Let's Buy a Dental Practice

[kdawg]

I LOVED TEACHING. I have to say that the best thing to happen to me in 2010 was getting to know the Midwestern class of 2012. I don't know if it was just them or if all dental students are a lot cooler than when I was in school but I really really enjoyed teaching them

Could use some denture advice right about now.

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[lotexigeus]

Give Barry Owens a big wet kiss from the Hammer

And believe it or not some of the best advice I got in dental school was from Mark Patters

yeah that is hard to believe.

 

[Thaxil]

I'm probably fast forwarding this thread but how did you know that you were ready to buy a practice after 2 years out of school?

I did not need much to convince me to buy immediately out of dental school. I attended one post dental school career presentation by the ADA. The presenter was so bias toward buy-out over associatship. For me his logic made since and I was tried of being supervised for everything. Dental school clinic drove me nuts: May I anesthetize my patient, please check my cavity prep, and please sign my notes . . . Also, the best way to gain experience running a practice is to actually do it. I doubt there is any dentist that is willing to stay after 5pm to show you the ropes. I did a quick phase in over 6 weeks at which point it was all me. Even with the agreement to buy the practice, there former owner try to take the high production; I can see how it would be if I was just an employee. It was a good decision, I made good money from day one.

 

[Full Mouth EXT]

i am having this offer as a rookie dentist. Should I take this or not.

$600 guarantee/day
28% of collection
No lab fee.
medical insurance provided.
Mal practice paid.
working with EFDA( people who does filling after dentist do prep)
mostly medicaid patient pool.

what other rookie dentist are offered? if you don't mind sharing.

 

[bioshawn]

I've got this offer. (i'm 1 year out)

No guarantee/day
Hired as an Employee
30% of production
No lab fee
50% of basic health insurance paid
Mostly Fee for service, only take one insurance plan
Option to buy-in (49%) after 6 months but no later than 1 year.

What do you think?

 

[OceanDMD]

I've got this offer. (i'm 1 year out)

No guarantee/day
Hired as an Employee
30% of production
No lab fee
50% of basic health insurance paid
Mostly Fee for service, only take one insurance plan
Option to buy-in (49%) after 6 months but no later than 1 year.

What do you think?

Why would you buy 49% and not 50%?

 

[DMD 4 Me]

working with EFDA( people who does filling after dentist do prep)
mostly medicaid patient pool.

I don't like that

Why would you buy 49% and not 50%?

+1

 

[noles]

great thread hammer, thanks. any books you can recommend on interviewing?

 

[Innulja]

I just want to say thank you to all of you who are contributing to this thread.
Dr. Hammer good luck with the new practice, I'm sure you will do great!!!

 

[BrainsOut]

1st, I'd like to chip in my recommendation for reading: HBR.
It won't give you straight answers (however you might stumble across some) but instead it will provide plenty of stimulating material. You might think it being non-dental will decrease its value, but what think is, it helps to get out of dental-box.
Hammer, I was going to go into a corporate career - IB/MBA/PE/CEO etc, but decided to do dentistry and felt like I my balls atrophied since dental school started. It feels great to see people with similar attitude and naming the same concepts I had in mind when choosing this career path.
With my confidence up, there are a few questions remaining.
1. How do you assess the strength of your competition, or alternatively, demand for your future services? I think it’s simple to find out the range or quality of neighboring dental offices, but what interests me is how you can tell whether there will be enough people willing to become your patients, esp. in an area with high density of population (there more factors in such case).
2. I've recently shadowed a cosmetic dentist, he was highly skilled, but his work was very time consuming (esp. composite restorations in the anterior region) and as a result his earnings/hour were below what he would have earned doing regular fillings. I feel he didn't charge his pts adequately because such quality of work is rare and pts would be surprised by what I feel he should ask.
So my question is, if one is providing services of exceptionally high quality, how far can you increase your prices above market average and do it safely - without coming across as greedy? My assumption is you should start from the average and increase your fees every time your waiting list grows beyond a certain level. But is there a point where you should stop, barring adding hours, yours or of your associates? Is it acceptable/ethical to make such services the final position in a treatment plan and charge extra or is it better to spread it across the bill?
I'll admit the topic of 'vision' is too rarely touched upon, but for the same reason this could easily hijack the post.
I encourage everyone to give their thoughts.
English isn't my 1st language, if anyone was wondering (though I’m going to practice in the UK, starting 2011, or 2012)

 

[bioshawn]

Why would you buy 49% and not 50%?

He wants to have 51%, so he is still the boss.

 

[The Hammer]

Could use some denture advice right about now.

check your PM box

 

[The Hammer]

i am having this offer as a rookie dentist. Should I take this or not.

$600 guarantee/day
28% of collection
No lab fee.
medical insurance provided.
Mal practice paid.
working with EFDA( people who does filling after dentist do prep)
mostly medicaid patient pool.

what other rookie dentist are offered? if you don't mind sharing.

If you have better options I'd consider them first. 28% of collection is low and for medicaid it is next to nothing. If they have you working with EFDA they are going to work you like a dog. Too much hassle for too little money IMHO

 

[The Hammer]

I've got this offer. (i'm 1 year out)

No guarantee/day
Hired as an Employee
30% of production
No lab fee
50% of basic health insurance paid
Mostly Fee for service, only take one insurance plan
Option to buy-in (49%) after 6 months but no later than 1 year.

What do you think?

30% of production with no lab is pretty good. A buy in of 49% is troublesome for several reasons
1. You are really just an associate but you have had to pay for the privilege. That is totally BS. If you pay the note you steer the boat.
2. It sounds like the senior dentist isn't willing or able to turn control of the practice over to someone else.

More than likely here's what will happen. You buy in and suddenly find that the senior dentist is getting all the cream and you are getting all the crap. You go to the senior doc to complain and he basically says "tough Dr. 49%" you have already invested your money so your options are to either try to sell your 49% (good luck with that) or just leave and kiss your hard earned dough goodbye.

This doc is wanting you to take all the responsibility and have none of the perks. I personally would tell him to suck on it and bail but thats how I roll

 

[The Hammer]

great thread hammer, thanks. any books you can recommend on interviewing?

Let me look into that for you and I'll get back to you

 

[The Hammer]

1st, I'd like to chip in my recommendation for reading: HBR.
It won't give you straight answers (however you might stumble across some) but instead it will provide plenty of stimulating material. You might think it being non-dental will decrease its value, but what think is, it helps to get out of dental-box.
Hammer, I was going to go into a corporate career - IB/MBA/PE/CEO etc, but decided to do dentistry and felt like I my balls atrophied since dental school started. It feels great to see people with similar attitude and naming the same concepts I had in mind when choosing this career path.
With my confidence up, there are a few questions remaining.
1. How do you assess the strength of your competition, or alternatively, demand for your future services? I think it’s simple to find out the range or quality of neighboring dental offices, but what interests me is how you can tell whether there will be enough people willing to become your patients, esp. in an area with high density of population (there more factors in such case).
2. I've recently shadowed a cosmetic dentist, he was highly skilled, but his work was very time consuming (esp. composite restorations in the anterior region) and as a result his earnings/hour were below what he would have earned doing regular fillings. I feel he didn't charge his pts adequately because such quality of work is rare and pts would be surprised by what I feel he should ask.
So my question is, if one is providing services of exceptionally high quality, how far can you increase your prices above market average and do it safely - without coming across as greedy? My assumption is you should start from the average and increase your fees every time your waiting list grows beyond a certain level. But is there a point where you should stop, barring adding hours, yours or of your associates? Is it acceptable/ethical to make such services the final position in a treatment plan and charge extra or is it better to spread it across the bill?
I'll admit the topic of 'vision' is too rarely touched upon, but for the same reason this could easily hijack the post.
I encourage everyone to give their thoughts.
English isn't my 1st language, if anyone was wondering (though I’m going to practice in the UK, starting 2011, or 2012)

1. Yes your balls did shrink. It's OK everyone's do in dental school. Dental school is one of the great humblers of all time. You are making your brain learn things that have nothing to do with anything that you have previously learned in school. You are making your hands do things that they have never had to do before. And you are expected to do it like an expert on a live patient after 2 years of instruction. If your balls didn't shrink you would be a dangerous idiot and I wouldn't want to be your malpractice carrier. Don't worry, they will grow back bigger and badder than you ever thought they would.

2. There are four things I recommend you find out before you buy a practice in any area anywhere.

a. What is the population and what is the median income
b. How many dentists are there
c. What are the local industries
d. How old are the other dentists?

The last one is the most important. I don't know about the UK but in the USA the vast majority of dentists out there are very close to retirement age. In the area that I am buying a practice I am the youngest dentist (I'm 44) by about 10 years. That is good news for me but even better news for you new grads.

I predict that in the next 10 years when the economy rebounds like it did in the 90's when Clinton was in office you will suddenly see an enormous departure of dentists into retirement. The reason is when the government tried to "correct" the perceived dentist shortage in the 70's suddenly there was a glut of dentists who graduated between 1976-1984. Well all of those guys are going to retire when the grass gets a little greener and you new grads are going to be up to your elbows in their patients.

3. You must always charge for your time. If you are doing high end dentistry you should be taking more time to do it thus you should be charging more for your work. I started making small increases in my fees on certain procedures (composites, crowns, dentures) but I kept my hygiene fees close to what was being charged in the area.

As my skill increased, so did my fees but I had being giving exceptional service to my patients for 8 years and I still charged within the range of fees for the area.

Once I had built up a really good reputation as a really good dentist who stood behind his work, then I was able to increase my fees to a point where I felt I was being fairly compensated. When I finally was really just doing all fixed or implant supported prosth I had by far the highest fees in the area but I could deliver the goods. The patients that I was seeing needed more than just a crown or composite so they knew that they need major work and they already were expecting the major price tag.

 

[DMD 4 Me]

This doc is wanting you to take all the responsibility and have none of the perks. I personally would tell him to suck on it and bail but thats how I roll

That's how I felt when I read that. Well said.

 

[The Hammer]

That's how I felt when I read that. Well said.

Keep the toothpimpin' hand strong and you'll do fine playa

 

[mouthsculptor]

2. I've recently shadowed a cosmetic dentist, he was highly skilled, but his work was very time consuming (esp. composite restorations in the anterior region) and as a result his earnings/hour were below what he would have earned doing regular fillings. I feel he didn't charge his pts adequately because such quality of work is rare and pts would be surprised by what I feel he should ask.
So my question is, if one is providing services of exceptionally high quality, how far can you increase your prices above market average and do it safely - without coming across as greedy? My assumption is you should start from the average and increase your fees every time your waiting list grows beyond a certain level. But is there a point where you should stop, barring adding hours, yours or of your associates? Is it acceptable/ethical to make such services the final position in a treatment plan and charge extra or is it better to spread it across the bill?

A few years ago, I worked as an associate in a fancy smancy office where the owner justified the hike in his fees because:

1) overall, the patients were wealthier (mostly small business owners and professionals)

2)the clinic had high tech instruments like a Cone Beam CT Scan (Galileos) and CEREC. Very few dental offices are equipped with Cone Beam CT Scans so this is especially advantageous when you are doing big implant cases and routinely remove difficult wisdom teeth cases (cases you would normally refer to OMFS) as he did. As he explained to me, access to such imaging would justify a higher cost for treatment planning for full mouth rehab cases involving implants.

3)the owner had followed a lot more C.E than the average dentist - he had a Diplomate status with the I.C.O.I (International Congress of Oral Implantologists), a Fellowship with the American Academy of Cosmetic Dentistry, completed the LVI curriculum, as well as completing extensive C.E in fixed ortho.

Despite these assets, this owner suffered some financial blows. He had to cut his 5 day workweek to 4 days because he didn't have enough patients to fill in a 5 day schedule like he used to. He got too ambitious and expanded his clinic from 4 to 8 operatories just around the period that we experienced the economic crisis. During most of the time I was there, patients flowed in 4 operatories (one for the owner, one for the associate and two for hygienists). On the rare occasion, a 5th operatory was used to handle emergency patients.

One of the assumptions I've made is that he didn't just justify his higher fees because of all his credentials and high-tech toys but also to sort of soften the blow of his stupid business mistake.If he had simply stuck to his original office space, he wouldn't have had some of the struggles he started to face.

All this to say - I see nothing wrong with justifying higher fees if you have a wealthier clientele, have earned a certain amount of CE and have higher tech than the average office. However, I don't believe patients should pay for your business booboos.

 

[mouthsculptor]

For those of you just graduating...you have been warned. Most associateships are associates h i t s and you end up being the ass(ociateship) of the boss. Try to purchase a clinic ASAP.

 

[Tooth]

However, I don't believe patients should pay for your business booboos.

Unfortunately, this is the world we live in. Mistakes happen in business. Don't you think BP will make us pay for their booboo in the Gulf by increasing the cost of crude?

 

[vlct0ria]

For those of you just graduating...you have been warned. Most associateships are associates h i t s and you end up being the ass(ociateship) of the boss. Try to purchase a clinic ASAP.

Man, some of this associateship talk is scaring me! I haven't even started school yet, but I was already going in thinking it might be a good idea to find an associate position for a few (2-3?) years after school... I'd try to continue living frugally while paying off a big chunk of my loans (will be in the 300k range, yikes) and learning some real world dentistry skills...now I'm thinking it might not be worth it, and its better to be more selective and keep my eyes open for a good buy-in option.

BTW, props to Hammer on the thread...I haven't had much reason to check the forums lately, but this one is bookmarked.

 

[The Hammer]

OK it is time to let the rubber meet the road. Let's look at some real practices that I considered buying. I am going to change some things to protect the practice's privacy but for the most part I am going to use real numbers. To keep things simple let's assume that all of the practices I am going to describe have the same overhead (65%) and the same collections (98%). Ready? Let's go.

The Dentist: Me, 44 years old, 17 years in practice, 15 years owning my own practice. Starting in 2005 my last practice did in excess of 1 million. I had an associate and two full time hygienists with an active patient count of 5800-6000. I was open Mon-Thurs 8-5 and every other Friday 8-3.

The Practices:

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)

Practice 2:
Avg Gross: $1,130, 613
Operative: $ 791,429
Hygiene: $ 339,184
Days: Mon-Thurs 7-5
Active Pts: 4000 (Insurance 50%, cash 50%) general dentistry, implant placement and restoration, some ortho
Building: Rent
Equipment: Bought within the past 5 years all up to date digital, computers etc.
Price: $904,000 ($850,000 plus $54,000 working capital)

Practice 3:
Avg Gross: $365,158
Operative: $237,350
Hygiene: $127,808
Days: Mon, Tues, Thurs 8-5, Weds 8-12
Active Pts: 1200 (Insurance 60%, cash 40%) maintance dentistry dentist is 70 and retiring
Building: Rent with option to buy
Equipment: Chairs and delivery units good, no digital, no computers, old x-rays, new pano, everything else old
Price: $289,000 ($239,000 plus $50,000 working captial)

Practice 4:
Avg Gross: $850,000
Operative : $450,000
Hygiene: $400,000
Days: Mon-Fri 7-6
Active Pts: 5500 (40% Insurance, 30% Medicaid, 20% HMO, 10% cash)
Building: Rent
Equipment: Bought in the last 10 years, computers, no digital x-ray
Price:$600,000 ($570,000 plus $30,000 working capital)

Ok lets say that I can get a 7 year loan for the full purchase amount at 7% interest. So which practice would you buy and which one do you think I bought?

 

[3rdMolar]

Great Thread!

I'm a newbie, class of 2014 DDS starting soon.

Fresh out of school I'd buy Practice 1
With your experience, I'd buy Practice 2

A lot of the value in a practice is the opportunity to inherit patients. Practice 2, is making more money with less patients than 4 and not many more than 1. 2's operative gross is high and many are paying in cash. These are good patients to inherit!

1 looks like it has opportunity to grow and has a better price tag to take to a bank for a fresh out of school DDS (I also like the option to buy the building)

3 is outdated and they've been losing patients with the weak schedule.

4 looks like a bargain, but high patients with a relatively low operative gross in a five day work week. It looks like they're working very hard to make that 850K.

Thanks for the thread Hammer. I'm happy to learn, even if I'm wrong on all counts!

 

[GoldTigerPirate]

Me: #1 because of the hours of operation, freestanding structure, large patient pool, technology, and endo.

My guess at your choice: #3 due to the 4 day work week, freedom to update technology how you see fit, smaller patient pool (as an accomplished dentist in the area already, patient recovery is a definite positive possibility; so there is room to grow), the hygiene intake isn't far off from #1 (my thought is that patients are at least coming in for preventive dentistry in numbers), and it is a modest investment which has potential to pay great returns.

 

[joyride]

OK it is time to let the rubber meet the road. Let's look at some real practices that I considered buying. I am going to change some things to protect the practice's privacy but for the most part I am going to use real numbers. To keep things simple let's assume that all of the practices I am going to describe have the same overhead (65%) and the same collections (98%). Ready? Let's go.

The Dentist: Me, 44 years old, 17 years in practice, 15 years owning my own practice. Starting in 2005 my last practice did in excess of 1 million. I had an associate and two full time hygienists with an active patient count of 5800-6000. I was open Mon-Thurs 8-5 and every other Friday 8-3.

The Practices:

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)

Practice 2:
Avg Gross: $1,130, 613
Operative: $ 791,429
Hygiene: $ 339,184
Days: Mon-Thurs 7-5
Active Pts: 4000 (Insurance 50%, cash 50%) general dentistry, implant placement and restoration, some ortho
Building: Rent
Equipment: Bought within the past 5 years all up to date digital, computers etc.
Price: $904,000 ($850,000 plus $54,000 working capital)

Practice 3:
Avg Gross: $365,158
Operative: $237,350
Hygiene: $127,808
Days: Mon, Tues, Thurs 8-5, Weds 8-12
Active Pts: 1200 (Insurance 60%, cash 40%) maintance dentistry dentist is 70 and retiring
Building: Rent with option to buy
Equipment: Chairs and delivery units good, no digital, no computers, old x-rays, new pano, everything else old
Price: $289,000 ($239,000 plus $50,000 working captial)

Practice 4:
Avg Gross: $850,000
Operative : $450,000
Hygiene: $400,000
Days: Mon-Fri 7-6
Active Pts: 5500 (40% Insurance, 30% Medicaid, 20% HMO, 10% cash)
Building: Rent
Equipment: Bought in the last 10 years, computers, no digital x-ray
Price:$600,000 ($570,000 plus $30,000 working capital)

Ok lets say that I can get a 7 year loan for the full purchase amount at 7% interest. So which practice would you buy and which one do you think I bought?

Assuming working capital = downpayment, what do you do if you don't have any working capital? Will the banks approve you for a smaller loan or can a recent grad just get whatever loan/practice you want?

 

[The Hammer]

Assuming working capital = downpayment, what do you do if you don't have any working capital? Will the banks approve you for a smaller loan or can a recent grad just get whatever loan/practice you want?

Working capital is money to keep the practice running until you start making money. Since most dental offices accept insurance there is a 30-60 day lag until they start paying you so you need money to run the practice until then.

Do not ever buy a practice's accounts receivable. Accounts receivable is the money that has not been collected yet. When you buy a practice do not buy them, make it the seller's responsibility to collect it and give them a definite cut-off date for when you will no longer accept payment for their accounts receivable at your office.

After we discuss which practice I bought and why I am going to go over going to the bank and getting a loan.

 

[219122]

Me: #1 because of the hours of operation, freestanding structure, large patient pool, technology, and endo.

My guess at your choice: #3 due to the 4 day work week, freedom to update technology how you see fit, smaller patient pool (as an accomplished dentist in the area already, patient recovery is a definite positive possibility; so there is room to grow), the hygiene intake isn't far off from #1 (my thought is that patients are at least coming in for preventive dentistry in numbers), and it is a modest investment which has potential to pay great returns.

Ditto to this, with the added note that since #3 is doing a similar amt of hygiene as number one yet has such a light schedule you can focus on improving the operative side as well as increase hours as you see fit, upgrade equipment etc. etc. As an experienced practice owner you'd probably be able to turn this practice around in a very short time and up that gross significantly. Great thread

ETA: option to buy the building is nice as well so that you are not beholden to a landlord/company

 

[bioshawn]

I'd buy #3

 

[Tooth]

OK it is time to let the rubber meet the road. Let's look at some real practices that I considered buying. I am going to change some things to protect the practice's privacy but for the most part I am going to use real numbers. To keep things simple let's assume that all of the practices I am going to describe have the same overhead (65%) and the same collections (98%). Ready? Let's go.

The Dentist: Me, 44 years old, 17 years in practice, 15 years owning my own practice. Starting in 2005 my last practice did in excess of 1 million. I had an associate and two full time hygienists with an active patient count of 5800-6000. I was open Mon-Thurs 8-5 and every other Friday 8-3.

The Practices:

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)

Practice 2:
Avg Gross: $1,130, 613
Operative: $ 791,429
Hygiene: $ 339,184
Days: Mon-Thurs 7-5
Active Pts: 4000 (Insurance 50%, cash 50%) general dentistry, implant placement and restoration, some ortho
Building: Rent
Equipment: Bought within the past 5 years all up to date digital, computers etc.
Price: $904,000 ($850,000 plus $54,000 working capital)

Practice 3:
Avg Gross: $365,158
Operative: $237,350
Hygiene: $127,808
Days: Mon, Tues, Thurs 8-5, Weds 8-12
Active Pts: 1200 (Insurance 60%, cash 40%) maintance dentistry dentist is 70 and retiring
Building: Rent with option to buy
Equipment: Chairs and delivery units good, no digital, no computers, old x-rays, new pano, everything else old
Price: $289,000 ($239,000 plus $50,000 working captial)

Practice 4:
Avg Gross: $850,000
Operative : $450,000
Hygiene: $400,000
Days: Mon-Fri 7-6
Active Pts: 5500 (40% Insurance, 30% Medicaid, 20% HMO, 10% cash)
Building: Rent
Equipment: Bought in the last 10 years, computers, no digital x-ray
Price:$600,000 ($570,000 plus $30,000 working capital)

Ok lets say that I can get a 7 year loan for the full purchase amount at 7% interest. So which practice would you buy and which one do you think I bought?

I'd buy #2 if they'd lower the price about $125. It's the best choice, but overpriced. My excuse would be that they're renting with no option to buy and standard sales are around 65% of gross not 75%. If they won't budge, I'd go with #1. Standard price, just need to crack a whip in the hygiene dept.

I'm guessing you went with #1.

 

[DMD 4 Me]

OK it is time to let the rubber meet the road. Let's look at some real practices that I considered buying. I am going to change some things to protect the practice's privacy but for the most part I am going to use real numbers. To keep things simple let's assume that all of the practices I am going to describe have the same overhead (65%) and the same collections (98%). Ready? Let's go.

The Dentist: Me, 44 years old, 17 years in practice, 15 years owning my own practice. Starting in 2005 my last practice did in excess of 1 million. I had an associate and two full time hygienists with an active patient count of 5800-6000. I was open Mon-Thurs 8-5 and every other Friday 8-3.

The Practices:

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)

Practice 2:
Avg Gross: $1,130, 613
Operative: $ 791,429
Hygiene: $ 339,184
Days: Mon-Thurs 7-5
Active Pts: 4000 (Insurance 50%, cash 50%) general dentistry, implant placement and restoration, some ortho
Building: Rent
Equipment: Bought within the past 5 years all up to date digital, computers etc.
Price: $904,000 ($850,000 plus $54,000 working capital)

Practice 3:
Avg Gross: $365,158
Operative: $237,350
Hygiene: $127,808
Days: Mon, Tues, Thurs 8-5, Weds 8-12
Active Pts: 1200 (Insurance 60%, cash 40%) maintance dentistry dentist is 70 and retiring
Building: Rent with option to buy
Equipment: Chairs and delivery units good, no digital, no computers, old x-rays, new pano, everything else old
Price: $289,000 ($239,000 plus $50,000 working captial)

Practice 4:
Avg Gross: $850,000
Operative : $450,000
Hygiene: $400,000
Days: Mon-Fri 7-6
Active Pts: 5500 (40% Insurance, 30% Medicaid, 20% HMO, 10% cash)
Building: Rent
Equipment: Bought in the last 10 years, computers, no digital x-ray
Price:$600,000 ($570,000 plus $30,000 working capital)

Ok lets say that I can get a 7 year loan for the full purchase amount at 7% interest. So which practice would you buy and which one do you think I bought?

I am no expert on practices but here's my take

Practice 1 has potential. It is priced reasonably and there is an option to buy the building, which is good for retirement.

The only downside to practice 2 is no option to buy the building...

Practice 3 sounds like it isn't growing, and you would have to recruit alot of patients to build up production.

I don't like the 50% medicaid/HMO on practice 4

I'd bet you went with practice 1

 

[The Hammer]

I'm going to let this go one more day to let everyone get back from the holiday before I talk about each one of these practices. Great comments so far

 

[Oracle DMD]

OK it is time to let the rubber meet the road. Let's look at some real practices that I considered buying. I am going to change some things to protect the practice's privacy but for the most part I am going to use real numbers. To keep things simple let's assume that all of the practices I am going to describe have the same overhead (65%) and the same collections (98%). Ready? Let's go.

The Dentist: Me, 44 years old, 17 years in practice, 15 years owning my own practice. Starting in 2005 my last practice did in excess of 1 million. I had an associate and two full time hygienists with an active patient count of 5800-6000. I was open Mon-Thurs 8-5 and every other Friday 8-3.

The Practices:

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)

Practice 2:
Avg Gross: $1,130, 613
Operative: $ 791,429
Hygiene: $ 339,184
Days: Mon-Thurs 7-5
Active Pts: 4000 (Insurance 50%, cash 50%) general dentistry, implant placement and restoration, some ortho
Building: Rent
Equipment: Bought within the past 5 years all up to date digital, computers etc.
Price: $904,000 ($850,000 plus $54,000 working capital)

Practice 3:
Avg Gross: $365,158
Operative: $237,350
Hygiene: $127,808
Days: Mon, Tues, Thurs 8-5, Weds 8-12
Active Pts: 1200 (Insurance 60%, cash 40%) maintance dentistry dentist is 70 and retiring
Building: Rent with option to buy
Equipment: Chairs and delivery units good, no digital, no computers, old x-rays, new pano, everything else old
Price: $289,000 ($239,000 plus $50,000 working captial)

Practice 4:
Avg Gross: $850,000
Operative : $450,000
Hygiene: $400,000
Days: Mon-Fri 7-6
Active Pts: 5500 (40% Insurance, 30% Medicaid, 20% HMO, 10% cash)
Building: Rent
Equipment: Bought in the last 10 years, computers, no digital x-ray
Price:$600,000 ($570,000 plus $30,000 working capital)

Ok lets say that I can get a 7 year loan for the full purchase amount at 7% interest. So which practice would you buy and which one do you think I bought?

i would say you're going w/ #3. when i hear 70 years old, and "maintance" dentistry and ready to retire, i'm thinking that there's a ton of undiagnosed or underdiagnosed work which= big bucks. also at 70, i would imagine that this practice is very well established. no bells and whistles, but if you're gonna have a vision, you'll want it to be your own, and the hammer likes his suits tailored, so im sure he might almost rather pick his own, than buy off the rack...savvy? also, 40% FFS sounds great. the low purchase price means more money to buy the building. as long as the units are in good shape like you say they are, the bells and whistles can wait. also, i imagine his overhead was pretty low, becasue 70yr old dentists are old school. (i know you said to assume the overhead was all the same, but maybe not all overhead is created equal...you digg?!) also, the number of patients can be decieving, more patients doesn't always mean more production/more money. i know of practices with lots of patients that produce far less than other practices with less, the difference is management.


Sidenote: i read the managing people book, it was as advertized; awesome. cheers!

 

[Guy Smiley]

I vote for practice number 1. Lots of room to improve, but stuff is still reasonably new.

 

[DrReo]

Did you assess the practice's overhead? And what percent did they run?

 

[DrReese]

I tried calculating everything out how much money is left over after loan payment and overhead (about .65), and it looks like option # 4 has the best salary...but this is the practice with longer hours and accepts medicaid....i dont know...#3 seems like a headache starting out from dental school...you would have to recruit more patients and put money into technology updates as well as the loan payment. Right out of school a million dollar loan (#2) seems like much...but this one had a nice income as well... I would choose option 1 right out of school or number four if I was willing to work the hours.

 

[The Hammer]

Did you assess the practice's overhead? And what percent did they run?

For ease I just said that they had all the same overhead at 65%. They obviously don't but there are more important lessons to learn about these offices before we dive into that.

 

[OceanDMD]

Practice #1, with the hygiene production versus number of active patients, something lacking in recall or patient retention. Probably could boost the hygiene department at least 100k with better practice administration and policy. The hygiene cookie is that juicy passive income.

Practice #2s asking price is too high if you look at the price versus production. Implant dentistry could be a good chunk of the high production in this practice.

Practice #3 could be the "diamond in the rough", but I would be concerned about patient retention, and selling treatment if you come in too aggressive. These patients could be used to "patch/absolute need" dentistry rather than want dentistry.

Practice #4 - I would stay away from managed care, HMOs, medicaid, etc..



Personally I like the price and intangibles of practice #1. Id certainly try to phase out some of the poor compensating PPO's, and I really like the hygiene potential. The practice could be ripe with implants, Endo revenue, etc.. with the number of active patients.

 

[The Hammer]

Great posts! I will start going over each practice tomorrow telling what I think is good and not so good about each one. One thing I want to make clear is there aren't really any wrong answers so don't feel like if you post your opinions about the practices that you'll look like an idiot. What practice is "right" really depends on the dentist who is looking to buy it. What might be "right" for me might be totally wrong for someone else.

But there are certain things that you need to know to look at when you are evaluating whether or not the practice you are looking at is worth the money that they are asking for it and whether or not it will perform like you need it to.

More to come......

 

[8 SNAKE]

#3 seems to offer a lot of potential and a few challenges. Based on your description of the dentist and the fact that 40% of collections are paid in cash, I'd bet that you're dealing with an older patient pool. There's probably a lot of opportunity in those mouths, but I suspect that you'd have a tough time changing their habits as the young gun (44 to them is a kid) taking over their buddy Fred's practice. Am I close?

You didn't mention anything about demographics in these scenarios, but I suspect that is because you're focusing on other lessons?

When time permits, I'd love for you to delve into selecting potential locations. Not so much within a defined area, but more in regard to selecting areas on a broad scope before drilling down to a specific street corner. Just for fun, lets say you're a newly minted DDS with the ability to live anywhere in the US. Pretend that you're interested in rural/semi-rural settings and want to avoid Medicaid as much as humanly possible. Go...

 

[iwannabadentist]

unlike everyone else, i'd probably go with #4. hire a part time associate on a fixed salary basis and squeeze in all the all the medicaid/hmo patients for the associate. since its a fixed salary, the associate won't care how much he/she "produces," which means its the office's responsibility to keep him busy at all times. also, make the associate work the ungodly early morning hours (7-11 or 7-12). i'd even open up every other saturday, probably 9-6 or something, and make 2 hygienists and the associate work on Saturday. Also, EVENTUALLY, based on how many operateries you have, i'd think about getting part time in-house endo/perio/ortho based on patient supply and make them work in the hours the associate isn't working, so as to make full use of all your operatories. oh and sometime in between getting settled in with an associate and bringing in in-house specialists, i'd think about going digital

 

[nextuszerodmd]

unlike everyone else, i'd probably go with #4. hire a part time associate on a fixed salary basis and squeeze in all the all the medicaid/hmo patients for the associate. since its a fixed salary, the associate won't care how much he/she "produces," which means its the office's responsibility to keep him busy at all times. also, make the associate work the ungodly early morning hours (7-11 or 7-12). i'd even open up every other saturday, probably 9-6 or something, and make 2 hygienists and the associate work on Saturday. Also, EVENTUALLY, based on how many operateries you have, i'd think about getting part time in-house endo/perio/ortho based on patient supply and make them work in the hours the associate isn't working, so as to make full use of all your operatories. oh and sometime in between getting settled in with an associate and bringing in in-house specialists, i'd think about going digital

i would also choose #4

1) hygiene makes up 52% of the practice. i heard on average, hygiene should be around 32%. so you have untapped dentistry there. you can probably grow this practice into a $1-1.4 million dollar production practice
2) what the guy said in his quote that i quoted. (hire an associate base on a fixed salary with incentives for production + you)
3) plus technically it's the cheapest practice ~70% gross production price which is pretty good.

in the end balling....

 

[OceanDMD]

unlike everyone else, i'd probably go with #4. hire a part time associate on a fixed salary basis and squeeze in all the all the medicaid/hmo patients for the associate. since its a fixed salary, the associate won't care how much he/she "produces," which means its the office's responsibility to keep him busy at all times. also, make the associate work the ungodly early morning hours (7-11 or 7-12). i'd even open up every other saturday, probably 9-6 or something, and make 2 hygienists and the associate work on Saturday. Also, EVENTUALLY, based on how many operateries you have, i'd think about getting part time in-house endo/perio/ortho based on patient supply and make them work in the hours the associate isn't working, so as to make full use of all your operatories. oh and sometime in between getting settled in with an associate and bringing in in-house specialists, i'd think about going digital

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.

 

[Oracle DMD]

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.

 

[The Hammer]

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.

+10000. I really think it is ironic to see dental students already thinking about *******ing over some other new grad before they have even graduated. I wonder if these guys will be posting on SDN in a couple of years bemoaning how dentists looking for associates are just wanting to screw them and make them do the s h i t work.

 

[The Hammer]

OK here is a clue about the practices. When I was deciding which ones to post I gave them all names: The Sure Thing, The Goldmine, The Shiny Trap and the Cadillac. I'll let you try to figure out which is which and then later today I'll start with practice #1

 

[The Hammer]

#3 seems to offer a lot of potential and a few challenges. Based on your description of the dentist and the fact that 40% of collections are paid in cash, I'd bet that you're dealing with an older patient pool. There's probably a lot of opportunity in those mouths, but I suspect that you'd have a tough time changing their habits as the young gun (44 to them is a kid) taking over their buddy Fred's practice. Am I close?

You didn't mention anything about demographics in these scenarios, but I suspect that is because you're focusing on other lessons?

When time permits, I'd love for you to delve into selecting potential locations. Not so much within a defined area, but more in regard to selecting areas on a broad scope before drilling down to a specific street corner. Just for fun, lets say you're a newly minted DDS with the ability to live anywhere in the US. Pretend that you're interested in rural/semi-rural settings and want to avoid Medicaid as much as humanly possible. Go...

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.

 

[puncho]

Great info so far!

I've also heard blue collar workers are more consistent with their payment and pay in cash more. Has this been true in your experience, hammer?

I'd say you went with #1. Just because you've been in practice for awhile so you know the business side as well. You want a practice that is ready to go, and #3 doesn't fit the bill. There's a lot of room for you to grow in doing more endo and implementing ortho among other things.

If I were new, I'd think about #3 more. Maintenance dentistry implies there's a lot of room to grow. You can do what you're comfortable with while growing the practice and ease into a transition and getting to know the patients. You said the chairs are solid and the pano is new. You can slowly upgrade things as you see fit, since as a new dentist you probably don't want all the bells and whistles since it'll cost ya.

 

[The Hammer]

Great info so far!

I've also heard blue collar workers are more consistent with their payment and pay in cash more. Has this been true in your experience, hammer?
.

Yep. My biggest cases were all guys who owned their own businesses usually construction or auto repair and they paid half up front in cash. Anytime this happened I went out and bought myself a "toy" to celebrate.

 

[Oracle DMD]

OK here is a clue about the practices. When I was deciding which ones to post I gave them all names: The Sure Thing, The Goldmine, The Shiny Trap and the Cadillac. I'll let you try to figure out which is which and then later today I'll start with practice #1

my predictions:

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