As a buyer’s representative working with dentists who want to purchase or buy into a dental practice, I’m amazed at the information the buying dentists use to make their decisions. They don’t always gather the best information, nor do they always understand what the information
This is one of the most important career decisions most dentists will ever make. I encourage them to examine all aspects of the proposed transaction. Do they like the dentist they are purchasing the practice from or will be working with? Is the location desirable? Does the office and equipment meet their needs? If everything looks good at this point, I advise them to collect more information.
One of the most important statistics to find out is the number of active patients. The definition of an active patient is not standard among dental practice appraisers. I consider an active patient one that has been in the office at least once during the past 18 months. Most computer systems cannot generate an accurate number of active patients. I recommend taking an actual count of all files. For a buy-in, at least 2,000 active patients are required if both doctors want to maximize their productivity. It would be helpful to know how many of the active patients are fee-for-service or indemnity insurance, and how many are in a managed care program. The next statistic to examine is the number of new patients each month. An average size practice should generate 20 new patients per month. These are people that go through hygiene rather than emergency patients. An average dental practice loses about 12% of its patients each year through normal attrition.
In studies I’ve done, I’ve determined that in the Midwest the average dental patient spends $587 per year on dental care. Knowing the number of active patients in the practice helps determine the number of new patients needed to ensure that the practice continues to grow. If the practice gains 20 new patients a month, a realistic annual production amount can be predicted. If the practice you are evaluating produces more per patient than $587, this indicates that few patients are referred to specialists. It is also possible that much of the needed dentistry in the practice has already been done. Of course, if it produces less than the average the opposite is likely.
If the practice you’re considering for a buy-in has less than 2,000 active patients, you may need other employment to supplement your income until the patient census is sufficient to support both doctors. If there are fewer than 2,000 patients, you need to make sure the owner has a well thought out program to generate new patients. It is also helpful to create a well-defined plan to increase production to a two-doctor level. If these are not in place, move with caution. Over half of the phone calls I get are from dentists eager to leave a less-than-desirable association.
A recent project helps make my point. Computer reports and a chart audit verified that many patients were in managed care programs. Additionally, the office had averaged only six new patients per month for the past several years. The patient base was obviously eroding. The practice was losing through normal attrition more patients than it was gaining. The computer reports verified this, as did the number of patients seen per month in the recall program. There were other practice management issues, but they were not major problems in the eyes of the buyer.
A strategy was outlined as to what the buyer needed to do to make the proposed purchase work for him. An appropriate price for the practice was negotiated and the buyer followed the above recommendations. The result — he is doing well. On completion of the sale, the buyer commented, “I almost paid too much. Having a buyer’s representative saved me a lot of money and helped me understand what I had to do to make the purchase of the practice work for me.”
Tom Smeed is the owner of Healthcare Practice Management and a founding member and past president of American Dental Sales (ADS).
Tags: buyer representation