get taxed, and making this much, what is the tax rate?

Lastly, is 7 years a short, long or average amount of time for a practice loan?

Don't despair, luckily I'm better at dentistry than math. You will have $11,539 after debt service, not $3539. Sorry about that.

Unless the dentist does owner financing, 7 years is the norm. You might be able to get a longer loan but I haven't heard of it. As far as taxes go it depends on too many factors for me to be able to make a guess but when you are paying off debts a good accountant will use those to your advantage to keep you from paying too much in taxes. At one point I know that my tax rate approached about 30% of my total income but I had no children, no debt and was making a hell of a lot more than 11K a month

Originally Posted by kayakfisher

"The Sure Thing"

doesnt sound like a "sure thing" coming right out of school, thats for sure. I guess if you can extend the loan for the practice with school debt... then you can do it.

But it is a sure thing from his perspective though. He doesnt have student loans to pay off, BUT he does have an ex wife.

$11,539 after practice debt service with 0% growth is a sure thing. And I don't care what your student loans may be, I gave my ex-wife much much more than you could possibly owe. It's not like I'm coming at this with money falling out of my a s s. We are both in an ocean of debt I just happen to have been rowing longer than you have

What would be your advice to dental grads who are more of a suburban/urban type rather than the rural type? How should they settle in locations that have, say 1500:1 popentist ratio?

Originally Posted by The Hammer

Don't despair, luckily I'm better at dentistry than math. You will have $11,539 after debt service, not $3539. Sorry about that.

Unless the dentist does owner financing, 7 years is the norm. You might be able to get a longer loan but I haven't heard of it. As far as taxes go it depends on too many factors for me to be able to make a guess but when you are paying off debts a good accountant will use those to your advantage to keep you from paying too much in taxes. At one point I know that my tax rate approached about 30% of my total income but I had no children, no debt and was making a hell of a lot more than 11K a month

Hahaha, I was wondering where all of the money went, but I too am not the greatest at math, so I figured I was the one that was missing something. Now my wife can stay home with the kids...this makes me happy!

I don't think this has been mentioned, regarding the loan.

The loans to purchase the practice at 7% for 7 years is a loan with zero down?

Is it common to put a down payment when purchasing a practice? And if it is, how much?

Excellent post The Hammer.

Thank you for being so generous. Having said that the suspense is killing me!!!!

I cannot wait to hear what you have on #3. I suspect its the Goldmine. With that level of hygiene production the dentist it appears comes to the office to chat with the hygienist and say hallo to his patients and does minimal dentistry yet they keep coming back. I believe there is millions worth of dental work here being "watched." This production is also not bad for 3 and a half days work not to mention that the price is right.

Originally Posted by DMD 4 Me

I don't think this has been mentioned, regarding the loan.

The loans to purchase the practice at 7% for 7 years is a loan with zero down?

Is it common to put a down payment when purchasing a practice? And if it is, how much?

It's better than zero down. That loan includes $30k worth of working capital (ie - cash).

Originally Posted by The Hammer

$11,539 after practice debt service with 0% growth is a sure thing. And I don't care what your student loans may be, I gave my ex-wife much much more than you could possibly owe. It's not like I'm coming at this with money falling out of my a s s. We are both in an ocean of debt I just happen to have been rowing longer than you have

Those figures sound a lot better! A grad could easily pull that off! Sure thing it is!!

I havent even started rowing yet! Start school this year.

Originally Posted by kayakfisher

Those figures sound a lot better! A grad could easily pull that off! Sure thing it is!!

I havent even started rowing yet! Start school this year.

Yeah, when I looked back at what I had posted I was like WTF!

$3500 ain't much if you have a car payment and rent much less student loans and a family. Sorry about that, the only sure thing with those figures is you're going starve

Originally Posted by 8 SNAKE

It's better than zero down. That loan includes $30k worth of working capital (ie - cash).

Exactly. Even if you had the money for a downpayment I would still suggest just keeping it for working capital. The banks understand that for a new business owner cash flow for the first year is critical. There is no point in giving someone a loan, expecting a downpayment and then leaving them cashless. Having cash flow from day one is the only way a new business will succeed. Once the ball gets rolling the bank knows that they will be repaid. No cash means no "push" to get the ball rolling so they don't get paid and since the practice itself is collateral they wind up with something that isn't worth the money they lent on it. The true value in a practice is having a dentist in it working, not the equipment and furnishings.

Originally Posted by mx41

What would be your advice to dental grads who are more of a suburban/urban type rather than the rural type? How should they settle in locations that have, say 1500:1 popentist ratio?

Same advice. Look for the area that you want to live in and buy an existing practice with a solid patient base. Even the most densely populated areas are beginning to have a larger gap in the dentist to patient ratio. Its simple math, fewer dentists are graduating, more dentists are retiring or dying and the population is exponentially increasing. Areas that were underserved in the past are now abandoned and even the more dentally saturated markets are opening up. Places that once were a tough market to crack like Florida are now becoming "softer" markets due to the shortage of dentists and since Florida still has no reciprocity it is softening even faster than say a state like Arizona which does have reciprocity. It's a damn good time to be a new grad in the USA

Originally Posted by LNinlove

Hahaha, I was wondering where all of the money went, but I too am not the greatest at math, so I figured I was the one that was missing something. Now my wife can stay home with the kids...this makes me happy!

Wipe those tears away family man and turn that frown upside down

Originally Posted by The Hammer

Wipe those tears away family man and turn that frown upside down

Haha my wife and I got a good laugh out of that.

This is so great to start seeing numbers and get opinions on what we do can do when we get out. You should put together a guide for graduating dentists...
I'm starting school in August, so I don't know what type of stuff we will learn as far as business management (and analyzing a market), but this is very valuable knowledge!

Hi Hammer, does the owner pay the practice mortage before or after taxes are taken out from the revenue? Student loans are taken out post-tax, correct?

Originally Posted by The Hammer

OK this is an easy question because this is exactly what I was looking for when I was a new grad and looking for an office. What you want to do is find a location that is not too far (say 30 miles) from a decent sized city with a mix of industry. For me that city was Knoxville, TN. It was a population of around 700K and a mix of industry so that if one area of the economy goes to hell the entire area won't necessarily go under with it.

Find an area where there is a favorable mix of blue and white collar workers. I myself am very partial to bluecollar for a couple of reasons:

1. They tend to have more disposible income than white collar workers (yes, its true. When you aren't keeping up with the Jones' you tend to have more money to spend on dentistry)
2. They tend to place a higher premium on quality work and good service.
3. I'm a redneck myself so I tend to get along pretty well with them.

Once you have found a community with these characteristics, find the Wal-Mart and park your practice right in front of it. Then you will notice two sounds. The drill and the cash register.

In these communities the Wal-Mart is the center of the universe. Almost 90% of all dental appointments are made by women. There is one place that almost all women have to frequent at least once a week and that is the grocery store. With men there is one place that attracts them like moths to a flame and that is Wal-Mart, so by locating next to the Wal-Mart you are getting everybody.

Next create a name and nice logo for your office. Keep it simple and tooth centric. Mine was "The Dental Office at Rockwood" . I had a big sign that I kept lit up at night and I had my phone number pretty prominent. Other than a phone ad I did no other advertising. I didn't have to. According to a demographic I had done before I opened my office, I had 26,000 people driving by my office Mon-Fri and that is not counting the people stopping by the Wal-Mart.

And don't let anyone tell you that you can't do high end fee for service dentistry in that type of location. I did and I did it for YEARS. Whenever I would go to a Pankey course or that type of CE I would get the amused looks from the other dentists when I told them that my office was in front of a Wal-Mart in a somewhat rural east Tennessee county. Those looks would stop when I told them was I was netting a year. And considering that in Tennessee the cost of living is about 23% less than other areas of the country that is more money in the bank for me. And it's not about how much you make, it's all about how much you keep.

I can't tell you how much this fits the town that I would like to practice in and the truth in the blue collar worker portion of your statement. Just because someone is not "educated" doesn't mean they can't afford quality treatment. I come from a small town and those sorts of people (like myself) work hard for their money and don't have nearly as many expenses (3 kids in college, half million dollar houses they can't afford, etc..). Amen to this.

Originally Posted by zriceman

Hi Hammer, does the owner pay the practice mortage before or after taxes are taken out from the revenue? Student loans are taken out post-tax, correct?

Now you are asking me questions that normally my accountant would answer for me. Like Dirty Harry said in Magnum Force "A man's got to know his limits" I know mine (witness my simple math blunder a few posts ago). Your mortgage on the practice is pre-tax, as far as student loans go I really couldn't tell you. But I'm meeting with my accountant tomorrow so I'll get his opinion and post it

Originally Posted by LNinlove

Haha my wife and I got a good laugh out of that.

This is so great to start seeing numbers and get opinions on what we do can do when we get out. You should put together a guide for graduating dentists...
I'm starting school in August, so I don't know what type of stuff we will learn as far as business management (and analyzing a market), but this is very valuable knowledge!

I'm saving everything that is written in this thread in a pdf file so who knows. Maybe I'll polish it up and publish it

Originally Posted by The Hammer

I'm saving everything that is written in this thread in a pdf file so who knows. Maybe I'll polish it up and publish it

YES! Another book that I will purchase and put on a bookshelf never to read.

BTW, I love this thread. I can't wait until the HTC Evo comes back in stock. Then I can get rid of my decrepit, old, and crappy Windows Mobile phone and switch to a carrier that doesn't drop every one of my calls.

Oh yeah, and then I can browse SDN every waking moment.

Thanks for the info, this is great.