BUYING MY FIRST PRACTICE: A retrospective blog

This forum made possible through the generous support of SDN members, donors, and sponsors. Thank you.
N

NileBDS

SDNator
Moderator Emeritus
Verified Member
10+ Year Member
7+ Year Member
Verified Expert
15+ Year Member
Joined
Jan 9, 2006
Messages
1,532
Reaction score
57
.

Alright young dentists, eager, tired and underpaid associates everywhere, let's try and make something positive of my experience.


I am in the middle of my first dental practice acquisition (fancy word for going into more debt), and thought I would try and share my ups and downs with everyone here.


My hopes are in documenting the thought process leading up to my decision of departing my current excellent -but far from perfect- associateship position, for purchasing my first dental practice. I'm counting on your support. I also intend to shed more light on perhaps one of the most important investments of your professional career (following your education), and give everyone here a head start on what to expect down the line, and how to best be prepared for it.


This will be in the form of blog entries, along the same lines of my previous MY FIRST JOB blog: http://forums.studentdoctor.net/showthread.php?t=636129


I know there may have been similar threads here on SDN about buying a practice, so maybe you guys can chime in with nuggets you learned from over there. Either way, it should be interesting.


Aaaaaaalright, here we go! Stay tuned ...




This blog and ensuing discussion can be also followed on dentaltown at:
http://www.towniecentral.com/MessageBoard/thread.aspx?s=2&f=148&t=182255&r=2782951

.
Members don't see this ad.
 
  • Like
Reactions: 1 user
So, let's kick off by asking the very basic question: why ownership? And, and, and ... a big AND ... is it for me?


I will now proceed to shamelessly copy a recent post from a different thread, just because it's easier, and relevant;


Why ownership?

1. Passive hygiene income - not available to most associates.
2. You don't have to break your back in order to net the same amount as an owner (associate, more likely).
3. Job security.
4. Business write offs, funding retirement, tax breaks - SEP IRA accounts
5. Liberty to grow at your own pace, in the areas you see fitting with your philosophy and your strengths (endo, cerec, ortho, implants, ...).

6., 7., 8., 9., 10. Do not underestimate the sanity to be had from being able to hand pick pleasant people to surround you everyday at work.



On a related note. In most cases, your "business expenses" as an associate will come off of your post-tax dollars (taxed net). In my case that includes, but is not limited to:

$12,000 health
$4,000 disability
$2,000 malpractice
$3,000 specialized supplies and equipment
$2,500 loupes and light
$4,000 CE and related CE travel expenses
$5,000+ Car lease, gas, mileage, car insurance, car repairs, clothes, meals, travel, ...

$32,500+ POST-TAX dollars in associate overhead expenses alone, most of which would benefit from business ownership.




Now the tough one ... is ownership right for me? Boy, is that a toughie. It really depends. It is a personally driven decision, but most will tell you that ownership is rewarding financially, yet initially very taxing both physically and mentally (wow, sound familiar?). It is not an easy job.


I would suggest that factors that would favor ownership include:

1. Well-high producing associates, eager to expand duties and/or take on additional responsibilities with added reward.
2. The ability to work full time and overtime when needed
3. Long term location (no more moving around)
4. Support at home (spouse, family?)
5. Financially responsible (you will likely need to prove this to the bank later, in order to obtain financing)
6. Be in good health


Stay tuned ...
 
Members don't see this ad :)
This is awesome! I hope that the car in the avatar is yours in a few years (san the burning tires).
 
In for another great thread!

Love the Porsche's burning breaks avatar! :D
 
Little bit off topic but does any one know if dental town forums/towniecentral forums are available on tapatalk?

Sent from my SAMSUNG-SGH-I997 using Tapatalk
 
Congrats Nile!

Awesome endo as well on dtown ;)
 
i'm not going to lie...i want a porsche and hopefully i become rich enough to buy one :cool:

Thanks for sharing!
 
.

Start-up VS existing




Start-ups can absolutely be done. It just takes people with more brains and guts than myself. It's a blessing in itself that I can recognize that in myself before its too late. I'm not your typical risk-taking entrepreneurial type of guy. I tend to be more risk-averse, actually.


I thought a lot about starting-up, and actually really, really, really still wish I could. I had a great location, big vision for what I wanted to do and was all fired up.


What took the wind out of my sail and the tipping point for my scale was when I started hearing the same message from Banks, CPAs and brokers: existing data suggests that this is not the best time to do a start-up (at least in my state/region). You can't argue with that, and still call yourself rational.



Start-up


  • You MUST have a home-run location with favorable demographs, in order for it to be even remotely feasible
  • Be prepared to stay in the red (bleed money) for your whole first year or two in business (borrowing running costs) – loosing sleep, stomach lining
  • Have to think about and plan for every little minute detail in your practice. That includes writing office manuals/policies, shopping for compressors, marketing, hiring/firing, training new staff, …
  • It's. A lot. Of . Work.


Existing


  • Source of revenue from day one
  • Somewhat loyal staff, patients from the get-go
  • Tried and tested systems in placed, which pretty much provide you with a platform, upon which you can improve, increase efficiency and productivity = $$$
  • All this allows you more opportunity to learn, tweak and grow, opposed to re-inventing the whole process and spinning your wheels for the first couple of years until you see some profit, growth and stability
  • More predictable = potentially more hours of sleep at night


Here's the dirty little secret about existing practice purchases: they're almost always under-valued. You get more bang for your buck when buying an existing practice.


The closer dentists inch towards retirement, the lazier they get – not necessarily in a bad way. At that point in their life, they most likely have a very comfortable income, funded retirement, plenty of savings upon which to fall back on, all while allowing their practices to descend into complacency, becoming lazy, fat and inefficient slobs along the way (the practice, not the dentist).


From my experience, a practice will usually sell at 60-80% of the most recent 3 years weighted average gross income, when in fact that same practice will have much much more potential. Something to the tune of 120-150% of the most recent years weighted average gross income.


Example (using $100k for simplicity):

A practice averaging gross revenues of $100,000 will usually sell for anywhere between $60k and $80k and will mostly likely have the potential to be bumped up to a gross of $150k, with some simple tweaks, marketing and energy infused into it. That's some low hanging fruit my friends. You just paid $60-80k for a practice which should be grossing $150k!


Ok, now most CPAs, lawyers and consultants will tell you to never EVER pay for potential. I agree. Pay for historical data, existing figures and proven numbers. But that does not mean that the potential is not there. It always will be, with the right management, different perspective and fresh blood infused into the practice (new procedures, less referrals, signing up for new insurances).


That's good enough for me.


.
 
Last edited:
NileBDS said:
.


From my experience, a practice will usually sell at 60-80% of the most recent 3 years weighted average gross income, when in fact that same practice will have much much more potential. Something to the tune of 120-150% of the most recent years weighted average gross income.


Example (using $100k for simplicity):

A practice averaging gross revenues of $100,000 will usually sell for anywhere between $60k and $80k and will mostly likely have the potential to be bumped up to a gross of $150k, with some simple tweaks, marketing and energy infused into it. That's some low hanging fruit my friends. You just paid $60-80k for a practice which should be grossing $150k!


Ok, now most CPAs, lawyers and consultants will tell you to never EVER pay for potential. I agree. Pay for historical data, existing figures and proven numbers. But that does not mean that the potential is not there. It always will be, with the right management, different perspective and fresh blood infused into the practice (new procedures, less referrals, signing up for new insurances).


That's good enough for me.


.
Click to expand...

Great post Nile, really informative.

How do you figure 120-150% I always thought there is some patient and staff turnover when a new owner takes over. So, wouldn't you be underperforming the 3 year average your first year or two while building the practice up?

And, if you dont mind sharing in your experience shopping around-whats an average production yearly range for a small to medium practice (no associate production). Also, how open and honest are owners when reviewing the financials? I personally worry about being ripped off or overpaying, maybe thats just me.

Also, how do you figure in depreciation of equipment when assessing practices?
 
DrDDSman said:
How do you figure 120-150% I always thought there is some patient and staff turnover when a new owner takes over. So, wouldn't you be underperforming the 3 year average your first year or two while building the practice up?
Click to expand...
You can take home more $$$ even when the office you buy produces less during the first few years. How? By reducing the overhead. As NileBDS pointed out, the older dentists become "lazy" and less efficient as they are closer to their retirement age. You, young dentist, can do the same procedures many times faster. For example, when I bought an existing ortho practice 3 years ago, I fired all the back office assistants because I thought they were too slow and overpaid. I demoted the existing office manager to receptionist position and cut her salary from $22/hour down to $12/hour. The seller orthodontist used to work 16 days a month. I only need to work 4 days a month to take care of the same number of patients.

That's for ortho. For general dentistry, I think there are some ways you can cut the overhead, such as:
- Let the existing dental hygienist go and start doing all the hygiene procedures yourself. You are young. You have the ability to do more procedures in shorter amount of time.
- Get rid of the existing overpaid staff. There are plenty of younger and faster assistants who are willing to work for less, especially during this tough economic time). There is a saying that "you can't teach an old dog to learn new tricks."

When buying an existing practice, the first thing I look at is the monthly rent payment. I will not buy the office if the rent is unreasonably high. My sister's office rent is only $1300/month. So for the dentist who pays $4300/month in office rent, he/she has to cut 10 more PFM crown preps than my sister in order to bring home the same amount as my sister (I am assuming that the net profit for 1 PFM crown is $300).

My 2 cents.
 
Last edited:
Members don't see this ad :)
Dang lol. Like a boss!


charlestweed said:
The seller orthodontist used to work 16 days a month. I only need to work 4 days a month to take care of the same number of patients.

My 2 cents.
Click to expand...
 
charlestweed said:
You can take home more $$$ even when the office you buy produces less during the first few years. How? By reducing the overhead. As NileBDS pointed out, the older dentists become “lazy” and less efficient as they are closer to their retirement age. You, young dentist, can do the same procedures many times faster. For example, when I bought an existing ortho practice 3 years ago, I fired all the back office assistants because I thought they were too slow and overpaid. I demoted the existing office manager to receptionist position and cut her salary from $22/hour down to $12/hour. The seller orthodontist used to work 16 days a month. I only need to work 4 days a month to take care of the same number of patients.

That’s for ortho. For general dentistry, I think there are some ways you can cut the overhead, such as:
- Let the existing dental hygienist go and start doing all the hygiene procedures yourself. You are young. You have the ability to do more procedures in shorter amount of time.
- Get rid of the existing overpaid staff. There are plenty of younger and faster assistants who are willing to work for less, especially during this tough economic time). There is a saying that “you can’t teach an old dog to learn new tricks.”

When buying an existing practice, the first thing I look at is the monthly rent payment. I will not buy the office if the rent is unreasonably high. My sister’s office rent is only $1300/month. So for the dentist who pays $4300/month in office rent, he/she has to cut 10 more PFM crown preps than my sister in order to bring home the same amount as my sister (I am assuming that the net profit for 1 PFM crown is $300).

My 2 cents.
Click to expand...

Before I chime in I will say that I am a not an owner of a dental office, however I have extensive experience in the corporate setting.

The bold comments are very murky waters and have to be treated carefully:

1. I have no clue as to why a young dentist such as yourself would need to waste time doing cleanings when it generates less revenue than any other type of treatment. Even a $50/hr hygienist pays for themselves via the time they save you. Unless your only seeing Medicaid patients it doesn't make any sense to get rid of a hygienist because the opportunity cost of doing other types of procedures almost always outweighs this. Plus the hygienist salaries comes out as overhead from the procedures she performs thus you will make $$$ and you have time to see other patients. The only dentists I see that do their own cleanings are the type that don't work too hard on keeping a strong practice going and are willing to do the easy work just to keep their schedule filled.

2. "Trimming the fat" sounds good in theory. You save a ton of money by reducing overhead and you feel like the boss. However, you're doing 2 things: creating a hostile work environment from the get go. I highly doubt the old office manager appreciate losing out on an awesome 50K yearly salary and will do her "best" as a receptionist. She's gonna leave you the moment she can find another manager position. The second bad thing you're doing is saving a few $$$ in the short run but you might lose out on more $$$ in the long run. An existing staff can help the transition from the old owner to you (the new owner) and make things smooth. They'll tell you things that you cant see on paper and help get your patients used to seeing a new face. If you cut everyone and existing patients walk into a new office, there's a high chance they'll walk out and never come back after the first procedure. Why? Because its gonna feel like a strange experience for them and if they dont feel like they can trust you or you come off as an a-hole then they'll seek their dental work elsewhere.

Remember how you treat your staff is going to determine how smooth your practice is going to run.
 
wired202808 said:
1. I have no clue as to why a young dentist such as yourself would need to waste time doing cleanings when it generates less revenue than any other type of treatment. Even a $50/hr hygienist pays for themselves via the time they save you. Unless your only seeing Medicaid patients it doesn't make any sense to get rid of a hygienist because the opportunity cost of doing other types of procedures almost always outweighs this. Plus the hygienist salaries comes out as overhead from the procedures she performs thus you will make $$$ and you have time to see other patients. The only dentists I see that do their own cleanings are the type that don't work too hard on keeping a strong practice going and are willing to do the easy work just to keep their schedule filled.
Click to expand...
Wouldn't it be nicer not having to pay the hygienist $50/hour (or $400/day) and keep that money for yourself? Unlike you, the previous owner (the seller) doesn't have student/home/business/car loan debts; therefore, he can afford to be "lazy." With the help of the hygienist, he can just sit in the office surfing the net. He can afford to have overstaffed office. For you young dentist, why would you want to do that? I choose to waste my time doing the procedures, which are normally performed by my assistants, because I want to keep more of what I produce (by hiring fewer assistants than I need). I am young (well, I am 40). I like to work hard to make $$$ as fast as I can so I can afford to be "lazy" in the near future…..like the 60 yo orthodontist who sold the practice to me.

It only makes financial sense to hire a hygienist when you don't have the time to do hygiene because you are too busy to perform other highly productive procedures such as crown, veneers, endo etc. The problem is we, dentists, have a finite number of patients. There are days that you are not able to fill your appointment book (due to cancelations, no shows, patient declines tx etc)….and you still have to pay your assistants, your hygienist, your receptionist for standing around doing nothing. You can't just send your employees home.

Trust me; it is no fun to write the checks to pay your staff every 2 weeks.

wired202808 said:
2. "Trimming the fat" sounds good in theory. You save a ton of money by reducing overhead and you feel like the boss. However, you're doing 2 things: creating a hostile work environment from the get go. I highly doubt the old office manager appreciate losing out on an awesome 50K yearly salary and will do her "best" as a receptionist. She's gonna leave you the moment she can find another manager position. The second bad thing you're doing is saving a few $$$ in the short run but you might lose out on more $$$ in the long run. An existing staff can help the transition from the old owner to you (the new owner) and make things smooth. They'll tell you things that you cant see on paper and help get your patients used to seeing a new face. If you cut everyone and existing patients walk into a new office, there's a high chance they'll walk out and never come back after the first procedure. Why? Because its gonna feel like a strange experience for them and if they dont feel like they can trust you or you come off as an a-hole then they'll seek their dental work elsewhere.
Click to expand...
The problem is most of the existing employees get used to the inefficient way in which the previous owner ran the office. When they get used to the bad habits, it is very hard to train them to do things your way….and they tend to be overpaid. There is no reason to keep the existing ortho assistants when I can bring in the assistants who are younger and 2-3 times faster. I demoted the existing office manager to receptionist position and cut her wage from $22/hour down to $12/hour because I didn't think she has the skills to manage the office (she still uses the typewriter). I don't think other offices would offer her the managing position if she decides to leave. This is probably why she still stays with me.
 
charlestweed said:
Wouldn’t it be nicer not having to pay the hygienist $50/hour (or $400/day) and keep that money for yourself? Unlike you, the previous owner (the seller) doesn’t have student/home/business/car loan debts; therefore, he can afford to be “lazy.” With the help of the hygienist, he can just sit in the office surfing the net. He can afford to have overstaffed office. For you young dentist, why would you want to do that? I choose to waste my time doing the procedures, which are normally performed by my assistants, because I want to keep more of what I produce (by hiring fewer assistants than I need). I am young (well, I am 40). I like to work hard to make $$$ as fast as I can so I can afford to be “lazy” in the near future…..like the 60 yo orthodontist who sold the practice to me.

It only makes financial sense to hire a hygienist when you don’t have the time to do hygiene because you are too busy to perform other highly productive procedures such as crown, veneers, endo etc. The problem is we, dentists, have a finite number of patients. There are days that you are not able to fill your appointment book (due to cancelations, no shows, patient declines tx etc)….and you still have to pay your assistants, your hygienist, your receptionist for standing around doing nothing. You can’t just send your employees home.

Trust me; it is no fun to write the checks to pay your staff every 2 weeks.


The problem is most of the existing employees get used to the inefficient way in which the previous owner ran the office. When they get used to the bad habits, it is very hard to train them to do things your way….and they tend to be overpaid. There is no reason to keep the existing ortho assistants when I can bring in the assistants who are younger and 2-3 times faster. I demoted the existing office manager to receptionist position and cut her wage from $22/hour down to $12/hour because I didn’t think she has the skills to manage the office (she still uses the typewriter). I don’t think other offices would offer her the managing position if she decides to leave. This is probably why she still stays with me.
Click to expand...

1. Must be a regional issue. Most dentists on the East Coast perform high paying procedures and it makes no financial sense to perform cleanings. Maybe its different on the West Coast.

2. I understood what you wrote but cutting the fat too soon may kill the patient aka your office. You can transition out staff slowly and figure out how to do it smoothly too. All i'm saying is that having Friday Layoff day might not be a good idea for morale or for patients that are used to seeing assistant X and manager X. Again I get the financial implication but I think firing people too fast will yield more long term problems than saving a few bucks.
 
charlestweed said:
You can take home more $$$ even when the office you buy produces less during the first few years. How? By reducing the overhead. As NileBDS pointed out, the older dentists become "lazy" and less efficient as they are closer to their retirement age. You, young dentist, can do the same procedures many times faster. For example, when I bought an existing ortho practice 3 years ago, I fired all the back office assistants because I thought they were too slow and overpaid. I demoted the existing office manager to receptionist position and cut her salary from $22/hour down to $12/hour. The seller orthodontist used to work 16 days a month. I only need to work 4 days a month to take care of the same number of patients.

That's for ortho. For general dentistry, I think there are some ways you can cut the overhead, such as:
- Let the existing dental hygienist go and start doing all the hygiene procedures yourself. You are young. You have the ability to do more procedures in shorter amount of time.
- Get rid of the existing overpaid staff. There are plenty of younger and faster assistants who are willing to work for less, especially during this tough economic time). There is a saying that "you can't teach an old dog to learn new tricks."

When buying an existing practice, the first thing I look at is the monthly rent payment. I will not buy the office if the rent is unreasonably high. My sister's office rent is only $1300/month. So for the dentist who pays $4300/month in office rent, he/she has to cut 10 more PFM crown preps than my sister in order to bring home the same amount as my sister (I am assuming that the net profit for 1 PFM crown is $300).

My 2 cents.
Click to expand...
It's all relative. I'm probably one of those dentists who pay close to $4k a month in my 2,000 sft space with 6 ops. However, my office is at one of the busiest intersections of my town, and we see close to 200 new patients a month mostly due to the location. The extra money we pay for rent pays off as instant marketing with the location and exposure, plus we have a huge national grocery store as an anchor store in the strip mall. We spend $0 on marketing, and it beats low rent and tons of $$$ for marketing option any day.

As far as overhead, you should not compromise on quality, i.e. sending your crowns to local lab versus to a lab in china, under paying a high quality front desk staff (the gate keepers to your office), ordering supplies through e-bay or foreign supplier which you end up having problems with, etc. My overhead does not exceed 40% at any given month, and I'm a general dentist. 70% of the overhead is a fixed cost, and a bulk of that is payroll and rent alone.

My biggest advice to NileBDS is, write a strong office manual that sets the tone to all the protocols in the office you are about acquire for you and your staff. It should be written with emphasis of your business vision. Mine is 40 pages long, and I would be happy to share it when you are ready to cross that bridge. And don't forget to start creditentialing with dental insurances 60-90 days before you see your first patients, this is particularly important for start-ups than partnership or buying an existing office..
 
DrDDSman said:
...

How do you figure 120-150% I always thought there is some patient and staff turnover when a new owner takes over. So, wouldn't you be underperforming the 3 year average your first year or two while building the practice up?

...
Click to expand...



charlestweed said:
You can take home more $$$ even when the office you buy produces less during the first few years. How? By reducing the overhead. As NileBDS pointed out, the older dentists become “lazy” and less efficient as they are closer to their retirement age. You, young dentist, can do the same procedures many times faster.

...

- Get rid of the existing overpaid staff. There are plenty of younger and faster assistants who are willing to work for less, especially during this tough economic time). There is a saying that “you can’t teach an old dog to learn new tricks.”

When buying an existing practice, the first thing I look at is the monthly rent payment.

...

My 2 cents.
Click to expand...

Awesome! I could not have said it any better.



ortho lurker said:
Hire an accountant.
Click to expand...


And this! Absolute-must! Not just any CPA, a CPA that is familiar with dental/medical practices.
 
Cold Front said:
It's all relative. I'm probably one of those dentists who pay close to $4k a month in my 2,000 sft space with 6 ops. However, my office is at one of the busiest intersections of my town, and we see close to 200 new patients a month mostly due to the location. The extra money we pay for rent pays off as instant marketing with the location and exposure, plus we have a huge national grocery store as an anchor store in the strip mall. We spend $0 on marketing, and it beats low rent and tons of $$$ for marketing option any day.

As far as overhead, you should not compromise on quality, i.e. sending your crowns to local lab versus to a lab in china, under paying a high quality front desk staff (the gate keepers to your office), ordering supplies through e-bay or foreign supplier which you end up having problems with, etc. My overhead does not exceed 40% at any given month, and I'm a general dentist. 70% of the overhead is a fixed cost, and a bulk of that is payroll and rent alone.

My biggest advice to NileBDS is, write a strong office manual that sets the tone to all the protocols in the office you are about acquire for you and your staff. It should be written with emphasis of your business vision. Mine is 40 pages long, and I would be happy to share it when you are ready to cross that bridge. And don't forget to start creditentialing with dental insurances 60-90 days before you see your first patients, this is particularly important for start-ups than partnership or buying an existing office..
Click to expand...


That's insane!!! Congrats on your success!

Your rent is an investment well made in my opinion. You get your ROI many many times over, in the form of $$$ not spent on marketing, and in actual new patient numbers.
 
.



Ways to find practices for sale?




  • Dentaltown classifieds
  • Local dental society, local school alumni websites & networking (VERY helpful)
  • Networking at dental meetings and study clubs (contrary to common belief, not so helpful, but worth a shot)
  • Brokers (National Practice Transitions [Bacarri-Cabral], ETS, Mercer, ADS, ...)
  • Supply reps (also unfruitful in my case)




What questions to ask when buying a practice?


So you may be surprised, but buying an existing dental practice is mostly a game of numbers. Not location (in my experience), not what new fancy equipment/toys the practice has, not a lot of things it should be. Pure math.



  1. Number of new patients per month
  2. Number of active patients
  3. Gross billings
  4. Net profit
  5. Overhead mix (staff salaries, supplies, rent, …) – More on this later
If you give me these numbers for any practice, and with my tiny tiny limited experience, I can tell you if it is a well run practice. Obviously, there is an additional phase of "due diligence", but these numbers are what gets you through the door. Kind of like a new cars window sticker, advertising it's options, gas mileage, …


I don't need to know where the practice is located (although that would be nice), how new their equipment is, how many staff members even. Just show me the numbers.






Ok, the numbers check out. Is this practice a good fit for YOU, and how to evaluate potential?


You have to be honest with yourself. If you are a bread and butter kind of guy/gal, and do not like high pressure sales cases (cosmetic, full mouth, …), then listen to yourself. Don't go looking for a prosthodontic practice or a practice where the previous owner has been doing a ton of implants, or cosmetic cases, because guess what, YOU



  1. Will inherit all of his/her failures – may have to re-do them, WILL have to re-do them, will not re-do them as well, will pay his/her high lab bill!!
  2. Will loose money with every re-do, while you could have been producing other dentistry
  3. May not be viewed as competent in those areas by his staff/patients – loose their confidence early on
  4. May not find much bread and butter work for you at that practice (high mix of niche procedures


You also must be able to produce around 80-120 % of what that current owner was producing. If you walk into a practice grossing around the same amount or less than what you currently produce as an associate, well guess what ... you will get bored pretty quick. Similarly, if you walk into a situation where you will need to gross a time and a half of what you are doing full time at your associateship just to keep your head above water, well, that's a problem too. You will get burnt out pretty quick. When you think of trying of manage and run an entire show, well, while working 1.5x as hard, well, you may want to shoot yourself actually. This is some serious stuff to not overlook, with pretty heavy consequences.


This is where "potential" comes into play. It's almost an opposite scenario. If you walk into a bread and butter practice (BEST ones to buy BTW, in my opinion – they are like a clean white white canvas), and you see the owner referring most specialty procedures right and left, and you know that you can keep some of that in house – endodontics in my case – then, you have just magically created a major new source of revenue for yourself, which will almost certainly be reflected in an increased production. It's an instant out-of-nowhere bump in your gross.


Similarly, if you see that the current office is doing OK, but is under resourced or under managed, then again, you are sitting on a gold mine, provided you have some managerial know-how, and don't mind ruffling a few feathers.




  • Under resourced = not marketing enough, , not enough staff per new patients (assistants, hygienists, front office), staff poorly/inadequately trained, number of assistants and/or hygienists not consistent with number of new patients = turning away patients, not enough staff to pick up the phone -politely, while not stressed- is also turning people away.

  • Under managed = not participating with any insurances, poor utilization of staff members (assistants only doing suction, not trained in patient education, reinforcing doctors treatment plans, ...), hygienists under trained, ...




.
 
Thank Nile and other dentists for the great post and all the tips. It's fascinating.
Anyway, I have questions about "trimming the fats".
I am probably wrong :) but, as a new owner, you lose some of existing patients. Wouldn't firing old staffs (hygienists and assistants) sorta encourage more patients to leave your practice and to find a different dentist? Patients no longer have relationships with the staff and may feel very different around the new staff. Not to mention, you are a new dentist to them as well.

Wouldn't that cause you more time to build your practice (less revenue and more working hours)? But I guess you would be paying less to new employees so it balances out. Right??

I've also heard that your success somewhat largely depends on your staff (esp receptionists) because they are the ones to see patients initially and spend more time with patients. How true is this statement???
 
Last edited:
TheClutch said:
Thank Nile and other dentists for the great post and all the tips. It's fascinating.
Anyway, I have questions about "trimming the fats".
I am probably wrong :) but, as a new owner, you lose some of existing patients. Wouldn't firing old staffs (hygienists and assistants) sorta encourage more patients to leave your practice and to find a different dentist? Patients no longer have relationships with the staff and may feel very different around the new staff. Not to mention, you are a new dentist to them as well.

Wouldn't that cause you more time to build your practice (less revenue and more working hours)? But I guess you would be paying less to new employees so it balances out. Right??

I've also heard that your success somewhat largely depends on your staff (esp receptionists) because they are the ones to see patients initially and spend more time with patients. How true is this statement???
Click to expand...
I didn't let them go right away. However, it didn't take me very long (1-2 months) to realize that the existing assistants were not competent enough to handle the busy schedules. By the time I let them go, the existing patients already knew me and accepted my management style. Most patients love it because they didn't have to wait long to be seen and they feel their teeth move faster than when they were with the previous owner.

Some practice owners rely on high tech equipments, highly visible office location, and receptionists who have great communication skills to attract patients. For me, I rely more on the word of mouth. When the patients trust me (good work, low fees) they will refer their friends and relatives. Two of my 3 offices are in the professional buildings and the 3rd one is in a small strip mall. My receptionists are just average….2 of them are fluent in Spanish.
 
If you can find the right practice to buy, then buying an existing practice is the way to go. I opened from scratch because nobody was selling. I lost money the first 21 out of 24 months. I thought I was going to go out of business every 6 months. After being open for 5 years, I only recently started making money on a consistent basis (last 6 months). Hopefully it will continue. Oh and I lost plenty of stomach and esophageal lining. I keep a big bottle of tums on my desk at all times.
 
ColdFront, what was the hardest part about starting up/running a practice right out of school? Do you have any associates?
 
Fantastic thread! I look forward to keeping up with it. Lately, I have been pondering the question; buy a practice vs. start-up?
 
Firm said:
If you can find the right practice to buy, then buying an existing practice is the way to go. I opened from scratch because nobody was selling. I lost money the first 21 out of 24 months. I thought I was going to go out of business every 6 months. After being open for 5 years, I only recently started making money on a consistent basis (last 6 months). Hopefully it will continue. Oh and I lost plenty of stomach and esophageal lining. I keep a big bottle of tums on my desk at all times.
Click to expand...

You serious? 5 years of practice and still only scraping by? Thats rough...
 
DrDDSman said:
ColdFront, what was the hardest part about starting up/running a practice right out of school? Do you have any associates?
Click to expand...
The hardest part of starting a practice is hiring the right staff. The hardest part about running a practice is keeping the staff on check.

I have 1 front desk, 3 assistants, and 1 hygienist, all female. Every few weeks, there are small skirmishes between 2 of the employees, and I have to step in, which either leads to someone getting fired or getting them both back in line. They try to take some time off every now and then (i.e. my kid is sick, my parents need help, all kinds of excuses etc). I make example of the weakest links in the chain by letting them go. You have to prepared for this staff issues, or they will drive you off a cliff.

I'm in the process of looking for an associate so I can cut back to a part-time position. It may sound shocking to many if I told them I graduated from dental school 1.5 yrs ago and I'm already talking about part-time position at my office. But it's doable.
 
Cold Front said:
The hardest part of starting a practice is hiring the right staff. The hardest part about running a practice is keeping the staff on check.

I have 1 front desk, 3 assistants, and 1 hygienist, all female. Every few weeks, there are small skirmishes between 2 of the employees, and I have to step in, which either leads to someone getting fired or getting them both back in line. They try to take some time off every now and then (i.e. my kid is sick, my parents need help, all kinds of excuses etc). I make example of the weakest links in the chain by letting them go. You have to prepared for this staff issues, or they will drive you off a cliff.

I'm in the process of looking for an associate so I can cut back to a part-time position. It may sound shocking to many if I told them I graduated from dental school 1.5 yrs ago and I'm already talking about part-time position at my office. But it's doable.
Click to expand...

Like a boss! :thumbup:
 
Firm said:
If you can find the right practice to buy, then buying an existing practice is the way to go. I opened from scratch because nobody was selling. I lost money the first 21 out of 24 months. I thought I was going to go out of business every 6 months. After being open for 5 years, I only recently started making money on a consistent basis (last 6 months). Hopefully it will continue. Oh and I lost plenty of stomach and esophageal lining. I keep a big bottle of tums on my desk at all times.
Click to expand...
Ha ha, I have a bottle of Tums on my desk as well. That’s my favorite brand of antacid. My situation is a lot better than yours. All 3 of my offices generate very healthy income, but it is still very stressful to run a business and to maintain its success….such as: Dealing with the referring GPs and patients. Employees don’t get along with each other. Employees call in sick. Slow days….no new patients, no starts. That darn impacted canine doesn’t move fast enough etc.

My own offices’ income (+ my wife’s income) should be more than enough for us to live like many rich folks, but I choose put more stress on myself by working part time at a dental chain office. I want to get rid of the only debt I still have, the home mortgage. I believe that in order to have a stress-free lifestyle and to be my own boss, all debts must be paid off. Hopefully, I can achieve that goal soon. The day I write the last check to my mortgage lender will be the day I can start hiring an associate and work part time. Right now, I am still working 5 (sometimes 6) days/week. Well, at least doing ortho is not as hard as doing dentistry.
 
charlestweed said:
I want to get rid of the only debt I still have, the home mortgage. I believe that in order to have a stress-free lifestyle and to be my own boss, all debts must be paid off. Hopefully, I can achieve that goal soon. The day I write the last check to my mortgage lender will be the day I can start hiring an associate and work part time.
Click to expand...

There will always be financial stresses throughout your life until the day you go the grave. Want your kids to follow your footsteps and take over your practice one day? Imagine what undergrad, dental school, and ortho residency tutions will cost 20+ years from now?? I am sure that a healthy donation won't hurt the cause for the ortho residency acceptance either. :) Saving for retirement, saving for passing your fortune down a few generations, etc. it will never end!
 
ortho lurker said:
There will always be financial stresses throughout your life until the day you go the grave. Want your kids to follow your footsteps and take over your practice one day? Imagine what undergrad, dental school, and ortho residency tutions will cost 20+ years from now?? I am sure that a healthy donation won't hurt the cause for the ortho residency acceptance either. :) Saving for retirement, saving for passing your fortune down a few generations, etc. it will never end!
Click to expand...
:thumbup:
 
ortho lurker said:
There will always be financial stresses throughout your life until the day you go the grave. Want your kids to follow your footsteps and take over your practice one day? Imagine what undergrad, dental school, and ortho residency tutions will cost 20+ years from now?? I am sure that a healthy donation won't hurt the cause for the ortho residency acceptance either. :) Saving for retirement, saving for passing your fortune down a few generations, etc. it will never end!
Click to expand...

That's the way to the 1% :)
 
.


What's a practice worth anyways?
​



Generally the purchase price is determined by few variables. There are a multitude of factors that may influence the price above or below the accepted standard, but again, you have rules of thumb.


I'm no expert, and I am sure there are several ways to appraise a practice, but here are a couple of them:




Gross revenues


You will need the most recent 3 consecutive years gross revenue figures for this method. Lets assume them to be $600k, $680k and $500k respectively. The most recent year will always carry the largest influence (usually 3 times any other year), followed by the second to last year gross revenue (x2) and lastly the third to last years gross revenue (x1). This method seems pretty fair to me.

2011 = $600k gross (x3) = 1800
2010 = $680k gross (x2) = 1360
2009 = $500k gross (x1) = 500


[1800 + 1360 + 500] divided by 6 (total multipliers) = $610k


$610,000 is your new "weighted" gross revenues. It now becomes easier to guess what this practice should sell for, or what a fair market asking price may be.


In general, a practice will sell for 60% - 80% of it's 3 year-weighted gross revenues. Not 60% - 80% of it's highest year, not 60% - 80% of it's most recent year. The beauty of the 3 year weighted method is that it takes into account recent trends in the practice gross revenues (declining revenues VS inclining revenues). You pay more for an appreciating practice, less for a dwindling-down neglected practice. It's all in there, reflected in the multipliers.


So, in this particular case, this method would place the asking price anywhere between $366,000 to $488,000.


Again, this is a quick and dirty method of breaking it down. These calculations involve much more sophistication than I am presenting here, but this is an easy way for me to dumb-it-down for us folks who really have so much to learn, and need rule of thumb guidelines to go by for quick determinations if a practice is over priced or properly priced.




Net profit


The second rule of thumb gets even quicker and dirtier. You pretty much take the weighted average of the most recent 3 years net profit, and multiply by 1.5 – 2.0 times. That is your range.


Weighted gross revenue = $610,00 and Weighted net profit = $244,000 (assuming an industry average of 60% overhead)


That's all you need to know for this method. You should expect to pay somewhere between 1.5x and 2.0x that net profit number:

$244k x 1.5 = $366,000
$244k x 2.0 = $488,000

Again, these methods cut through all the sausage making of why these numbers, weighted averages, and multipliers are the way they are. Just accept them for now, and when the time comes for a detailed breakdown, it becomes even clearer.






Potential



So, now you have a "fair market value" range for a particular practice. Now you know what it may potentially be worth to someone else, but how much is it really worth … to YOU?


Mostly, you are assessing potential at this point, and determining how much overlap and compatibility of your skills you have with this particular office, and discerning where some areas of growth may lie.



  • Production – can you produce that much (hopefully more)?

  • Similar procedures – how much overlap exists in the procedures offered at this practice, with your current skill set? Can you offer more procedures, diversify your patient base and keep more procedures in house?

  • Location – think family, schools, commute, business potential (long term)

  • Collections percentage – how much is this office collecting? Some offices never collect what they actually produce = free dentistry = money down the drain

  • Overhead – usually the fastest and most efficient way to increase your bottom line. Whether it is overpaid staff, exuberant lab bills, wasteful supply orders, you can expect to shed some of that fluff to the tune of 5-10% right off the bat = money in your pocket.
.
 
Nile, great thread, super informative and good to keep in the back of my mind for the future.

Using your above example, $244k is the practice's net profit. After taxes and other expenses, how much of that would you expect to take home?

Lets say the owner decides to sell for 400K (is this realistic or low balling?), how much cash would you need to come up with? Don't know much about getting practice loans, but would you still need the ~20% like home mortgage? Is there such a thing as a jumbo loan for business?
 
How many of you practice owners have an incentive plan in place for your employees? Trimming the fat and keeping costs down are important to any business, but so is rewarding excellence and having a motivated staff. I've never been a big fan of pay for time served (hours worked). Pay for performance is a much better model to me, because it rewards excellence and trims out the losers on its own.

It's worth noting that I am not a practice owner. My experience comes from the corporate world, but I think it should still translate to a dental practice.
 
I agree with your post. In the offices that I've shadowed at I've noticed that staff liked these types of arrangements and were kinda jazzed to get their incentive.

Bolded - It's funny but I've always thought the biggest piece of fat in any corperate structure was the executive staff that makes these type of incentive-based-compensation. They create a infrastructure that must be supported by people that actually bring in the revenue - ironic.



8 SNAKE said:
How many of you practice owners have an incentive plan in place for your employees? Trimming the fat and keeping costs down are important to any business, but so is rewarding excellence and having a motivated staff. I've never been a big fan of pay for time served (hours worked). Pay for performance is a much better model to me, because it rewards excellence and trims out the losers on its own.

It's worth noting that I am not a practice owner. My experience comes from the corporate world, but I think it should still translate to a dental practice.
Click to expand...
 
DrDDSman said:
Nile, great thread, super informative and good to keep in the back of my mind for the future.

Using your above example, $244k is the practice's net profit. After taxes and other expenses, how much of that would you expect to take home?

Lets say the owner decides to sell for 400K (is this realistic or low balling?), how much cash would you need to come up with? Don't know much about getting practice loans, but would you still need the ~20% like home mortgage? Is there such a thing as a jumbo loan for business?
Click to expand...


Well, assuming $244k is the net, then as the big honcho, you would get to take home up to 100% of that. Some business owners opt to re-invest some of it in new equipment, capital, expansions, and take home the rest. Others, rob the bank dry.


Of course you have to pay taxes on your earnings, and that depends primarily on your state of residence. But for the most part, you would be considered "wealthy" (income in excess of $150,000), will be allowed almost no tax deductions, and can expect to pay 35-45% income tax! Let's say actual money-in-the-bank on a $244,000 take home is roughly $140k - $150k?


This simplistic calculation can be misleading though. Most times you will not need as much take-home salary as the business owner. For example, you can have your business pay for:


Disability insurance
Malpractice insurance
Health insurance
Auto lease
Auto insurance
Gas
Retirement fund
Travel expenses
CE tuition
...


That's roughly 80,000 pre-tax $$$, or $50,000 of your after after-tax dollars you did not have to pay for.


In essence, your base salary would be $244,000 plus $80,000 in benefits/bonus/whatever your CPA wants to call it.

.
 
Bereno said:
You serious? 5 years of practice and still only scraping by? Thats rough...
Click to expand...

The recession hurt. We opened right at the beginning of it. Then, I had the existing orthodontists in the area actively trying to put me out of business (trashing my name to potential referrals, writing bad google reviews, and undercutting any fee that I gave to a patient). It got really ugly. Now that I'm out 5 years, the general dentist realize that the other orthodontists were lying and feel bad that they didn't refer. They have been sending me TONS of patients over the last 6-8 months. I just need to make sure that I do an awesome job. I'm just lucky to have a chance to do an awesome job.
 
charlestweed said:
Ha ha, I have a bottle of Tums on my desk as well. That’s my favorite brand of antacid. My situation is a lot better than yours. All 3 of my offices generate very healthy income, but it is still very stressful to run a business and to maintain its success….such as: Dealing with the referring GPs and patients. Employees don’t get along with each other. Employees call in sick. Slow days….no new patients, no starts. That darn impacted canine doesn’t move fast enough etc.

My own offices’ income (+ my wife’s income) should be more than enough for us to live like many rich folks, but I choose put more stress on myself by working part time at a dental chain office. I want to get rid of the only debt I still have, the home mortgage. I believe that in order to have a stress-free lifestyle and to be my own boss, all debts must be paid off. Hopefully, I can achieve that goal soon. The day I write the last check to my mortgage lender will be the day I can start hiring an associate and work part time. Right now, I am still working 5 (sometimes 6) days/week. Well, at least doing ortho is not as hard as doing dentistry.
Click to expand...

I'm still single (no kids), so only one income. Plus, I went through a huge lawsuit with OEC which drained me dry. Lawsuits will kill a business even if they have nothing to do with dentistry. I've have to go through 3 in 6 years, all non-patient related. One with OEC, the other two with companies that sold me faulty products and would replace them. They literally wanted me to pay for something that arrived broken (pano machine and cloud server)!
Anyway, it's not all bad. I was able to build 3 practices in a major city by reinvesting nearly 100% of any money made instead of buying houses, cars and vacations. The next 5 years will be much better. :D
 
yappy said:
Bolded - It's funny but I've always thought the biggest piece of fat in any corperate structure was the executive staff that makes these type of incentive-based-compensation. They create a infrastructure that must be supported by people that actually bring in the revenue - ironic.
Click to expand...

I don't want to jump the tracks with Nile's thread, but wanted to touch on this a second. The executive staff is responsible for establishing the vision and direction of a company. It may seem like fat from the outside (and sometimes is), but vision and direction make or break a company.
 
Firm said:
The recession hurt. We opened right at the beginning of it. Then, I had the existing orthodontists in the area actively trying to put me out of business (trashing my name to potential referrals, writing bad google reviews, and undercutting any fee that I gave to a patient). It got really ugly. Now that I'm out 5 years, the general dentist realize that the other orthodontists were lying and feel bad that they didn't refer. They have been sending me TONS of patients over the last 6-8 months. I just need to make sure that I do an awesome job. I'm just lucky to have a chance to do an awesome job.
Click to expand...

Wow! I give you a lot of respect for pushing through that and coming out OK. I hope only for the best for you as time goes on. Keep up the good work! :thumbup:
 
I bow before your wisdom, teacher.


8 SNAKE said:
I don't want to jump the tracks with Nile's thread, but wanted to touch on this a second. The executive staff is responsible for establishing the vision and direction of a company. It may seem like fat from the outside (and sometimes is), but vision and direction make or break a company.
Click to expand...
 
In addition to the following answers, what other expenses is an LLC or CORP (the business) legally able to pay for?


Disability insurance
Malpractice insurance
Health insurance
Auto lease
Auto insurance
Gas
Retirement fund
Travel expenses
CE tuition
...


...................................?
1. School Loans ( Can we roll these over into out business loan and consolidate?)
 
.
Anatomy of a transition



Alright, so once you've identified a potentially interesting practice, and if your back-of the-envelope calculations look favorable, now would be a good time to visit the actual practice in order to check out the lay out, equipment and hopefully interview the owner about his/her thoughts on a transition.



Transitions are usually one of three scenarios:

a. No transition – Maybe owner is relocating out of state

b. Partial transition – Owner willing to stay on for a few months (as an associate/consultant), in order to introduce the new guy/gal to his patients and staff

c. Indefinite transition – Owner would like to stay on indefinitely part time, allowing him/her to reduce their hours, gradually phasing into retirement, at their own pace, without having to deal with potential management headaches of running the business



All these scenarios have their strength and weaknesses. You should ask yourself, which one are YOU comfortable with, and is your vision of a transition close to that of the owner? Is the owner's position negotiable?



These potentially deal breaking issues should be brought up right about now, and hopefully openly discussed and factored into the whole purchase package.


.
 
.


It's all you now … well, not really.




Here comes a critical point in any dental practice acquisition.


When you've finally narrowed your search down to the one practice you are serious about, and have a good feeling that a particular practice might just be "the one", well, right about now would be a good time to man-up to it. Buy a ring, and introduce it to your parents. You need to put together a “transition team”. This will probably cost you a pretty penny upfront, but will potentially save you thousands of precious dollars over your initial few years at your new practice. I would not do it any other way actually. Do NOT proceed any further, without seeking some expert counsel.


From this point on you need to recognize that your judgment will most likely become impaired, and will become skewed based on your desire for this practice, your desire to not loose this practice, the strong urge to become your own boss and bail on your associateship. It gets exciting, and when that happens, we tend to do dumb things, exhibit poor judgment and overlook pretty glaring warnings, which may send otherwise sane people running for the hills. Get everything evaluated objectively, by your team of dental experts. If all checks out, then and only then, do you know you are OK.




Develop your transition team of experts, prior to placing any potentially DUMB and COSTLY offers (CPA, lawyer, broker, lease/real estate consultant)



Dental CPA (not just any CPA) – must review the practice numbers, independently appraise the practice, and confirm that the existing value matches the asking/offer price. This can not be overstated. You might save a good $10k - $50k right there. This is also a good time to determine if there is any number-fudging going on in this practice. A potential red flag.


Dental practice attorney – should provide input on placing an initial offer on this particular practice, provide legal counsel and review the initial purchase agreement, draft and submit incorporation documents, aid in compiling your transition paper work, and much much more.


Dental practice consultant – performs and audit of the practice documents, scrutinize charts and offer an objective assessment on the current condition of the practice.


Real estate / leasing consultant – in case you are leasing space for your office, need to re-negotiate the terms of the property lease and/or establish new terms for your practice. Your business and livelihood depends on it.


.
 
.

Can I afford this practice?



At this stage, you probably want to go out and shop for banks, hopefully even get a pre-qualification if you're really serious. This will likely make you a more attractive buyer, and should get the ball rolling on your loan process. Obviously, you need to ask around, shop rates, terms and all that good stuff, just as you would financing a car, house, ...


Banks will generally ask for:


From the Business (in the case of an existing practice acquisition):


  • Cash flow analysis
  • Profit and loss statements (gross, net, overhead, write-offs, ...)
  • Last 3 years business tax returns
  • Recent practice appraisal
  • Copy of rental lease (if applicable)


From you (personal):

  • Credit report (credit score, credit worthiness)
  • Last 2 years proof of income/tax returns
  • Last 2 years worth of production reports (important to know how much dentistry you can produce)
  • Assets, liabilities, investments
  • How much cash and/or savings you have to your name (shows financial responsibility, restraint).

.
 
Great info. Keep it up! :thumbup:
 
You must log in or register to reply here.
Next unread thread

Similar threads

Cold Front
USC FIRST YEAR Cost of Attendance $173k 2023-2024
2
Replies
65
Views
3K
charlestweed
charlestweed
A
Waxing first year?
Replies
1
Views
632
Undecided__
U
J
Incoming dental student first loupe fittings
Replies
15
Views
3K
stealyoface
stealyoface
Cold Front
USC First YR Cost of Attendance $168k 2023-2024
Replies
19
Views
3K
Cold Front
Cold Front
hheir8
Are 5.7x loupes too high for first pair
Replies
13
Views
2K
SilkyJ
S
Top